Capital Account Mismanagement, Deleveraging and Unstable Economy in the European Union Periphery Countries: The Case of Croatia and Slovenia
1. Development Model: Stylized Facts
Until the global crisis 2007-2008, countries of central, eastern and south-eastern Europe (CESEE) had been implemented a specific growth model that was based on integration with European Union. Model was based on institutional, trade and financial integration with EU. Slovenia and Croatia had two variants of the same development model. But, what was common was that growth was based on financial deregulation and external and internal liberalization of national economies. It was a consequence of financialization process. We use terms „financialization“or „finance – dominated capitalism“(see e.g., Hein (2012) for the macroeconomics of finance - dominated growth model), financialization means the increasing role of financial motives, financial markets, financial institutions and financial actors in the operation of domestic and international economies, the predominance of the financial over real sector of national economy (see e.g., Palley (2007 for a detailed explanation of financialization process). But, model of growth led to widespread misallocation of resources, unsustainable growth patterns and unstable economies.
The core of development model has been based on integration with the EU, including political integration, institutional development, trade integration, financial integration and labor mobility. Macroeconomic developments in both countries (see figures 1 – 8) indicate unfavorable trends, as a consequence of boom – bust cycles, i.e. debt – deflation recession accompanied with structural imbalances.
← 139 | 140 →Figure 1: Real GDP Growth, Y/y, %
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