The election campaign is entering its final phase. In the next few days, we will witness the last attempts to gain votes.
In this process, politicians expect that their economic programs will greatly assist them. However, none of these programs will succeed in achieving their set goals. The last sentence is not pessimistic, but rather an objective limitation faced by the creators and implementers of economic programs. To begin with, we need to clearly define what success of an economic program is: achieving a long-term stable economic growth rate of over three percent per year while reaching total employment of over two million. Any different description does not signify the achievement of a stable and prosperous economic state.
Focused Lending
The key reason why none of the political options offered to us will experience the previously described success is that no program will receive support from the credit and business policies of banks. Credit is an economic instrument that is crucial for stimulating economic activity. Various larger numbers of programs financed by EU funds have a financing volume of several tens or hundreds of millions of kuna. At the same time, a single loan approved by one bank in the Republic of Croatia can have an identical total size.
Focused lending directed at specific sectors of the economy, in projects that create jobs, is a fundamental prerequisite for increasing economic activity. Targeted sector financing can open new production capacities and enable longer-term employment. Thus, such lending becomes the cause of an increase in gross domestic product. Moreover, lending must be at a level greater than 10 billion new loans per year. A smaller figure will negligibly affect the gross domestic product.
However, the business policy of banks is not limited only to credit operations. It also encompasses other important business instruments. Without banking guarantees, domestic companies cannot compete for large domestic and international contracts. When we talk about the business of banks, we mean the entire spectrum of business services they provide. A change in the business policy of banks would also enable the opening of new jobs and the creation of stable economic growth.
Banking Protection
So why don’t banks simply change their credit and business policies? The answer is not particularly complex. This is because the current business and credit policy of banks is the result of the overall instability of the monetary and legal framework, which has accumulated over the years. It should be clear that the reduction in banking activity did not cause the economic crisis, but is a consequence of the crisis. To protect themselves and their depositors, banks have opted for the simplest and safest option: reducing business activity and protecting kuna liquidity. As a result of such behavior, the current state of the economy has emerged. The reduction in the volume of activity cannot be resolved without clear and coordinated efforts from monetary and fiscal policy. However, coordinated action between fiscal and monetary policy does not exist in Croatia. Fiscal policy fills the budget, while monetary policy keeps the exchange rate stable; everything else is not particularly important for the implementers of economic policies.
Additionally, banks have become a new front where fierce battles are fought over loans in CHF, forgetting that these same banks have enjoyed their own poor credit policy for years, which was previously enabled by the blessing of regulators who did not want to bother with trivialities such as household indebtedness or the real appreciation of the kuna exchange rate. And now we have a situation where relationships are so damaged that they must be completely rebuilt.
In economics, it is sometimes difficult to distinguish cause from effect. The economic programs of political parties mainly entertain us with consequences but do not address the causes. Namely, the programs do not clearly confront economic transactions and the clear consequences those transactions have on participants in the economy. In doing so, political programs systematically ignore the fact that one of the main reasons for the economic crisis in Croatia is the completely unnatural monetary and credit policy. For this reason, the proclaimed goals of political programs will not be achievable until the central bank (primarily) is properly involved in the creation of economic policy within the framework of monetary policy, and business banks within the framework of credit policy.
