Luka Brkić

Political Economy of Banking and Debt Crisis in the EU: Rising Financialization and its Ramifications

This paper is structured into four different parts. In the first part the authors analyze the origins of banking and debt crisis in the EU. The state and the evolution of the EU banking sector before the crisis and in its immediate aftermath is analyzed in detail in order to dispel the myth of the existence of an exclusively debt-induced crisis. This part also introduces the notion of financialization into the analysis. The second part analyzes the crisis-related dynamics by using endogenous monetary theory and makes particular use of balance-sheet recession as a concept. The third part introduces political consequences of the banking and debt crisis in the EU by focusing on the political crisis of legitimacy and its impact upon the EU integration process. In order to deal with this topic the authors borrow several concepts from critical international political economy such as transnational elite, knowledge production, and hegemony. We posit a close link between actions of the European transnational elite, crisis origins, and their ramifications. The fourth part focuses on the two most-discussed policy solutions in tackling the crisis: the banking and the fiscal union as well as their feasibility. Additionally, it lays out some fundamental trillemas for creating a viable way out of the crisis which are unfortunately often neglected in public debate. The main argument refers to the growing impact of financialization in the EU and its detrimental effect on the potential for integrated, stable, and prosperous EU economies. The authors explain the changing social, political, and economic landscape and evaluate the main challenges and obstacles to economic and political governance in the EU. The paper is concluded with some heterodox policy recommendations for overcoming them. JEL classification: B52, E51, E52, F34, F50, G01, G20, P48

Banking Regulation in Croatia: Qualitative and Quantitative Assessment

This chapter emphasizes the specifics of the Croatian banking sector and discusses the importance of the regulatory framework for the Croatian banking system in the historical perspective. It analyses the roles of the regulators, bank managers, depositors, taxpayers, borrowers and shareholders in shaping the political economy landscape for banking regulation in Croatia. This covers the period since the demise of socialism until the present day. This is followed by a broad overview of the main developments in the banking sector based on data on financial soundness, with the focus on the period from 2000 onwards. To empirically assess the effects of banking regulation on financial soundness indicators and lending activity, the authors will use vector auto regression (VAR) models. As the key explanatory variable the authors will use the index of regulatory burden and indicator of monetary policy stance, while capital adequacy, liquidity indicators and lending to the private sector are included as variables of interest.