P37 - Socialist Systems and Transitional Economies: Legal Institutions; Illegal BehaviorReturn

In the first two decades of the 21st century, the previous democratization progress was partly reversed. It is well seen in the former Soviet Union and Central and Eastern Europe but also in other geographic regions. In search for causes of this warning trend, many authors point out economic factors such as economic stagnation, unemployment, inequality, consequences of the global financial crisis of 2007-2009 and side-effects of globalization. Not negating the role of economic factors, it is important, however, to see noneconomic determinants such as immature political institutions and their dysfunctionality, nationalism and cultural prejudices, and side-effects of the ICT revolution, which destroyed traditional media and public debate. The antidemocratic drift is dangerous not only for political and civil freedom but also has a negative impact on economic governance, making economies less open and competitive and easy victims of oligarchic predation (‘crony’ capitalism).

The concentration of real convergence in a short period before the Great Recession (2001-2008) is a characteristic shared by many countries, but it was particularly pronounced in Croatia, Serbia, Bosnia and Herzegovina and Bulgaria. Bulgaria managed to converge after the Great Recession, but convergence in other mentioned countries was meagre; Slovenia even diverged since 2010. Direct effects of post-Yugoslav wars belong to the past, but indirect effects may have had more persistent effects: a lost decade of the ’90s led to weak institutional development and the creation of the local form of state capitalism, which provides weak fundamentals for economic growth. Monetary policy and exchange rate regimes in the region are mostly centred around stable exchange rates and strive for the introduction of the Euro (Bulgaria and Croatia joined the ERM II in 2020). However, the impact of exchange rate regimes on long-run economic growth is neutral. Preference for credibility building monetary regimes is a legacy of the past. Financial predictability served as a shock absorber and a substitute for good institutions in order to attract inflows of international capital, which flooded ex-communist countries after the emerging markets crisis in the late ’90s. However, when the wave of capital inflows stopped in the Great Recession, more fundamental growth factors emerged, explaining the slow convergence of the majority of SEE countries in the second decade of the 21st century.