The pre-crisis period’s persistent current-account imbalances are in line with our initial assumptions (as Varieties of Capitalism literature suggests), the three regions macroeconomic model is based on the inflow of capital and products (demand-led approach). This assumes that the Iberian, Baltic and Visegrád countries had suffered from chronic trade imbalances prior to the global financial crisis. As Table 3. depicts, all countries in the regions (excluding Czech Republic) had trade imbalances (sometimes huge) in 2008, a year before the global financial crisis. The three regions can be characterised with divergent trade developments. In the case of the Baltic countries, intra-EU trade imbalances significantly contribute to total trade imbalances. The Iberian countries show a contrasting picture, in Portugal three-fourth of the total trade imbalance were generated inside the European Union, while in the case of Spain extra-EU trade imbalance represents more than 60% of total trade deficit. Among Visegrád countries, Poland was the only member state that had trade deficit both inside and outside the European Union in 2008. The Czech Republic, Hungary and Slovakia enjoyed trade surpluses inside the European Union and extra-EU deficits.
As the global financial crisis hit the peripheral regions, their domestic demand-led growth model immediately collapsed. Large current-account imbalances disappeared after the crisis.
Comparing 2017 and 2008 datasets, the cumulative growths of exports are between 37%
(Hungary) and 79% (Latvia). In the Baltic countries, total trade imbalances remained, but their structure has changed, intra-EU deficits and extra-EU surpluses. In Portugal and Spain, former huge total trade imbalances have substantially decreased, the Spanish total trade deficit was almost EUR 95 billion in 2008, and it has eased down to EUR 28 billion in 2017, in addition, Spanish intra-EU trade imbalance have totally been eliminated. Recently, Visegrád countries’
macroeconomic models considered as export-led models, these countries have built up extensive trade surpluses inside the European Union, while extra-EU trade deficits have remained significant.
Table 3. Trade performance of the three regions in 2008 and 2017 (goods, billions of EUR)
5. Conclusion
Heterogeneity of the European Union member states has always been a problem, however, the global financial crisis and the eurocrisis had severe negative impact on the European economy and further increased economic heterogeneity. The aim of this study was to analyse three different peripheral regions of the European Union – the Iberian, Baltic and Visegrád countries.
Taking into consideration that two crises hit the European continent – the global financial crisis of 2008/2009 and the eurocrisis of 2010/2012 – the costs and benefits of different exchange rate arrangements were revealed. The Iberian, Baltic and Slovakia had limited adjustment possibilities (internal devaluation and fiscal austerity), while these member states have been applying fixed exchange rate regimes, (since 2015 all countries member of the Eurozone). In the case of the Czech Republic, Hungary and Poland, the use of nominal depreciation to restore competitiveness and enhance economic growth was possible. The consequences are obvious, Iberian countries suffered from a prolonged crisis, Baltic countries suffered a strong decline in economic activity and a strong recovery afterwards, while the Visegrád countries have been experiencing a robust economic growth and catching-up process since the crisis.
Applying the Varieties of Capitalism framework, we identified strong similarities among the peripheral regions. Even though that the literature separates the three regions into different models, macroeconomic indicators presented similar tendencies. The empirical assessment compared two time periods, the pre-crisis decade and the post-crisis period, and concentrated on macroeconomic variables – current-account balance, labour costs, labour productivity and unemployment rate – through which regional macroeconomic frameworks can be assessed. In addition, a brief part deals with trade performance of the nine countries. The pre-crisis period was characterized by large current-account balances due to capital and product inflow, which has been corrected during the post-crisis period. However, differences can also be observed in diverging post-crisis labour market developments because of different adjustment methods; in fixed exchange rate regimes internal devaluation and fiscal austerity caused substantial increase in unemployment rates (as well as decrease in employment), while floating regimes of the Czech Republic, Hungary and Poland weathered the crises without significant rise in unemployment rates (and decline in employment) through nominal depreciation. Clear relationship between various types of exchange rate regimes and export performance cannot be detected in the post-crisis period. Since the global financial crisis, we have witnessed a rapid increase in export activity in all countries, ranged from 37% (Hungary) to 79% (Latvia), so nominal depreciation’s beneficial impacts on export performance cannot be solely explained by the applied exchange rate regimes. Presumably, several other factors have influenced export performance in peripheral countries such as expanding extra-EU export possibilities, sluggish intra-EU demand for imported products, trade activities inside the value chains of global companies (imported inputs) and intra-industry trade. And finally, the collapse of domestic demand on imported products resulted in improving trade balances in all countries of the three regions, however substantive change in trade models (export models) have only taken place in Visegrád countries and Spain.
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