The Ghosts of Yugoslavia: Borders, Bankers & Balkan Ghosts

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1:01To understand the economy, you have to understand human nature. This podcast is powered by Acast.

1:13David McWilliams: How are you doing there? It is time for the podcast. And if you're just a first-time podcast listener, why don't you just go back to the archive, listen, dip in, dip out. You'll probably get a sense of what the podcast is all about. If you are a serial weekly recidivist, you know the deal already. I've got to talk to this fella. I don't know who he is. A fella called John Davis. How are you doing, Ed? I'm good. I am good. I'm just back from France. Frazzled. I know. You're frazzled. Tell me, what was your latest travail? The tales. Those people write these kind of a year in Provence, you know, and a sort of idyllic sort of ecolic notion of living in rural France.

1:56David McWilliams: Go on, tell me, what was your tragedy? No, it was, as you know, as all of Europe was burning up, but there was a massive forest fire near Narbonne and it closed down all the motorways in the area and there was another massive fire near Marseille. And apparently it was some dude driving along, flicked out a smoke. Of course. So I'm giving up smoke now. When you give up Harry's, John, right? When you give up Harry's, we will have an entire podcast based on the economics of willpower. something that you and I have none of okay

2:32I'm economically defunct in that department

2:35David McWilliams: I think we all are I think it's a procrastination is one of the greatest human characteristics you know it's what Saint Augustine said make me virtuous oh lord but just not yet okay and that's the way we all are it's like I'm going to give up this I'm going to give up that but it's high summer John it's not the time for giving up anything Well, I tell you, somebody who's not taken by procrastination is your friend of mine, Jamie Dimon, who was in Dublin last week that you missed. I think he was looking for you. I'm telling you, I didn't realize that. What was he going on about? He was just, you know, the usual stuff.

3:10But he did make a speech.

3:12David McWilliams: By the way, just if you don't know who he is, listener, Jamie Dimon is probably the most long-lasting investment banker. He's been around for a long, long time, running JP Morgan. And depending on where you sit, you either think he's the great Satan or you think he is an amazing evangelical innovator or he is a political operator. But the interesting thing, John, is, as you say, because he runs the biggest bank in the States, biggest investment, what he says matters because he's at top of the financial system. Yeah, you got to listen to him. You got to listen and take on board what he was saying.

3:46but he was talking about complacency in the markets initially when trump brought in the first bout of or threatened the first bout of tariffs the markets went bloobas now the second time that he's done it the markets aren't reacting that much and he's kind of was describing as a complacency within the markets but what he was also saying he was commenting on europe and he basically said Europe has lost. And I wasn't quite sure what game we were playing that we lost, but there you go.

4:16David McWilliams: Well, I mean, I think two things in response to that. Watch for August in financial markets. There is a consistent element in financial markets, which is that crises tend to start in August. Bear Stearns went bust because of a crisis that started the previous August. Le Mans went bust because of prices. The Irish banking system went bust in August of 2008. Yes, yes. That's where the law sold its money. Remember that. And the reason is people go on holidays. Markets are very, very thin. And by that, I mean, there's not much trade. There's not much volume. Yeah. And what you tend to have is people kind of take stock and think, wow, the great financial crisis of Russia started in August.

5:05And we're going to talk about that today in the context of Yugoslavia, John. Okay, I'm going to talk about that in a second. But interestingly, Jamie Dimon said Europe has lost. And that's very much the American narrative, which is that the Europeans in the last 25 years have forfeited about a quarter of GDP to the Americans. By that I mean the American GDP per head was about the same as Europe around 1998, 1999, 2000, around then. And now 25 years later, American GDP per head is about 25 % above European GDP per head because of massive innovation in the United States, right? So, on that basis, we have probably lost.

5:51Although I wouldn't, if I were an American, write off the fact that the Germans are now re-arming, re-industrializing. There is a sort of a moment of clarity because of the threat of Russia. And it'll be interesting to see where Europe goes. But interestingly, the story that Europe has lost, lost its way, isn't powerful, probably can be located in what we're going to discuss today, John. Go on, explain. Which is 30 years after the end of the Yugoslav war. Okay? Right. So it is now July. This week, 30 years ago, the Serbs took over a Muslim village called Srebrenica, not a village, a town. Yeah.

