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EBRD 2016 Annual Meeting: Two Finance Ministers

By Vanora Bennett

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Former finance minister Leszek Balcerowicz of Poland, shared a stage with today’s Italian Economy and Finance Minister Pier Carlo Padoan at the EBRD’s 25th Annual Meeting

Challenges past and present

A conversation at the EBRD's 2016 Annual Meeting and Business Forum between two European finance ministers, one currently in office and the other a leading light during the early days of the transition process, shed light both on the beginning of the post-communist journey and on today’s European debate.

The architect of Poland’s post-communist “shock therapy” in the 1990s, former finance minister Leszek Balcerowicz of Poland, shared a stage with today’s Italian Economy and Finance Minister Pier Carlo Padoan at the EBRD’s London headquarters.

Both have been influential economists and important policy-makers at critical political and economic junctures in European history. They looked at two very different contexts – eastern Europe at the beginnings of the transition process, and the European Union of today, facing a complex, different set of challenges.

The discussion highlighted similarities between the “shock therapy” of the 1990s and the austerity measures advocated after the 2007 crisis, even if the wider context of European policy-making has changed dramatically in the past quarter-century, with the growth of a more diffuse geopolitical uncertainty.

After the fall of the Berlin Wall in 1989, finding ways to reunite the communist and capitalist sides of Europe was the one focus of European policy debate, and Poland – with its willingness for quick, deep reform – came out with a healthier economy than many others.

“More rapid and comprehensive reforms bring about better results than delayed ones,” Mr Balcerowicz said, criticising recommendations from some Western macroeconomists at the time for gradualism as nothing but “delay, delay, delay”.

Today, issues of borders, the movement of migrants and refugees, popular weariness with reform and concern over the future of global economic powers from the European Union to China are among new factors on policy-makers’ minds.

Mr Padoan said that the refugee crisis that Europe currently faces, which prompted several states to bring in emergency border controls last year, is “not a one-off shock, it is a major structural change that is going to be with us for a long time”.

Mr Padoan, who is also Chair of the EBRD Board of Governors, stressed the importance for today of both integration and consensus-building. He spoke of the need “to convince people that what you’re doing to change lives will produce better lives”.

As former academics who came late to politics, both men were highly aware of the need to be persuasive to successfully unite a country behind a demanding policy.

Poland’s former finance and deputy prime minister, Leszek Balcerowicz, now working in an official advisory capacity for Ukraine, comments on the priorities facing the country’s leadership.
He was speaking at the EBRD's 25th Annual Meeting in London.

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As Mr Balcerowicz commented, “language can be very destructive by blocking thinking”. He recalled that the very phrase “shock therapy” had hampered his work at the start of the 1990s “because normal people associated it with electrical shocks and this is not a very pleasant sensation. And populists were using this – shock therapy – and frightening people.”

Fast-forwarding to today’s European debate, Mr Padoan described the perception that “Europe had gone from being seen as part of the solution to part of the problem,” and said he was concerned that “Europe is becoming a bad word”.

He highlighted the current debate over whether Europe’s Schengen agreement on open borders was appropriate for a continent facing an influx of refugees.

“I have said many times that, if Schengen fails, this is going to be much more destructive than a possible crisis of the eurozone,” he said. “This would damage at the root the principles of European integration.”

Mr Balcerowicz, who a generation ago successfully promoted multi-party democracy through a firm, rapid embrace of economic freedom, was last month appointed economics adviser to President Petro Poroshenko of Ukraine.

He was Poland’s Deputy Prime Minister and Finance Minister from 1989 to 1991 – and again from 1997 to 2000. 

Professor Pier Carlo Padoan has brought his extensive academic experience and expertise in economics to international institutions including the OECD, the IMF and the World Bank, and was economic adviser to two Italian prime ministers.

He has been Italy’s Minister of Economy and Finances since 2014 and, in the wake of Greece’s financial crisis, has called for deeper eurozone integration, including swift completion of a banking union and establishment of a common eurozone budget.

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