The structural challenges facing the candidate countries (Bulgaria, Romania, Turkey)

The economic gap between the EU and three candidate countries - Bulgaria, Romania and Turkey - is significant. Living standards, as measured by GDP per capita at PPP, are less than one third of the level prevailing in the former EU-15 u0096 and about half of the average level in the new member states. Catching up with the rest of Europe in terms of income levels and productivity will thus be a very long term process. The growth performance in the three candidate countries in the most recent years has been solid, after crises and turbulences in the second half of the 1990s. In 2003 real GDP growth reached 4.5% of GDP in Bulgaria, 4.9% in Romania and 5.8% in Turkey. Growth in Turkey has, for many years, been fluctuating sharply. So as to preserve stability and prevent any recurrence of the crises of the past, the candidate countries will need to manage the remaining macroeconomic imbalances u0096 relating mainly to inflation, government deficits and current account deficits u0096 and complement that by addressing the remaining deep-rooted structural problems that may impair their capacity to stay on a path of strong growth, paving the way for improved allocation of resources in the economy at large. There has been considerable progress on structural reforms in all three countries. It is vital at this stage that the authorities avoid the risk of backtracking on individual reforms already achieved, and that they maintain a momentum in securing effective implementation, in particular in terms of privatisation and restructuring, institution building, the improvement of the business environment, the upgrading of the legal system (including contract enforcement), the labour market, agricultural reform and the integration of the shadow economy into the formal sector. The financial sector also remains a challenge.