Hoping for good news in the coming year

The most urgent thing to hope for is a soft landing for economies grown complacent amid perpetual sunshine and friendly faces. Large imbalances and a global credit crunch are an alarming mixture. Lars Christensen, a hawkish analyst of the region at Danske Bank in Copenhagen, notes that twitchy investors in the Baltic states and Bulgaria are already sending money market rates higher, and have driven down the value of the Romanian lei.

Some early signs indicate that Santa will be kind. Credit growth is slowing. Estonia’s growth rate and property prices have dropped sharply: bad news for construction companies, but good for everyone else (and its current growth rate of 6% is still mouth-wateringly good by West European standards). But inflation remains far too high, sharply up on the year-end figure for 2006 in every country except Hungary. Higher prices for food and natural gas will make that worse, stoking the pressure on competitiveness.

Second on the hope list is better treatment from rich neighbours. The extension of the Schengen passport-free travel zone to the new members of the European Union risks being the high-water mark of integration between “old” and “new” parts of the continent.

It is a fine thing to be able to drive from the north of Finland to Gibraltar without showing your passport. But the danger of leaving the western Balkans stranded in a no-man’s land is growing. Slovenia’s historic presidency of the EU, which starts on January 2nd, will be a huge success if it can get membership talks started with Macedonia and unfreeze talks with Serbia, particularly on visas.

The European Court’s recent decision in favour of a Latvian building company driven out of business by Swedish labour protectionism was a good start. But it is high time to end remaining labour-market restrictions and restart negotiations on free trade in services.

Third would be some glimmers of hope from Russia, both in its treatment of opposition activists at home, and its neighbours. Given the Kremlin’s overwhelming domestic support and the ease with which it gets what it wants from the outside world, it is tempting to hope that it might start taking things a bit easier.