EU new member countries: public sector accounts and convergence criteria

First some general problems concerning the definition and measurement of deficits and public debt are discussed. The rationality of the two Maastricht targets for public finance are also critically analyzed. The economies of six NMCs are then considered, from 2003 onwards. All of them experienced a high and steady rate of growth, but also a relatively high rate of inflation, accelerating after 2006. In spite of a high investment ratio by the public sector, national budget deficits were generally low and below the 3% target. Thanks to the rapid expansion of nominal GNP, the public sector debt ratio declined in all countries, with the only exception of Hungary. Moreover most of them have a positive net financial position. We may thus conclude that these countries (except Hungary) have met the convergence criteria for public sector accounts and have followed prudent fiscal policies: the causes for external imbalances and excessive inflation are to be found (with some exception like the Czech Republic) in lax monetary policies and in the large inflow of foreign capital, primarily for direct investment but also on account of bank lending to the private sector.