Well, thank you very much, President Draghi, and thank you for this really fascinating dive into the European economies and the particular impact of the European integration

as well as the exposure to the rest of the world of those countries that are assembled around the table. And I have to say that it gives me great pleasure to see many old friends and faces

that I have been familiar with in my previous life and that I'm always pleased to see again and that I will be seeing soon in Croatia if you're all joining us for the conference that will be organized there in July. So first of all, again, to you, Mario, thank you very much for having me and thank you

so much for sharing your excellent insight. And all I will do is try to complement a little bit here and there or maybe shed a slightly different light because obviously we are not in the midst of what is bringing together

and what is keeping together the European countries from an economic, trade, and financial point of view. First of all, by the way, we often have a slightly different definition of the C-E-S-E-E, as we call them, or maybe in the rest of my remarks I will say C-E-S-E, if it's okay with you.

But when we study that part of the world, we tend to be a little bit larger. So whenever you see the publications that we release on C-E-S-E, you have to be mindful that sometimes it includes a couple of other countries that are not necessarily in the room today.

So we believe that it's appropriate for this conference that brings you all together for the whole day, which is the eighth conference, as I understand it. It's particularly appropriate because clearly we all have to focus on navigating the changing trade and financial landscape that we are facing.

And this is so because the region's success story is very much linked, as President Draghi just indicated, to integration within the European Union and throughout global markets. Over the past three decades, integration has been the driver of C-E-S-E's rapid

economic growth and acceleration that helped dramatically raise living standards. And the region's success has in turn fuelled the success of the EU more broadly. Now if you paid very close attention to what I just said, you will have noted that I have used driver, acceleration and fuel, and none of that is predicated on the desire

that we all have to actually attend the Formula 1 German Grand Prix next month. It is because the C-E-S-E economies are just like a very powerful engine, and one that in our view is about to be put to the test.

We meet at a moment when support for global cooperation and multilateral solutions is waning. Global growth has been subdued for more than six years, and the largest economies in the world are putting up or threatening to put up new trade barriers.

And this might be the beginning of something else, which might affect us in a more broad way. So these troubling developments will create headwinds for all, but certainly for the C-E-S-E growth model, a model that has relied on openness and integration.

So this morning what I would like to look at is under the hood, and discuss how the region's powerful economic engine was built. I would like to very briefly touch on a few findings that a recent research paper that we are publishing today has actually identified, and I would love to actually flag the paper

for you, except that I don't have it just right away with me, but it's a piece of research that we are launching today. And then I would like to identify three areas of reforms that the countries in the region

could actually focus on in order to test this engine and see whether their little refitting might not be helpful. So let's first look at this powerful engine and what it has produced and where it has driven all of us.

When the Berlin Wall fell, Central and Eastern Europe embarked on a difficult transition from communism, essentially, to capitalism and democracy. Few could have imagined the remarkable journey that brought the region to where it is today. Since the mid-90s, annual real per capita growth in C-E-S-E has averaged nearly 3.75%,

almost triple the per capita growth rate in the rest of the European Union, triple on a per capita basis. As a result, living standards in the region have rapidly increased, and some now approach

those of Western Europe. The region's GDP per capita, adjusted for differences in purchasing power, has more than doubled. In the Baltic states, per capita income has tripled by the same measurements. But we all recognize that the journey is far from complete.

In the Western Balkans, per capita income remains less than one third of German levels, and economic activity in the region, just as in the rest of the world, has slowed since the global financial crisis. And the reality is that convergence is not a given.

As the C-E-S-E story demonstrates, convergence is an economic engine propelled by tireless policy efforts and supported by international integration and cooperation. So how was the region economic engine built? The most important driver of growth was the hold and sweeping reforms undertaken to shake

off the legacy of nearly half a century of central planning. Democratically elected governments liberalized prices, stabilized public finances, privatized state assets, not all of them, and built new institutional and governance frameworks.

Economic integration played an important role as well. The right policies enabled C-E-S-E countries to access foreign markets, to attract foreign capital, and integrate themselves deeply into cross-border supply chains.

More on that later. Economic and financial integration in turn accelerated growth. It allowed countries to specialize in more productive sectors and fostered the transfer of technology and knowledge. If you look at numbers, since 1995, exports from C-E-S-E grew at an average pace of

over 8.5% per year. And by 2014, more than three-quarters of C-E-S-E exports were linked to supply chains compared to two-thirds of exports from other EU countries.

So much more integration in supply chains than others. The auto industry is perhaps the best example of how one sector has been able to leverage C-E-S-E's combination of geographic location, skilled labor force, and cost advantages. So you see, I'm saying exactly what President Draghi was saying.

But it relates quite well to my introduction about the cars. Over the past 20 years, the region quadrupled its share of world-gross exports of car and car parts, from less than 2.5% in 1997 to over 10% in 2017.

