Convergence has gotten lots of mileage as an investment theme over the past decade. Investors began by loading up on Spanish and Italian bonds, betting correctly that interest rates would tumble as the countries moved closer to adopting the euro, then moved on to Greece and new European Union members like Poland and Hungary. The convergence play has been so successful that investors today treat Turkey almost as if it were an EU member, a decade before its earliest possible entry date.
Nothing about the convergence process is guaranteed, though. It takes a great deal of political will and economic reform to win the same rating from financial markets as Europe’s biggest economies. This month we look at two countries that are eager to pass the test.
In Ukraine, Viktor Yushchenko has set his sights firmly on EU membership after persevering to win the presidency in the face of ballot-rigging and an attempted assassination by poison. As Contributor Craig Mellow points out in “The Orange Evolution,” starting on page 64, Yushchenko’s courageous and historic triumph has won him strong backing from the EU and the U.S.
Yushchenko’s government also has made a strong start by closing a raft of tax loopholes to plug a gaping budget deficit. The biggest test, though, will be how he deals with the powerful business tycoons who grabbed many of the country’s assets during the administration of his predecessor, Leonid Kuchma.
Yushchenko campaigned against the alleged corruption of the Kuchma regime and has promised to reopen suspect privatizations. If he can do so while respecting the rule of law and maintaining business confidence, he will have taken a big step toward fulfilling his EU ambition.
Economically, Croatia is much further ahead than Ukraine. In “A Balkan Rebirth,” starting on page 77, Contributing Editor Jonathan Kandell notes that the country boasts the same standard of living as Poland and has attracted a wave of foreign investment to its banking industry. The EU has put Croatia’s membership bid on hold, however, because of Zagreb’s failure to hand over to a United Nations tribunal a general indicted for war crimes committed during the Yugoslav civil war. Croatia’s leaders need to summon the political will to resolve the war’s painful legacy. They could do worse than look to Ukraine for inspiration.
