To celebrate its 80th anniversary DIW Berlin organised on 8 and 9 December 2005 a conference centred on two themes. The first dealt with the methods and performance of forecasting. The second discussed scenarios for the future of Europe and its major economies. A selection of the contributions to the conference is presented in this volume. Section 2 is an overview of the papers in this volume. The following sections deal with the history of business cycle studies at DIW Berlin viewed from the wider perspective of the evolution of forecasting. To do that I first describe in Section 3 the historical context for setting up of the institute in 1925. Then I organize the discussion along the lines of the methods and tools of forecasting which I classify into three broad categories. The period 1925 to 1950 was marked by the search for laws of motion and supporting statistical evidence. This was followed by a period stretching from 1950 to 1990s, described in Section 4, during which statistical information was organized around the concepts of national income accounts and input-output tables. Equipped with well-organized statistics the construction of macroeconomic models, first of the national economy and later of the world economy were developed. The third phase picking up momentum in the 1990s, and discussed in Section 5, focussed more and more on the provision of timely data, raw and transformed, as market participants of a globalized economy, in particular financial markets, need on a daily - even hourly - basis information updates on their Bloomberg screens. To celebrate its 80th anniversary DIW Berlin organised on 8 and 9 December 2005 a conference centred on two themes. The first dealt with the methods and performance of forecasting. The second discussed scenarios for the future of Europe and its major economies. A selection of the contributions to the conference is presented in this volume. Section 2 is an overview of the papers in this volume. The following sections deal with the history of business cycle studies at DIW Berlin viewed from the wider perspective of the evolution of forecasting. To do that I first describe in Section 3 the historical context for setting up of the institute in 1925. Then I organize the discussion along the lines of the methods and tools of forecasting which I classify into three broad categories. The period 1925 to 1950 was marked by the search for laws of motion and supporting statistical evidence. This was followed by a period stretching from 1950 to 1990s, described in Section 4, during which statistical information was organized around the concepts of national income accounts and input-output tables. Equipped with well-organized statistics the construction of macroeconomic models, first of the national economy and later of the world economy were developed. The third phase picking up momentum in the 1990s, and discussed in Section 5, focussed more and more on the provision of timely data, raw and transformed, as market participants of a globalized economy, in particular financial markets, need on a daily - even hourly - basis information updates on their Bloomberg screens.

Banking is one of the most difficult areas in the transition process. In Russia most reforms were less smooth than in the formerly socialist countries of central Europe and creation of a financial sector met with weak regulations and an opportunistic and weak government. The financial crisis of 1998 was therefore not the result of unforeseeable external events but one of limitless recklessness. The paper describes the major problems in building up a banking sector before 1998 and identifies the major reasons for the crisis. Crisis management also turned out to be atypical. Instead of seizing the opportunity to carry out necessary reforms, in particular a regulatory overhaul, not much happened. Now nearly ten years after the reform, the banking system has strengthened thanks to a very pronounced macroeconomics boom based on favourable terms of trade. The major weaknesses survive however under the cover of strong growth of the economy.

This paper examines capital controls in two ways. First, it assesses whether capital controls have an economic justification within the context of an economyA¢ÂÂs and, in particular, its financial sectorA¢ÂÂs stage of development. It concludes that capital controls can be justified in countries with an immature financial sector and macroeconomic imbalances. Second, it presents survey of current capital controls in ASEAN+3. It identifies three avenues for making controls more efficient: (i) a tax on capital inflows, or alternatively, a Tobin tax; (ii) a replacement of extensive administrative controls with stricter prudential standards for financial institutions; and (iii) a special treatment for Asian currency unit (ACU) operations, implying selective capital flow liberalization.

Die Asienkrise 1997/1998 hat zu einer kritischen Hinterfragung der Informations- und Allokationseffi zienz internationaler Finanzmarkte gefuhrt. Im Grundsatz ist unbestritten, dass freier Kapitalverkehr auf langere Sicht als erfolgversprechend fur eine gunstige Wirtschaftsentwicklung zu betrachten ist. Allerdings wird inzwischen vielfach darauf hingewiesen, dass die Rahmenbedingungen, unter denen die Liberalisierung des Finanzmarktes stattfi ndet, einen entscheidenden Einfl uss auf den kurzfristigen Erfolg haben. Die Lander Ostasiens haben inzwischen praktische Konsequenzen aus der Krise gezogen. Dabei wurden Reformen im Banken- und Finanzmarktsektor sowie Masnahmen zur Kontrolle des internationalen Kapitalverkehrs durchgesetzt. Der Wechselkurs wurde vielfach freigegeben. Der Schlussel zur Verbesserung der Wachstumsaussichten bei gleichzeitiger Minimierung der Risiken destabilisierender Kapitalstrome durfte auf langere Sicht allerdings vor allem in einer starkeren regionalen Kooperation liegen, wie sie seit der Krise im Rahmen der Association of South East Asian Nations (ASEAN) zunehmend umgesetzt wird. Die Erfahrungen bei der Verwirklichung des gemeinsamen europaischen Finanzraums konnen dabei als Orientierung dienen.

