Academic journal article The European Journal of Comparative Economics

Interdependence between Core and Peripheries of the European Economy: Secular Stagnation and Growth in the Western Balkans

Academic journal article The European Journal of Comparative Economics

Interdependence between Core and Peripheries of the European Economy: Secular Stagnation and Growth in the Western Balkans

Article excerpt

1. Introduction

The Eurozone crisis can be understood as the outcome of a structural imbalance between "core" and "periphery" countries (Lapavitsas et al., 2010). Germany is at the centre of "core" group of countries in the Eurozone, while Greece, Italy, Portugal and Spain are conventionally seen as forming the "periphery" of the Eurozone. Yet other EU member states that are outside the Eurozone also belong to the European periphery, and form what we call the "outer periphery" of the EU. Countries of this outer periphery, such as Bulgaria and Romania are just as much affected by the Eurozone crisis as the "inner periphery" countries within the Eurozone, even though they have not adopted the Euro. The fortunes of their economies are affected by developments in the Eurozone, not just through flows of trade, investment and people, but also because the financial sectors are highly integrated.

Outside the EU, there is a further layer of countries that are neither Eurozone members nor EU members that are similarly influenced by developments in the EU and the Eurozone. Following Martin Sokol, these countries can be referred to as the "superperiphery" of the EU (Sokol, 2001). They comprise the countries of the Western Balkans and of the European Eastern Neighbourhood.

A feature of these countries, especially in the Western Balkans, has been a widespread euroisation both among households and companies (Országhová, 2015). This has meant the Western Balkan countries have not been able to use devaluation as a means to improve the competitiveness of their economies. A high proportion of loans and savings are denominated in Euros, which inhibits the use of devaluation or depreciation of the currency as an instrument of macro-economic policy to improve the external competitiveness of their economies. At the same time, EU bailouts are unavailable to these countries. Therefore, the only option is internal devaluation, which requires decreased levels of prices and unit labour costs to bring about improved external competitiveness.

In this paper we identify the extent to which these peripheral countries are connected to and influenced by the evolution of the European economy as a whole, and how they have been consequently affected by the crisis in the Eurozone.

2.Under-consumption in the capitalist core

The Classical economists were preoccupied with the question whether there would be enough aggregate demand to buy all the goods and services produced by business enterprises. The theme was taken up by Keynes who argued that market economies were prone to a lack of effective demand and to the possibility of unemployment equilibrium (Keynes, 1936). The under-consumption theorists furthermore proposed that market economies were also prone to "secular stagnation" (Hansen, 1955; Steindl, 1952).1 Radical economists took this further, most notably in the work of Paul Baran and Paul Sweezy who argued that under "monopoly capitalism", employers strive to increase profits by pushing down wages, which reduces aggregate consumption (Baran and Sweezy, 1966). In a further development of the theory, they argued that the financial sector dominance has emerged as a means to maintain aggregate consumption. However, this has the unfortunate side effect of increasing instability in the economy (Minsky, 1986). The financialisation thesis suggests that financialisation generates instability and is a prime factor in economic stagnation, and can lead to debt-deflation and prolonged recession (Palley, 2007). Others have argued that stagnation is a more deep-seated phenomenon and that it is the tendency towards stagnation that generates financialisation rather than the other way round, and that a failure of financialisation to successfully play this role, the underlying tendency towards stagnation can reappear (Bellamy Foster and Magdoff, 2009). Moreover, financialisation has also generated gross inequality (Picketty, 2014), which further reduces consumption demand and reinforces the under-consumption problem. …

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