Eurozone Integrational Project Assessment: Economic Lessons from Slovenia and Croatia

This chapter analyses the advantages and drawbacks stemming from the differences in macroeconomic trends and events brought about by the European Union and Eurozone memberships. To that end, economic lessons from Slovenia and Croatia furnish a unique opportunity for a critical assessment. Slovenia is a Eurozone member without monetary sovereignty. In contrast, Croatia is a European Union member able to effectively employ both fiscal and monetary policies. The period under investigation (2005-2018) allows for the study of the impact of the economic cycle on the countries’ economic output. Authors’ employ the analytical framework of Došenović Bonča and Tajnikar (2018) using a narrative method in a comparative assessment of the cross-country performance. The study shows that, regardless of the distinct integrational membership, both Slovenia and Croatia belong to the wider Eurozone’s economic area. The lessons drawn exhibit a negative correlation between country and population sizes and the export component of the effective demand. The larger domestic market allows for a country’s lesser involvement in international trade. This cross-country comparison confirms that the common currency amplifies the country's integration into the Eurozone's trade regime. Moreover, it confirms that the introduction of the euro has neither increased price volatility nor has it led to greater price stability. Croatia’s ability to actively manage independent monetary policy, and implement exchange rate policies, has produced a twofold, conflicting effect. Furthermore, Eurozone membership has substantially influenced the diverse policies exhibited by fiscal authorities. In reference to the austerity package imposed by the European monetary authorities, the case study shows that the European Central Bank’s monetary policy can be more destructive than the flawed national arrangements. Finally, a more flexible adjustment of external borrowing addressing individual events that occurred in Slovenia demonstrates that Eurozone membership affected the country’s access to foreign capital. As a result, Slovenia’s prosperity will depend upon the delicate macroeconomic interaction in pursuit of the optimal performance where the subordination of the sovereign economic policymaking is weighed against the benefits of retaining semi-independence. Relatedly, Croatia’s economic performance largely depends on their semi-independent-policy-makers’ ability to advance the national interests more effectively, relative to the Eurozone ‘s supranational authorities. Consequently, subject to the country-specific macroeconomic objectives, Eurozone membership can be both an economic asset and a liability.