FISCAL POLICY AND INTERNATIONAL TRADE: AN APPLICATION TO THE EUROPEAN COUNTRIES IN TRANSITION

In this paper we will study the relationship between the government balance and the current account in the scenario of an economic union where fiscal consolidation is constrained by the fiscal discipline required by supranational agreements. For the empirical application we will use data on the Central and Eastern European Countries (CEEC). These former socialist countries experienced a significant growth after their accession to the European Union (EU), which led to a high potential for convergence with their Western EU partners but, sometimes, at the cost of unsustainable external positions. Recently, after the economic crisis, some of them have recovered their external disequilibria, although the fiscal consolidation required for recovery would mean a brake on their process of growth and convergence.