6:38In eastern Bosnia. and over a process of a week, they murdered at least five, if not seven or eight thousand Muslim men and boys. There was that harrowing footage of them rounding them up. Rounding them up. And we were looking on helpless. Well, this is the point, right? The narrative that Europe has lost really began to gain currency in the Yugoslav war because the Yugoslav war was the worst war in Europe since the Second World War. It is still more violent and many more people killed than the Ukrainian war at the moment. Yeah. And it led to ethnic cleansing. It led to all those things which are now associated with Yugoslavia, associated with the Balkans.

7:37And of course, for Americans, the idea was if the European Union cannot come together to stop a war on its own borders, what is the point of this institution? Now, fascinatingly, we're going to do, I am in Croatia. Yeah. We're going to do a piece. This is a little gem, I think, for listeners on the 30th anniversary, not of the Srebrenica, but at the end of the Yugoslav war, which ended in 1995, the interesting thing and the ironic thing is that Srebrenica, the massacre of Muslims in Srebrenica, was the final straw for the Americans to get involved. And within a month, the Serb army was on the retreat here in Croatia in a place called Krajina, a town called Kinin, which on the 5th of August 1995, the Croat counterattack destroyed the Serb army, which had been on the offensive for previously four years.

8:41Now, the reason the Croats counterattacked then was because the Americans signaled to the Croats that as a result of the massacre in Srebrenica,

8:53David McWilliams: they drew a line in the sand. They told the European Union, we don't give a damn what you think, and the reason the European Union was divided is historically the European Union, the different European countries have had different alliances down here. I'll explain that in a second. And it was Bill Clinton who just said, this can't go on. And the Americans came in, they basically rang the Serbs, Milostovic and said, we are going to support the Croats, number one, and we are going to give them air cover, number two. And that, of course, was the beginning of the end for the Serbs. And the Serbs eventually signed the Dayton Agreement in December of 1995, which they gave up on their idea of Greater Serbia.

9:30David McWilliams: They lost territory all over the place. They were declared the loser in the issue. They had sanctions slapped on them. And the Serb regime of Milosevic limped on for another few years. They had a war in Kosovo in 1998. But that was the end of the Yugoslav war, 1995. Okay, so let's discuss, because it's fascinating stuff. And I mean, this was back in the 90s. So this was when we had rolling news tv so we were all watching it yet there seems to be a kind of um oh maybe you're wrong in saying but a kind of a lack of understanding of the details of it so let's go back to the very beginning so tiso was the president of yugoslavia holding these three groups of people together six groups oh a bigger part right okay no but nobody because it's really it's complicated and I'll tell you the reason I got involved here is that I ended up working for a French bank and my boss was a Serb and he said to me go down to Serbia this was in 1996 or 7 so just after the war yeah just before the Kosovo war but after the end of the Croatian stroke Bosnian war with the Serbs.

10:49And I arrived in Belgrade. I'll tell you, I mean, Belgrade is a fantastic city. It's the best crack. It's really good fun.

10:58David McWilliams: Serbs are capable of love and hate at exactly the same time with exactly the same person. They are a funny, bizarre race. With the same intensity. With the same intensity. At the moment, we'll bring it up. At the moment, Europe's biggest revolution is happening in Serbia and nobody knows what's going on. Right now on the streets, there are hundreds of thousands of Serb kids, students on the streets, agitating for a change in the regime of a guy called Vucic, who's now the boss. Interestingly, you'll notice that Djokovic, the tennis player, they have a sign in Serbia, which is they push down on their arms, which is the sign to keep the pressure on, which is what the students do all the time when they are marching.

11:41David McWilliams: and Djokovic did this at the final in Wimbledon, the semi-final in Wimbledon. He kept doing this with his hands. You might have noticed this with his kids. Right. And that was to keep the pressure on. So Djokovic obviously doesn't want to come out and say he's pro the revolution and pro the students because he just doesn't want to be entirely political, but he is. So that's quite interesting. But if you go back, so I fly into Belgrade on JAT, which is Yugoslav Airline, okay? from London. And there used to be a flight every Friday night. And I go to write an entire paper for the bank on Serbia, what's going on, right?

12:21This is just after the war.

