Being a part of the GEOFIN project, my PhD focuses on financialisation as one of the key, yet severely understudied, features of capitalist penetration into the East-Central European countries since the dissolution of the old state-socialist system. Aiming to explain the particular ways in which financialisation penetrates and manifests itself in the East-Central European periphery, my research project examines subnational banking strategies of West-European banking groups operating in East-Central Europe, with a particular focus on Croatia. Herewith, I remain particularly receptive to the most recent appeals coming from critical scholars for researchers to start making sense of “how capital functions across a wide variety of spaces and scales” (Hardt & Negri, 2018, p.440). Coupled with the insights that financialisation is remaking East-Central European economic landscapes (e.g. Becker et al. 2010), my research examines the organization of Western financial groups’ retail banking operations in the post-socialist space, as well as the provision of financial services to households, with a focus on lending at a sub-national/regional scale. In doing so, my research aims to contribute to debates on how financialisation plays out in the specific context of ‘transition economies’. The key is to understand social and economic changes in places where finance and banking groups have removed and replaced the old systems of authority and power, and to examine the ways in which they have assumed importance in social and economic lives of East-Central European citizens. Furthermore, my research explores the extent to which local characteristics, post-socialist legacies and alternative financial movements/models influenced the form financialisation has taken in this particular context. Finally, my PhD examines what this means for the economic and financial stability of Europe as a whole, as well as for its balanced regional development. Some preliminary findings (e.g. Benceković, 2018a, 2018b, 2018c) reveal that, while each of the post-socialist countries followed a different model of ‘transition’ towards a market economy, a pattern of dependent, financialised and credit-led development by and large informed the post-socialist transformation. Perceiving ‘transition’ in this way enables us to shift the focus of attention from a ‘common European market’ to inequality that is essential to its sustenance and reproduction. Building on the concept of ‘financial chains’ (Sokol, 2017), my research operationalizes credit and debt dynamics as a fundamental structure of the uneven power between the European West and its East-Central European (semi)periphery. In these ways, my PhD research aims at contributing to the current knowledge on economic and social process by which financial capitalism reproduces itself at different scales, from local/regional to national and supra-national.

Sara Benceković
PhD Researcher
GEOFIN research
https://www.geofinresearch.eu/

References:

Becker, J., Jäger, J., Leubolt, B. & Weissenbacher, R. (2010) Peripheral financialization and vulnerability to crisis: A regulationist perspective. Competition and Change 14(3-4), 225-247.

Benceković, S. (2018a) Finance and financialisation in the context of ‘transition economies’: West-European banking groups in Croatia. Paper for the 9th Annual Conference in Political Economy (IIPPE – International Initiative for Promoting Political Economy). Pula, Croatia, 12-14 September 2018.

Benceković, S. (2018b) Geographies of finance and financialisation in East-European periphery: Preliminary reflections on subnational banking strategies in post-socialist Croatia. Paper for the Fifth Global Conference on Economic Geography (GCEG), Specialist session on: Finance and financialisation in post-socialist Central and Eastern Europe. University of Cologne, Cologne, Germany, 24-28 July 2018.

Benceković, S. (2018c) Housing and finance in the context of the European ‘semi-periphery’: transformation of banking strategies in two decades of Croatian transition. Paper for the “The financialization of housing in the semi-periphery” Workshop. Central European University (CEU), Budapest, Hungary, 20-22 July 2018.

Hardt, M. & Negri, T. (2018) The Multiplicities within Capitalist Rule and the Articulation of Struggles. Triple C, 16(2), 440-448.

Sokol, M. (2017) Financialisation, financial chains and uneven geographical development: Towards a research agenda. Research in International Business and Finance 39, 678-685.

