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Financialisation and Financial Crisis in South-Eastern European Countries


Dubravko Radošević and Vladimir Cvijanović

The book discusses various cases of financialisation and financial crisis in South-Eastern Europe. While these can be directly traced to the region’s reliance upon the global financial regime, the interplay of international financial institutions, the eurozone’s rigidity and domestic policies have produced various outcomes in the countries of the region. The study presents quantitative and qualitative research and offers new insights into the processes that shape the financial and monetary systems. The ex post analysis of how financial instability was created and how it could have been prevented, hopes to provide insights for policy-makers today.
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Determinants of External Current Accounts in South Eastern Europe

1. Introduction


Why were the current account deficits of the South Eastern European (SEE) economies so high and persistent over the last two decades? What were the main drivers of external imbalances? Is the experience of SEE countries different from that of the other European economies? Are SEE countries catching up with the advanced European economies? Although we are in the midst of the sovereign debt crisis, financial integration in Europe can actually be observed. The current account deficits can be perceived as a mirror image of the net international capital inflows. And capital - in its different definitions - flows from richer to poorer countries or, in other terms, from low- to high-growth countries. We also observe a strong correlation between economic growth and current account deficits in the new member states of the European Union (EU) and the EU candidate and potential candidate countries from South Eastern Europe (see Figure 1).

In Europe, capital flows from richer to poorer countries and, in itself, this fact is actually different from what is happening outside of Europe (Gill and Raiser 2012). One explanation comes from the reassuring effect, which is based on Mundell’s intuition and the endogenous optimum currency area (OCA) theory (Warin, Wunnava, and Janicki 2009). Evidence of this effect may be found in the 2008 crisis. Indeed, unlike the previous Asian and Latin American crises, capital was not dramatically pulled out of these countries.

A large body of the academic literature has been devoted...

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