12:22David McWilliams: You get on the JAT flight. I loved this. You can smoke on the left-hand side of the plane. But not the right. Not the right. Okay. So everyone's lighting up, right? Do you smoke? Smoke your right, right? This is still in the late 90s when smoking is banned everywhere. Yeah, yeah, yeah. So the plane is kind of tilting to the left. So everyone's smoking. And as the plane comes down, the Serbs have this terrible habit of getting out of the seats really early to be first in the queue. Yeah, yeah, I never understood that. The plane is landing and the fellas are getting up and they're big, big fellas.

12:55David McWilliams: So I arrived there and I spent a number of weeks talking to all sorts of people, trying to get a sense of what's going on in the economy. But the fascinating thing is, Sian came out. I rang her. I said, look, you have to come out here. this is fantastic so she got about a month later got the flight out and I was working so Shan said I'm going to go to the tourist office in Belgrade and you know see what's in this city she goes into the tourist office in Belgrade and there's a woman there and she's smoking everyone smokes in Belgrade she's smoking the fags right and she's ignoring her for about two minutes and then she looks up and this is a classic Serb one black eyes black hair really really dark dark sort of mascara and she just looks up Shannon, she goes, this is the tourist, she goes, what the fuck are you doing here?

13:42David McWilliams: In perfect English. Welcome to Serbia. What the fuck are you doing here? That was it. That was it. Anyway, so because of working here, so basically, eventually what we ended up doing was the following. When the Yugoslav war broke out, Yugoslavia had a huge amount of debt. Yeah. And then at the end of the war, all the debt was defaulted on because the different republics within the Yugoslav Federation were fighting the war. And in order for those republics to actually go and reborrow on the international markets, they had to settle their debts. so the french bank that i worked for bought up their debts their defaulted debts at a massive discount went to the imf and the world bank got the imf and the world bank to buy those debts so our team i know it's this is how this is how finance works bizarre yeah this is why i wouldn't listen to jamie diamond so much right right and then that cleared the desk so basically what happened was i was working on the emerging markets team there which was all about trading defaulted debt of countries that had defaulted in the 1980s.

14:53David McWilliams: And of course, Yugoslavia defaulted. Why did it default? Because once they started a war, all the obligations of Yugoslavia were defaulted on by Yugoslavia. And then the constituent parts of Yugoslavia that wanted a new republic in Croatia, Slovenia, Bosnia, et cetera, et cetera, they had to clear their decks. But nobody would buy the debt of these countries, even though it was trading a big, deep discount, except my boss, who was a Serb. Right. It was like a gambler, right? And my job was, of course, to explain why we were doing this to the board of BMP. So in order to do that, I had to go down to Serbia.

15:28David McWilliams: And that's when I fell in love with this part of the world. Yes, yeah, yeah, yeah. Thus starts my 30-year... You remember, I used to come home with Vranats to London, Serbian wine. Yes, yes. And it was always the great mistake. You think the wine tastes really good when you're in the Serbian Writers Club at two in the morning drinking the wine. you bring back six bottles of it and it's rotten when you get home i remember you brought a few bottles over to our place for dinner one night and it was but it was the wine that we we ended up drinking at the end of the night so it was fantastic exactly big treacly red yes yeah yeah stuff right so anyway so that that that that began so let's go back because it is a fascinating story It is a story of the Balkans.

16:16It's a story of geopolitics. It's a story of economics. It has, over the last 30 years, become the story of emigration, mass emigration out of the Balkans. It is a part of Europe that most people avoid. Most people don't understand. It has been fought over by Germans, Turks, Russians, Brits, French, over many, many years.

16:39David McWilliams: It's characterized by three very, very strong religions, Catholicism in Slovenia and particularly here in Croatia, Orthodox Christianity in Serbia, and Islam in Bosnia and Macedonia. Also, this week marks the 30th anniversary of the end, or the beginning of the end of the war, which I don't need to go into, but people will remember it was absolutely, absolutely brutal. Neighbor against neighbor, family against family, ethnic cleansing, camps, people being murdered, rapes, horrendous stuff. The siege of Sarajevo, the longest siege ever of a city. Again, a great place to go if you're down this part of the world.

