AN ECONOMIC REVIEW OF FINANCIAL LIBERALIZATION REAL INTEREST RATES SAVINGS AND INVESTMENTS INTO EUROPEAN UNION.

The Euro area households’ gross investment rate increased significantly, peaking at 11.3% in 2007. Investment growth varied between countries and is partly explained by differences in the initial levels of living conditions. For example, investment growth in 2005-07 was higher in countries which had a higher overcrowding rate, i.e. in countries with a higher share of households that do not have at their disposal a given minimum number of rooms (e.g. Estonia, Slovakia and Latvia). However, these developments were unsustainable. From 2008 there was a dramatic change and household investment started to fall sharply. Although this happened in most euro areacountries, it was particularly evident in those countries that had previously seen veryrapid growth in investment, such as Latvia, Estonia, Cyprus, Ireland and Greece. In recent years household investment has continued to decline across the euro area as a whole. Investment fell by 3.7% at constant prices in 2013, and ended up 18% lower than in 2000. The picture has been varied across countries, however, and investment has increased in recent years in Germany, Estonia, Latvia and Slovakia. Interest rate liberalization may not produce the expected benefits if the timing, pace, and sequencing are off. These should be determined by the degree of macroeconomic stability, conditions in the bankingand state enterprise sectors, and the central bank’s capabilities.