The EU’s neighbouring economies: coping with new challenges

The paper reviews recent economic developments in the countries neighbouring the EU

The period since the global financial crisis has been characterised by divergent economic experiences within the EU neighbourhood. Most of the Eastern neighbours, having been hit hard by the crisis, have since embarked on a recovery that has gradually solidified over the past 18 months or so. Macroeconomic, financial and balance-of-payments vulnerabilities have been reduced, often supported by external assistance from institutions such as the International Monetary Fund (IMF) and the EU. Meanwhile, the recent experience in the Mediterranean neighbourhood has been overshadowed by the region’s recent political upheaval in the context of the Arab Spring. Alongside the obvious political challenges, the popular unrest has also brought many economic policy issues to the fore. The paper describes the recent economic developments in the EU's neighbours both at a regional level and in a country-by-country analysis. It also includes two thematic chapters – the first one discusses the main economic factors underlying the ongoing social and political unrest in parts of the Southern Mediterranean, while the second one examines trends in exchange rate policy and competitiveness in the two neighbourhood regions, identifying some patterns and policy issues.