Institutions in Crisis

Institutions in Crisis

European Perspectives on the Recession

New Thinking in Political Economy series

Edited by David Howden

This critical and thought-provoking book explores the causes and consequences of Europe’s failed political and economic institutions. Europe’s recession has created new challenges as market turmoil has shaken the foundations of the twin pillars of the new drive for European integration – political and monetary unions. This book critically assesses the patchwork solutions continually offered to hold the troubled unions together. Failed political policies, from the prodigious ‘Common Agricultural Policy’ to ever more common fiscal stimulus packages, are shown to have bred less than stellar results in the past, and to have devastating implications for future European growth. The contributors outline the manner through which European monetary union has subsidized and continues to exacerbate the burgeoning debt crisis. Most strikingly, the interplay between Europe’s political and economic realms is exposed as the boondoggle it is, with increasingly bureaucratic institutions plaguing the continent and endangering future potential.

Chapter 10: The Euro as a Hindrance to Recovery? A Comparative Analysis of the Czech Republic and Slovakia

Jií Schwarz and Josef Sima

Subjects: economics and finance, austrian economics, political economy, politics and public policy, political economy

Extract

Jiří Schwarz and Josef Šíma Czechoslovakia emerged as an independent state after the collapse of the Austro-Hungarian Empire in the aftermath of World War I in 1918. Rather than creating a decentralized multi-ethnic federal state, the newly formed body epitomized the idea of ‘Czechoslovakism’: one (non-existent in reality) nation of ‘Czechoslovaks’ made up of two branches, ‘Czechs’ and ‘Slovaks’. This event – a source of heated historical and political debates between defenders and opponents of Czechoslovakism – made both Czechs and Slovaks the subjects of the same institutions and created a basis for exposing them for decades to the same set of policies. Despite the breakup of the country during the events around World War II, the situation lasted in principle until the early 1990s. Both nations shared the same currency (Czechoslovak koruna) and despite the ‘federalization’ of the country in 1968 (under the communist regime), all key decisions were done centrally, from Prague, the country’s capital. Communism ended with the ‘Velvet Revolution’ in the two ‘countries’ in November 1989 and both went through the early stages of economic and social transition together; a process of dismantling central economic planning and political oppression and replacing them with market- and rule-of-law-based social order. The first stages of economic transition were undertaken identically in both republics under the reform strategy adopted by the federal Czechoslovak government. The main pillars were price liberalization and internal currency convertibility (in January 1991); small-scale privatization (1990–93 when tens of thousands of small businesses were auctioned off); restitution...

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