Fig. 1. The City of Zagreb, Croatia

Photo by Sara Benceković

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“Financialization of the State: Preliminary Analysis for Croatia” was the title of a presentation I delivered for the Croatian National Bank in Zagreb on 6^th June 2019 as part of GEOFIN’s stakeholder engagement and outreach. My talk, delivered in Croatian, was the 30th iteration of the Bank’s occasional Economics Workshop (Ekonomska radionica) series, which hosts experts from outside of the Bank and provides a platform for a dialogue between the Bank staff and the “outside world”. The invitation to present my research findings was extended by Mr. Vedran Šošić, the Chief Economist of the Bank. I opened my presentation by briefly explaining the basic concept and objectives of the GEOFIN research project as well as my own role within it. In the second part of the presentation, I explained the concept of the ‘financialization of the state’ and discussed the scholarly state of play (with a particular focus on East-Central Europe) on the state-centred processes most closely connected with financialization: monetary and fiscal policies; public debt; provisioning of public services and goods; law-making and regulation; and investment policy. In the final part of the presentation, I outlined a preliminary analysis of the financialization of state in Croatia based on secondary quantitative data and existing literature and using other countries of East-Central Europe as the comparative frame of reference. My presentation highlighted the following relative characteristics of the financialization of the Croatian state: higher levels of public debt and debt servicing costs; larger shares of high-cost forms of debt (especially foreign-currency and short-term debt); and more advanced financialization of the pension system through the expansion of capitalized pension funds, which are crucially also important creditors of the Croatian state. These processes were part of a broader, distinctly peripheral financialization of Croatia’s economy, based on massive inflows of foreign interest-bearing capital that drove a major credit and assets boom in the 2000s. The state maintained a macro-economic environment conducive to these processes, especially through its long-standing anchoring of monetary policy in a managed exchange rate and its successful inflation-targeting. This mode of financialization was one of the key causes of the accumulation of macroeconomic imbalances (external debt and current account deficits) and Croatia’s increased vulnerability to external shocks. The implications of both became visible in the aftermath of the global financial crisis when a reversal of capital flows set off a long recession and a period of rapid expansion of public debt and debt servicing costs. My presentation was followed by a lively discussion that involved many members of the diverse audience of about 25 experts, including the Bank staff, experts from other public sector organizations and academics. Participants engaged intensively with the concept of financialization, which was previously not familiar to all of them, and posed searching questions about its causes and connections with global economic and social transformations, including the current environmental crisis. At the same time, they questioned some of the critical arguments about the nature and the effects of Bank’s policies and called for a more careful interpretation of particular statistical indicators. Overall, the event succeeded in being a venue for an open and engaged dialogue between public finance practitioners and academic research communities.

Dr Marek Mikuš

Research Fellow

ERC GEOFIN research

https://www.geofinresearch.eu/

Fig. 1. Croatian National Bank in Zagreb, Croatia. Photo by Suradnik13 (Licensed under the Creative Commons Attribution-Share Alike 4.0 International, 3.0 Unported, 2.5 Generic, 2.0 Generic and 1.0 Generic license).

Fig. 2. Dr Marek Mikuš delivering his presentation to the Croatian National Bank in Zagreb on 6^th June 2019. Photo by Petra Rodik (used with author’s permission).

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The expansion of public debt and changes in its regulation were key processes through which states have been financialized in past few decades. Through increased costs of debt repayment (and in some cases risk of default), financial markets discipline states and potentially subject public policies to their interests, norms and ideas. States, for their part, increasingly adopt finance- and market-based approaches to how they deal with their debts. In post-socialist East-Central Europe (ECE), however, scholars mostly discussed “peripheral financialization” of the region’s economies in general and did not focus on the financialization of the state more specifically. They linked peripheral financialization especially to prominent cross-border inflows of capital before the global financial crisis, their reversal after the crisis, and the leading role of Western European–owned banks in these processes. In this paper (Mikuš, 2019) which I presented at the 6th FinGeo Global Seminar in São Paulo, Brazil (15–17 May 2019; http://fingeo2019.com/en/home/), I asked how public debt fits into the model of peripheral financialization in the region and especially how its dynamics related to the dynamics of capital flows. To do so, I examined secondary quantitative data on public debt and financial account in 2000–2017 in the 11 post-socialist East-Central European member states of the European Union (ECE-11) and compared it with the same data on the 15 EU member states before 2004 (EU-15), which served as a proxy of the Western European core. The analysis confirmed the basic assumption of the model of peripheral financialization: ECE-11 states indeed experienced significant capital inflows before the crisis and their reduction or reversal after the crisis, compared to significantly less cyclical dynamics in EU-15. However, public debt (as a share of GDP) in ECE-11 states on average decreased before the crisis and substantially increased after the crisis, in 2009–14. In other words, the increase in the levels of public debt in ECE-11 was not associated with the inflows of capital but rather with their reduction/reversal. This could potentially be interpreted as states playing their role of the debtors of last resort in crisis situations, as indicated also by the growing share of government liabilities in total liabilities in the same period. This process appears to have been more prominent in ECE-11, considering the faster growth of public debt and government liabilities after the crisis than in EU-15. To conclude, then, public debt dynamics in East-Central Europe appears to have been related to the cycle of financial flows typical for peripheral financialization, but in a more indirect and complex manner than a simple linear correlation between capital inflows and debt increases. In addition, there was also a substantial variation between the debt trajectories of the countries in the region, suggesting a need for fine-grained case studies of the underlying national-level conditions, developments and outcomes.