Slovakia is now the second-largest producer of cars per manufacturing worker in the EU. And now you really understand my engine metaphor. I'm sticking to it. Now, of course, the region's integration into global value chains is not limited to

the automotive industry. It goes well beyond that. It ranges from aerospace in the Czech Republic and Poland, to computers and electronics across the Visigard countries, to apparel and shoes in Romania, as well as Bosnia and Herzegovina.

And that success has attracted investment. In the decade leading up to the global financial crisis, the region received a large influx of private capital, averaging more than 7% of GDP per year. This capital helped C-E-S-E economies upgrade their infrastructure, improve access to credit,

and strengthen the banking sector. The increased investment was a sign of broader European support for the region. And the promise of EU membership for many of you helped policymakers in each country implement those difficult reforms.

And because it was a tit-for-tat process, in turn, the EU provided capital, trade opportunities, and benchmarks for the region to aspire to. And to this day, it contributes by way of transfers in order to help many of those countries. Now, as you recently said, Marion, I'm quoting you, previous speech, I quote,

the European Union has been an economic success because it has provided an environment in which the energies of its citizens have created widespread and lasting prosperity. And that is precisely right, and the success of the C-E-S-E region helps to prove that point.

Now, my dear hope is that the international community has played a role as well. And when I look, for instance, at how the IMF took into account the transformation that took place in that region, it's quite amazing the volume and number of technical assistance

that we have provided. And it's actually fitting that at the time, we framed a special new lending instrument that was specifically designed to address the needs of former communist countries. And there are circumstances to this day when we look at transformations having happened

just recently or likely to happen in the near future where we say, ah, maybe we could rely on that instrument that we actually conceived at the time in order to help with the transition of many of the countries in the room.

So all of these components helped build C-E-E economic engine. But now, as we are in 2019, and as we are facing the headwinds that I just mentioned earlier on, it might be time to ask ourselves whether this engine can handle the new Tehran and whether that refitting which I mentioned is not actually going to help.

A retreat from global integration by some advanced economies will certainly challenge C-E-E growth model. The high level of openness and specialization which has delivered enormous benefit has also left the C-E-E economies exposed.

C-E-E countries are now an integral part of the supply chains in many different products and services. And when one link in the supply chain breaks, or the demand at the other end of the chain is shifting, changing, the entire network can feel the effects.

The economic engine, while powerful, is complex and interdependent. So as we are releasing this study today that I really encourage you to have a look at, which is not only concentrated on C-E-E countries, but which sort of draws from the general principle that we have developed at the last World Economic Outlook special chapter

that actually focuses on the impact of trade and trade restrictions, not on the nominal value of trade, but on the value-added analysis of trade. I'm going to just identify a few findings, not all of it, because it would not actually give full credit to the paper that I hope you will look at.

What it does is it considers a hypothetical scenario, and we hope it remains hypothetical by the way, in which the US imposes a 25% tariff on imports of cars and car parts.

So what are the takeaways from that hypotheticals? The first thing that intuitively you would do is look at the country's numbers and trade balances and look at the direct impact, which countries are actually exporting cars or car parts to the United States and therefore will be subject to that 25% tariff increase.

And if you look at your own countries here represented in the room, you will say, minimal, and you would be right, because most of you actually do not export directly that much

in terms of cars or in terms of car parts. So you might think, relief, well not so fast. Because what you need to do, and that's one of the findings, it's almost intuitive but it's quite good to actually see it in numbers and analyse very carefully. What you actually find out is that indirectly the impact can be quite real, simply because

of that integration and openness and the fact that many of your countries' manufacturing activity is actually integrated in a full supply chain. And as a result, indirectly there is clearly an impact.

Not all countries are exposed in the same ways and some are more vulnerable than others. I'm actually tempted to focus on the case of the Czech Republic, not to mean that others are completely off the hook, not at all. But direct exports of car and car parts from the Czech Republic to the US are very

small, less than one tenth of one percent of GDP. So we're talking about 0.05, sorry, 0.1 percent. I'm already jumping to the impact. And this means, you know, traditional analysis, my sort of first intuitive conclusion, is

that the Czech Republic will probably be OK and should be largely immune to our simulated higher US tax tariff. But it is not the case. Our research shows that the Czech Republic could be actually the fourth most affected country by car tariffs in the whole of Europe.

Why is that? Well, because a large amount of the Czech Republic's value added is incorporated in other countries' car exports to the United States. Our research also shows that CZ's greater trade openness has actually increased the

region's vulnerability to what happens not so much in Europe, but to what happens outside Europe. Now, despite these vulnerabilities, there are no clear signs as of yet that the changes in the global trade landscape have negatively affected the CZ region to date.

And since 2011, exports from the region have continued to grow at almost double the rate of GDP. And when you look carefully, actually, at the bilateral balance, which is not the right approach, but still you're bound to look at it, you see that the bilateral balance

that some of you countries have with the United States has clearly increased by 50% in the last year or so. So there are many other findings in the paper, by the way, but I just want to give you

a little teasing so that you can have a look at it or ask members of your staff to have a look at it. But what it means to us is that it is now the perfect time to actually look at what directions you might take in order to strengthen your economies and in order to protect against the vulnerabilities.

