[Wirtschaft] Es droht eine neue Eurokrise - Bulgarien und Kroatien
Croatia and Bulgaria have now joined the Eurozone and both countries are facing a repeat of the Euro-Crisis. Just as before the cause is the development of prices determined by the wages in relation to productivity in their respective economies.
The Eurozone is characterized by enormous trade and current account imbalances. Some countries such as Germany have large trade and current account surpluses. And other countries such as France and Greece have large trade and current account deficits.
These trade and current account imbalances affect the economies of the countries concerned.
Countries with trade surpluses are too competitive and produce more than they consume.
Consequently they live below their means.
Furthermore trade surpluses lead to excessive growth in industrial production because its goods are particularly mobile and therefore suitable for foreign trade.
Countries with trade deficits on the other hand are not competitive enough and consume more than they produce.
Consequently they live beyond their means.
Trade deficits lead to stagnation or shrinkage of industrial production because its goods are particularly mobile but are displaced by imports.
Furthermore trade deficits lead to financing problems because more money flows out of the country than flows back in.
The reason for these developments in the Eurozone is the Eurozone itself and the differing trends in unit labor costs.
For the member states the monetary union of the Eurozone means among other things that exchange rates between them have been abolished.
Consequently member states can no longer adjust the competitiveness of their economies through currency appreciation or depreciation.
And unit labor costs are the ratio of wages to productivity.
Unit labor costs thus determine the development of wage costs and consequently prices and therefore the competitiveness of national economies.
Croatia
Croatia adopted the euro in 2023. However unit labor costs in Croatia are rising much faster than in the eurozone and in the major economies within the eurozone. Since 2020 unit labor costs in Croatia have been increasing by approximately 5% to 10% annually. This puts Croatia on the path to losing its competitiveness.
[1, PLCD]
The fiscal balances describe the difference between revenue and expenditure of a sector over a period of time usually one year.
The sectors are the general government, the sum of domestic private households, the sum of domestic companies and the foreign trade of that economy as a whole.
Surpluses mean savings by the sector and thus the sector in question is withdrawing demand from the economy.
Deficits mean the sector is incurring debt and thus the sector in question is supplying demand to the economy.
Thus the business sector meaning the total number of companies in Croatia has been either saving or neutral since around 2010.
Companies continue to participate in the production of goods but financially speaking they have become a burden in Croatia.
But this development is the case in most countries around the world.
Therefore the only remaining options for generating additional demand in Croatia are the state through budget deficits or foreign countries through trade surpluses.
Bulgaria
Bulgaria adopted the euro in 2026. Unit labor costs in Bulgaria are also rising much faster than in the eurozone and in the major economies within the eurozone. Since 2022 unit labor costs in Croatia have been increasing by approximately 10% annually. This also puts Bulgaria on the path to losing its competitiveness.
[1, PLCD]In Bulgaria too, the business sector—that is the sum of all companies—has been either saving or neutral since around 2010. Companies continue to participate in the production of goods but financially speaking they have become a burden in Bulgaria. But this development is the case in most countries around the world. Therefore in Bulgaria only the state through budget deficits or foreign countries through trade surpluses remain to provide additional demand.
[1, UVGD] [1, UBCABOP] [1, UBLC] [1, UBLH] [1, UBLGE]Effects
Foreign trade deficits lead to a decline in demand for domestic companies and consequently to a decline in demand in the domestic labor market. The natural reaction would be budget deficits to compensate for the decreasing domestic demand since the government's deficits represent the surpluses of the rest of the economy. However with the monetary union come its deficit rules. Therefore if Croatia or Bulgaria run budget deficits exceeding 3% of GDP to counteract this their governments will come into conflict with the EU.
[1, UVGD] [1, UXGS] [1, UMGS]Conclusion
If the trend in unit labor costs in Croatia and Bulgaria continues both countries are likely to face significant economic difficulties. This lays the foundation for a new Euro-Crisis. However it is also feared that just as before the essential cause will be disregarded. As in the case of Greece it will probably again be solely about the supposedly poor morale or motivation for work of the people.
Src:
[1] AMECO database
https://economy-finance.ec.europa.eu/economic-research-and-databases/economic-databases/ameco-database_en
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