External indebtedness in the countries of the Western Balkans

What is it about?

The article covers the evolution of external debt, both public and private, in six Western Balkan countries in the context of their regional position as a super periphery of the EU. Stemming from the core-periphery relationship, we find that the region’s external debt position has increased to a critical level since the onset of the economic and financial crisis of the eurozone. Due to their high degree of euroisation these countries have only been able to use austerity measures to overcome external imbalances. The implementation of such measures has been associated with a drift towards illiberal democracy and autocratic forms of governance.

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Why is it important?

Since the onset of the eurozone crisis the Western Balkan countries have experienced an alarming build-up of external debt mainly due to the need to borrow on international capital markets to cover their balance of payments and current account deficits. Structural reforms designed to improve productivity and competitiveness in order to boost exports have had little success, since domestic policy makers and interest groups are more concerned to protect their privileged positions than to support additional expenditure on growth-enhancing reforms such as improving education systems to develop the future human capital of their countries. Structural reforms have therefore focused on cost-cutting measures, such as reductions to pension entitlements, to public sector wages and employment, and cuts to social protection benefits. In order to change this situation and grapple effectively with the serious debt problem that has developed, a new approach would be needed requiring the elimination of clientelistic practices and new pro-democracy and pro-growth ideas to emerge on the political scene.

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