And this will not come as rocket science or things that you have not heard before. Simply from our perspective, now is probably the time to actually accelerate a bit that process. And I'm going to suggest three directions. The first one actually deals with something that we are all the victim of.

And that is, unfortunately, ageing. Ageing but also the migration of labour force. And as always, priorities will differ across countries.

But the first priority that we would identify is investing in human capital and boosting the labour supply. And that touches very much on the total factor productivity issue that President Draghi mentioned earlier.

Widespread labour shortages and rising skill matches in the region will soon be exacerbated by daunting demographic trends. So as a result, enhancing vocational education, training and lifelong learning will be instrumental. In addition, and I know how difficult it is because I've tried very hard and I've done

it a little bit when I was Finance Minister for my home country, but certainly raising the retirement age, increasing the labour force participation of women and support the hiring of more foreign workers, as counterintuitive as it might seem, are also going to be proposals

in the direction of improving that human capital. In Poland, in Slovakia and in the Czech Republic, procedures for hiring short-term foreign workers from select non-EU countries have recently been simplified.

And this has helped increase labour supply and is, in our view, a step in the right direction. I'm certainly hoping that we will have a chance to discuss that further at the IMF Croatian Nation Bank Conference that will be held in Dubrovnik in July, because we will

focus on the demographic challenges in the CZ region. But this is only challenge number one. Another one, in our view, which is critically important as well, is strengthening the anti-corruption effort. By modernising institutions, especially the judicial systems, countries can rebuild trust

in institutions. Good governance and effective institutions are vital for productivity and investment, as well as sustainable and inclusive growth, not to mention the stability of political regimes that result from better governance. When corruption becomes institutionalised, it poisons the ability of a nation to attract

investors and create jobs. And young people in EU countries understand that better than anybody else. We have conducted surveys asking young people what is most important for them. And we had assumed that they would come up with jobs or, you know, economic returns.

No. Top on their list of concern is actually corruption. And it makes sense. Because corruption is the root cause of so much of the injustice that people feel in their daily lives. And that is why the IMF, as you might know, is focusing on this issue and including governance

in more of our surveillance work going forward. Progress is being made. But too slowly. In Bulgaria, a new unified anti-corruption agency was established in 2018, along with

reforms to enhance judicial independence. For the Western Balkans in particular, a focus on meeting governance standards and EU accession requirements are key. This can be a catalyst that will lead to further regional integrations. The idea of integration actually leads me to my – by the way, just one word on

corruption – the board of the IMF has actually unanimously endorsed the principles according to which we, as an institution, when we conduct Article 4 review with many of your countries, should be actually looking at those neuralgic points in your economies

that can actually be conducive to corruption and which undermine the good governance. And we will do so diligently. My third and final priority is improving international cooperation on trade.

And that will not surprise you. And all of you can actually play a role. It's not just for the international institutions to deal about international cooperation on trade. It's not just a WTO issue. It's an issue for all of us. Even if those right reforms are implemented, that I just discussed, CZ economies will not

succeed unless all countries work together to improve global trade. We can start by all making every effort to de-escalate the current trade disputes and continue constructive dialogue. And if we don't do it ourselves, at least encourage others and colleagues to do so. Where should that dialogue lead?

To a place where, through cooperation, we can fix and modernize the global trade system. And that means avoiding the tit-for-tat tariffs and instead finding ways to unlock the potential of e-commerce, notably in trade and services, trade-off services. It also requires a renewed focus on the distortionary effects of state subsidies, improving the

enforcement of intellectual property rights, and ensuring effective competition. These policies should go hand-in-hand with building a global trading system that is more effective in delivering for every citizen, especially those that are hurt by disruption in trade or the disruption of technologies.

And we come back to the domestic issues that I was discussing earlier and policies that can best be decided at home. So taking all together, these domestic and international reform priorities can help us recalibrate, build resilience, and deliver a more prosperous future. And it can help you identify and hopefully cure these vulnerabilities that we are exposed

to and that we have just discussed. So there is no question that the current situation is a challenge for all. But it's certainly a challenge for those economies that have built the economic engine on integration and openness.

But we can draw inspiration from – well, you know, when I'm short of inspiration, I try to those who have said much brighter things than me before. And the other thing that I have the luxury of doing at the IMF is also look at other regions of the world to see whether they have been confronted to similar situations.

And I call your attention to a paper that we published a couple of years ago on the supply chains that have been built in and about geographically China. And it's fascinating to see that those countries that have managed to not maintain an exclusive link in their manufacturing chain with one big large partner nearby, but which

have kept alternatives, are actually less vulnerable than the other ones. Really interesting learnings from that. But coming back to the great thinkers, I would like at this point in time to mention Vaclav Havel, who famously said, it is in the moment of profound doubt that we can

give birth to new certainties. That was true of Europe after the fall of the Berlin Wall and when Vaclav Havel said such things. And I think with hard work and cooperation, it can be true for Europe today if we all work together. Thank you very much.