Dr Marek Mikuš

Research Fellow

ERC GEOFIN research

https://www.geofinresearch.eu/

Reference:

Mikuš, M. (2019) Public debt, capital flows and financialization of the state in East-Central Europe. Paper for the 6th FinGeo Global Seminar. University of São Paulo, São Paulo, Brazil (15–17 May 2019).

Fig. 1: Financial account balance as a share of GDP, ECE-11, 2000–17. Deficits indicate cross-border capital inflows, surpluses outflows. Source: Mikuš, 2019; Graphic support: Petra Rodik.

Fig. 2: Budapest Stock Exchange. Hungary is one of the most indebted East-Central European countries. Source: Wikimedia Commons – Photo by Globetrotter19, used under a Creative Commons Attribution-Share Alike 3.0 Unported license.

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On 20–21 March 2019, I attended and delivered a paper in the wonderful workshop on “Moral Dimensions of Economic Life in Eastern Europe, Russia, and Eurasia”, organized by Dimitra Kofti, Nicolette Makovicky and Jörg Wiegratz at St Antony’s College in Oxford. The paper explores the moral dimensions of housing debt and its politicization by new social movements in Croatia and Hungary. After the global financial crisis, mounting issues with household debt, the bulk of which in high- and medium-income economies is housing debt, have become a major focus of debates and struggles over the financialization of the economy – its transformation by the rising power of finance. The expansion of debt in recent decades has been also central to the financialization of housing. Housing debt constitutes housing as a financialized asset, entangling its acquisition and ownership with multiple financial risks – repayment rate, interest rate risk, sometimes exchange rate risk. Boosted by the proliferation of financial assets derived from mortgages, the insertion of housing into financial markets has also made its prices increasingly volatile. Across Global North, problems with mortgages, manifesting most dramatically in spikes in foreclosures, were seen as something of an ultimate moral frontier of financialization. This is clearly related to the materially essential and morally and emotionally charged significance of housing. A small but quickly growing number of studies by geographers and anthropologists documented the rise of progressive movements in the United States and Western Europe, especially Spain, that challenged financialization of housing in radical and explicit ways, such as by obstructing evictions, occupying repossessed buildings, and promoting alternative, de-financialized models of providing housing. This paper describes formally similar practices, such as eviction obstructions, in Croatia and Hungary but in the context of otherwise quite different movements. They generally opposed specific lending (and debt collection) practices rather than housing financialization in general, and some were oriented to not-so-progressive, especially nationalist and populist ideologies and alliances. I point to several factors that narrowed the space for radical and progressive contestations of financialization of housing in Eastern Europe. On the one hand, the extreme dominance of homeownership in the countries, and the expanding housing debt, helped align interests of indebted homeowners with the logic of financialization. On the other hand, debtor activists focused on contesting various high-risk and predatory lending practices, which were particularly prevalent in Eastern Europe (especially foreign exchange loans), and on preventing the immediate threats of foreclosure and eviction. This directed them to strategies like individual litigation and lobbying for changes in consumer lending and debt enforcement laws. At the same time, there was also a lot of variation between the ideologies, strategies, and degrees of success of individual movements. I argue that this can be traced to different political contexts in the two countries and the multiple interests of various groups and categories of debtors, which the movements articulated through various, populist as well as professionalized, strategies of contestation.

Dr Marek Mikuš
Research Fellow
ERC GEOFIN research https://www.geofinresearch.eu/

An eviction obstruction organized by Human Shield (Živi zid), Zagreb, 2017 (Photo courtesy of Živi zid).

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