To begin with, let's go back in history: if historians are to be believed, the Rubicon was actually a slightly larger stream; however, its importance to the Roman Republic lies in its position, marking the official border between Italy and Gaul (present-day France and northern Italy), ruled by Gaius Julius Caesar.
According to the laws of the Roman Republic, crossing this stream would have serious consequences - any provincial governor who would lead an army across the border into Italy would be declared a public enemy of the Roman Republic. Simply put, crossing the Rubicon would be an act of war that automatically leads to civil war.
On January 49, XNUMX BC, consciously choosing to step over the Rubicon, Gaius Julius Caesar quotes the favorite Greek playwright Menander: "The die is cast." Civil war in the Roman Republic could begin.
The collapse of the neoliberal dogma
The global economy and related socio-economic relations in society are under strong pressure caused by the corona virus pandemic. Small, open economies of developing countries, which are extremely sensitive to external shocks, are especially threatened and vulnerable. In fact, the open economies of developing countries, which achieved their economic growth due to uncontrolled, unproductive and corruption-ridden borrowing on the one hand and systematic predatory destruction of domestic production on the other, will be many times more strongly affected by the crisis than developed countries, while the recovery of their societies in the whole takes much more time.
Unfortunately, Montenegro is one of these economies with a strongly embedded neoliberal dogma in its economic system, which these days is showing its essential structural problems. Constantly repeating and relying on the "invisible hand of the market" mantra simply does not "work" in real life; neoliberal economy cannot solve such a serious economic problem without the direct involvement of its greatest enemy - the state.
Nevertheless, Montenegro today cannot intensively use the fiscal mechanisms that were possible 10 years ago. Here I am primarily referring to the mechanism of public debt (in 2006, it amounted to about 30% of GDP), which to the greatest extent absorbed the shocks produced by the 2007 crisis. According to available official macroeconomic data, in the meantime, Montenegro borrowed intensively (public debt with guarantees at the end of 2019 amounted to about 85% of GDP) in order to finance huge current state spending, but also largely failed and unproductive investments, so that now there is not too much neither the capacity nor the time to establish mechanisms that will protect us from a global recession that, in all likelihood, will last for years.
How long will it take us to recover?
The devastating effects of the economic crisis caused by the corona virus will tectonically shake the foundations of our economy with pervasive negative impacts on all structures of our society, the consequences of which will be felt in the years to come.
Bearing this in mind, we have prepared a detailed analysis and projection of the recovery of the Montenegrin economy, which is based on careful consideration and modeling of numerous variables (18 in total) that shape and have a decisive impact on the overall picture of our economy. We modeled 3 scenarios, in order to have a clear picture of the necessary tools that the state must use depending on the duration of the pandemic.
Most analyzes are based on the projection of the GDP growth rate, as the basic measure of economic recovery. Respecting this approach, our analysis, in addition to GDP, also considers an additional set of economic indicators: unemployment rate, budget deficit, balance of payments deficit, net flow of foreign direct investments, public debt, real wages, inflation rate.
A holistic approach structured in this way allowed us to take a deeper look at the problems of our economy and see the interwoven influences of specific variables that, depending on the time horizon in which they are observed, have a different impact on the recovery of the economy.
The conclusion from our analysis is very clear: in the best case scenario, if the pandemic caused by the corona virus ends in June 2020 without the return of the virus in the fall, the overall recovery of the Montenegrin economy will last 3 years. Once again, it is important to emphasize that this recovery does not mean only GDP recovery, but also includes other indicators that affect the overall economic picture of Montenegro.
In the scenario that the corona virus pandemic lasts for 6 months and completely covers the 2020 summer tourist season, the situation worsens significantly - the recovery of the Montenegrin economy will take 6 years.
Finally, according to the third scenario, if the crisis lasts 18 months and covers two summer tourist seasons (2020 and 2021), with great uncertainty for securing the necessary external financing, which will be measured in the amount of more than one billion euros, Montenegro will need whole decade to recover from the economic shock caused by the corona virus pandemic.
Methodology
For the purposes of modeling the above scenarios, the starting point was numerous inputs from the Program of Economic Reforms (PER) 2020-2022, which the Government adopted in January of this year. Quoting PER: "The growth model of the Montenegrin economy in the medium term will be based on a further high level of investment activity, the growth of private consumption and an increase in the export of goods and services in accordance with greater diversification of the economy and growing revenues in the tourism sector." Considering the fact that tourism will almost collapse this year, which will cause a drop in personal consumption, investments will be reduced to the minimum possible, while imports will be almost halved and exports will be decimated, it is clear that the growth model of our economy is fundamentally threatened and that economic growth is impossible to achieve. For this reason, we defined and analyzed 18 variables in order to comprehensively see the impact of the corona virus pandemic on the Montenegrin economy. List and direction of variables: 1. Strong growth in the budget deficit 2. Strong growth in the current account deficit of the balance of payments 3. Strong decline in domestic and foreign investments 4. Stagnation of lending to businesses and households 5. Weak interest in the economic citizenship program 6. Strong growth in public debt 7 Decline in gross domestic product 8. Sharp decline in income from taxes, contributions, excise duties and other budget revenues 9. Sharp decline in domestic consumption, which accounts for 75% of GDP 10. Sharp decline in employment 11. Sharp increase in the unemployment rate 12. Sharp decline in real wages 13. Falling oil prices along with rising food prices have a neutral effect on inflation 14. Stagnation of agricultural production due to weaker summer tourist season 15. Strong decline in the construction sector 16. Strong decline in the mining and quarrying sector 17. Strong decline in the manufacturing industry 18. Strong decline in accommodation services and nutrition
The die has indeed been cast
Montenegro is facing an unprecedented challenge in its recent history. All parameters show that the impact of the crisis on the Montenegrin economy will be extremely strong but also long-lasting, as well as that it will include all segments of society without exception. However, our poorest citizens and vulnerable population groups will be hardest hit, while the middle class will face significant wage cuts as well as the loss of well-paying jobs.
The response of the state of Montenegro to this challenge must be strong, comprehensive and timely, with a decisive rejection of the neoliberal growth model that has characterized our economic system until now. Any delay in the practical implementation of measures and the omission of vulnerable categories of our society entails the risk of permanent disruptions in overall social relations that can lead to an intense increase in poverty, real social vulnerability and a drastic increase in inequality in our society. The economic measures adopted so far are insufficient for the problem we are facing; it is time for difficult, painful, but also the only correct decisions in order to preserve Montenegrin's economic substance. The author is the CEO of Fidelity consulting
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