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Economic policy independence in EU member states: Political economy of Croatian membership

Independence of economic policy of national states in the European Union is a relevant and politically controversial issue as notions of lost sovereignty are often evoked by populist political options. It is therefore important to distinctly outline the actual state of affairs. The article starts by outlining the political, institutional and economic arguments for and against policy convergence/isomorphism in areas undergoing economic integration. The article continues by covering the obvious monetary and fiscal policy constrictions of EU (and eurozone) membership and continues on to the prescriptions placed through the European semester since 2013. It contextualizes the EU constrictions by analyzing International Monetary Fund prescriptions in the same period. IMF is chosen as the arguably most relevant economic policy advocate outside the confines of EU. Even when conditionality is not present (as Croatia took no IMF loans in the observed period), IMF still issues a carefully prepared and carefully read report each year (Article IV consultations). We argue that even when fiscal matters are in focus, the consistent management of deficits logically demands corrections in a much wider set of broadly understood economic policies. The penultimate portion of the paper outlines the possible mechanisms available to Croatia in the event of a future crisis, considering the maneuvering room left by the various constrictions. Particular attention is awarded to the various strategies employed by member states in response to the crisis of 2008/09 and the ways in which some of them may be preempted in the future. Finally, the concluding portion uses the Croatian case to comment on the state and possible futures of economic independence of member states of the EU.

Economic policy constrictions, monetary policy, fiscal policy, EU, Croatia

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