ABSTRACT
Inspired by the growing concerns regarding the increasingly asymmetrical benefits distribution the arguments advanced by the adversaries of the European single currency project are becoming ever more compelling and challenging. To that end, economic lessons from Slovenia and Croatia furnish a unique opportunity for a critical assessment of this issue, by taking advantage of distinct cross-country features which provide an excellent starting point for our analysis for several reasons. Given that Slovenia could not exploit the exchange rate to enhance its position, the growth that it experienced can be exogenously explained, in its entirety, through the economic circumstances of Slovenia’s main trading partners. While the two expansionary phases are similar in terms of the role of exports, there are also notable differences. While the first phase of expansion was marked by the gross external borrowing and simultaneous positive capital account, the second phase of expansion was marked by debt repayments and a negative capital account.
