Now that we know who should be in power for the next 4 years, it is necessary to consider how that government should manage the economy during that period. It is clear that the recession is a thing of the past, but it is also clear that a recession will happen again sooner or later. So the question that arises now is not whether we will have GDP growth, as that will certainly happen. The real question is not even how much that growth will be in the coming years (although it is very important that GDP growth rates are as high as possible). The real question is: How to use the period of positive economic trends to prepare for future recessions?.
To answer that question, there is no need to reinvent the wheel. We just need to look at what countries that successfully overcame the crisis without major problems did. It is interesting to compare Croatia with countries like Germany, Sweden, and Austria, and the fiscal and monetary policies that these countries implemented during the growth period up to 2008, as well as the education policies and the alignment of the education system with the labor market.
So let’s go in order… Croatia used the growth period to raise social rights, and the budget recorded a deficit every year during that period (2000-2008). The education system did not change, and the labor market was not liberalized. The Croatian National Bank allowed loans with currency clauses during that time. The result was that labor costs increased, debt grew, and the exchange rate was not corrected, resulting in high consumer spending going towards imported products, while exporting companies became less and less competitive. Additionally, the education system almost completely lost its connection with the labor market. As usual, with the onset of the crisis, all these weaknesses were revealed, and we still feel the consequences today.
During that time, Sweden, Germany, and Austria liberalized the labor market, reduced the public debt-to-GDP ratio, generated budget surpluses in most years when they had GDP growth, built a connected education system with the labor market, strengthened institutions for implementing active employment policies, invested in research and development… Given that Sweden is outside the Eurozone, it also utilized expansionary monetary policy, while Germany and Austria built a stable education system with dual education that always follows the needs of the labor market. In this way, these countries made their economies stronger and more competitive, and consequently more export-oriented. As a result, when the recession occurred, with certain timely interventions, these countries did not experience a significant decline in GDP and hardly felt changes in unemployment.