Die Wahrungs- und Finanzmarktkrise vom Sommer 1998, ausgelost durch internationale Kapitalumschichtungen im Gefolge der Asienkrise, brachte die russischen Geschaftsbanken in erhebliche Schwierigkeiten. Praktisch der gesamte Bankensektor war von akuten Liquiditatsproblemen betroffen. Die Hauptursache der Bankenkrise ist in der mangelhaften oder ganzlich fehlenden Regulierung im Bankensektor zu sehen; dies begunstigte die Inkaufnahme hoher Wechselkursrisiken bei Verbindlichkeiten in auslandischer Wahrung sowie Kreditvergaben mit beschrankter Risikodiversifikation, was sich im Zuge der Krise als fatal erwies. Nach westlichem Empfinden unorthodox war auch die Losung der Krise durch die russischen Behorden, die ohne wesentliche Umstrukturierungen im Bankensektor auskam und mit erstaunlich geringen volkswirtschaftlichen Kosten bewerkstelligt wurde. Der Erfolg in Form durchgangig guter Wachstumsraten nach 1998 liefert jedoch nur scheinbar die Rechtfertigung fur diese Versaumnisse, denn die relativ schwache Verfassung des Bankensektors in Russland – im Vergleich zu anderen Transformationsokonomien – stand sicherlich einer noch besseren wirtschaftlichen Entwicklung im Wege. Wenngleich einige jungere Gesetzesinitiativen auf eine Verbesserung der Situation hoffen lassen, stehen doch weiterhin starke Partikularinteressen einer gesamtwirtschaftlich optimalen und wunschenswerten Umstrukturierung der Bankenlandschaft entgegen.

The year 2004 saw Turkey take a big step forward to the European Union, as international investors also believe, and in December last year the European Council opened up real prospects of entry for Turkey for the first time. Agreement was also reached with the International Monetary Fund (IMF) on further support, chiefly to secure the servicing of public debt in the next few years. The consequences of the serious financial crisis in 2001 now seem to be largely overcome, although the inflation rate is still too high - currently at around 9%. However, it is believed that Turkey may well fulfil the Maastricht criteria for public budgets in the next two years. According to the latest figures economic growth was around 9% last year, and strong growth is expected this year as well. This analysis takes a closer look at some of the important aspects of Turkey's economic development in recent years and the state of the reforms already carried out, particularly in the banking sector. It shows that the Turkish economy is developing very satisfactorily - compared with the development in the most recent new EU member states as well, so at least in the economic perspective Turkey's aim of coming close to EU membership in the medium term does not appear to be unrealistic.

The paper explores the readiness of the Turkish banking sector for integration into the European Union. We address the issue from four different angles. First, we review the present structure and health of the sector, including the state of the regulatory framework, providing where possible a comparative perspective with the larger EU accession countries. Second, we look at the sector’s financial solidity in 2003, with a view to gauging its readiness to adapt to a more challenging banking environment. Third, we look at the present obstacles to financial deepening and identify the most pressing issues that seem to hinder the sector’s growth. Fourth, we explore issues of productivity and efficiency in the sector. In a final section, we ask the question of whether the Turkish banking sector is or will be ready in due time for EU accession and formulate some policy recommendations. We conclude that in 2004 the Turkish banking sector compares well with those of the new members of the EU. The major source of financial instability in the past was macroeconomic instability and government involvement. At present Turkey is closer to achieving macro-stability than ever in the past, and the government is reducing its direct involvement. Major strides have been accomplished after the crisis of 2001 in cleaning up a very nontransparent and politicized banking environment and in upgrading the regulatory structure to EU standards. Clearly, the job is not finished yet, with the challenge of introducing risk-management based on Basle II and of bringing the capital market to EU standards. Further consolidation and mergers with foreign partners will be inevitable. Should EU integration become a concrete vision of the future, macro stability has great chances to become rooted in Turkey and the banking sector will quickly move to EU standards, long before any accession date.

Analysing the key problems facing the transition countries in Central and Eastern Europe, this accessible book describes the legacy of the central planners, the progress achieved so far and the need for further reforms. It documents the outstanding successes and failures, and analyses why certain approaches to transition have worked and others have not. It tests where transition is over and shows how some countries have graduated from 'transition' to 'integration' through their efforts to join the European Union (EU). It discusses the costs and benefits of the eastern enlargement of the EU. The specific experiences of German unification, the Soviet Union's disintegration, and Russia's complex reforms are examined, as are the specific issues that need to be addressed in the Balkans. The book concludes by indicating how the expanding EU could help the poor performers through inclusion in a continent-wide integrated economic area.

East Germany used to be considered as the model economy of the socialist bloc. Yet, after unification, little of that economy seemed worth preserving. But the East Germans seemed to be luckier than their eastern neighbours, for reform and reconstruction there would have West German support of a magnitude unavailable to any other former socialist country. Overnight, unification provided the framework and the institutions needed to operate as a market economy and gave access to the financial and managerial resources of West Germany. East Germany thus obtained the necessary legal framework at the stroke of a pen when the unification treaty came into effect on 3 October 1990. Moreover, monetary union (1 July 1990) brought an untrammelled price system, a stable and convertible currency and an efficient capital market. Privatisation was also quickly begun under the management of the Treuhand Agency (THA).