Countries of former yugoslavia: Periphery vs. super-periphery in the great recession and beyond

Abstract

The paper deals with the performance of former Yugoslav countries during the Great Recession. It compares the performance of peripheral countries (Slovenia and Croatia) with those of superperipheral countries (Bosnia, the Republic of North Macedonia, Montenegro, and Serbia). The focus of the analysis is the four channels of crisis transmission and amplification: the capital surge as the external channel on the one hand, and the financial accelerator, the banking credit extension, and liquidity as internal channels on the other. While the external channel drove the dynamics of the crisis, the internal channels amplified, broadened, and prolonged its drastic economic consequences. The paper depicts the trajectory of the consequences of the Great Recession for both peripheral and super-peripheral countries. It shows that, regarding financial stability, peripheral countries outperformed superperipheral countries in the boom phase, but not in the bust and recovery phases. The crucial factor influencing such a deterioration of peripheral countries’ financial stability was the policy measures enforced by the European Commission and ECB, calibrated to the needs of the largest and strongest economies of the euro area, while neglecting the asymmetric dynamics of European economies in the bust and recovery phases. The paper concludes with a warning that something similar could happen in the present crisis triggered by the Covid-19 virus.

Keywords

• indebtedness
• investments
• bank lending
• credit supply and demand
• capital flows