17:25David McWilliams: Sarajevo, an amazing city. Very evocative. And everybody was familiar with Sarajevo because it was only a couple of years prior to that that it was the host of the Winter Olympics. You're absolutely right. And I went to skiing holiday in Sarajevo about four years ago and there was no snow. Arrived. They were cutting their lawns. They were cutting their lawns, okay. But again, global warming. So let's go down a little bit of history before we go. The kingdom of Yugoslavia is set up after the First World War, out of the ashes of the end of the Ottoman Empire and the end of the Austrian-Hungarian Empire.

18:02Austrian-Hungarian Empire was Slovenia, Croatia, and what is now Bosnia-Herzegovina.

18:09David McWilliams: They were in Austria. Serbia had always been fighting the Ottomans. Serbia was an independent country, an independent kingdom. And Macedonia and Kosovo were part of the Ottoman Empire. So Serbia was always surrounded by the Ottoman Empire. Yes. So basically the Serb national DNA is characterized by opposition to the Ottoman Turks. Yeah. And the Serbs see themselves as, saw themselves historically as the defenders of Christianity against the infidel. Right. Islamic infidel. Yeah, yeah. So the Serbs, of course, triggered the First World War with Gavriela Princip in Sarajevo. They were also fighting the Austrians.

18:56The Austrians had occupied Bosnia in 1871. the Serbs were consistently trying to eject the Austrians out of Bosnia and get that Serb-Bosnian state, which they talked about Greater Serbia. So the Serbs are spread all over this part of the world. They're in Krajina here in Croatia. Well, they were until the 5th of August 2005 when they were all expelled. About 300 ,000 of them were ethnically cleansed by the Croats in three days.

19:27David McWilliams: So, I mean, there was a lot of tit-for-tat stuff going on, you know. And they were all shipped back to Serbia. Back to Serbia. Back to Serbia. Back to Belgrade. Back to other parts of Serbia. Yeah. So basically the Serb idea was this idea of greater Serbia, that basically everywhere where there were Orthodox Christians, they were Serbs, and Serbs needed to have this sort of space where they could all live because they were being victimized by everybody else. That's their story. The rest of them have a different story. Yeah, yeah. So that's the kingdom of Yugoslavia set up after the First World War.

19:58It's basically Slovenia, Croatia, and Serbia.

20:03David McWilliams: The kingdom, Yugoslavia means southern Slavs. Yugo is south in Serbicroat. Okay, so it's the kingdom of the southern Slavs, as distinct from the northern Slavs being the Poles, the Czechs, and of course the Russians, the big ones, right? Yeah, yeah. Now, mention the Russians. The Russians have always been in alliance with Serbia. Always, right? On the basis of pan-Slavicism, orthodox religion, all that carry on. And being in opposition to the Ottomans as well. And being in opposition, A, to the Ottomans, you're absolutely right, and B, in opposition to the German-Austrian axis, which the Croats were part of.

20:38Yeah.

20:38David McWilliams: And interestingly, John, again, historically, the French and the Brits have been on the Serb side. So this is interesting. Okay. Because the French and the Brits liked the Serbs. Why? Because the Serbs were having a go with the Austrians and the Turks. Right. So they used the Serbs basically as manpower to annoy the bigger powers and always sort of push the Serbs on. And the Serbs themselves found themselves, in their minds, surrounded by enemies. So it's a lot of stuff going on. And this turned out to be a complication later on in the 90s. You're absolutely right, John. You're absolutely right, yeah.

21:14So this historical legacy ended up being one of the reasons why the European Union never acted in the Yugoslav war. Because battle lines had been drawn about 100 years prior to this in terms of historical, cultural, and economic alliances. It is amazing. Yeah. So the Kingdom of Yugoslavia, multi-ethnic, multi-religious,

21:40David McWilliams: multilingual, fascinating place, gets invaded by Germany in 1941 by the Nazis. The Nazis overrun Yugoslavia incredibly quickly. And everyone thinks it's all over for the Yugoslavs except for our friend Tito. Tito is the guy, we will remember from the last episode we did on Trieste, who was hanging out in Vienna at the same time as Stalin and Hitler. Now, Tito had been in Russia because he was a communist, and he came back to Yugoslavia to really begin and lead a fighting force which actually destroyed the Nazis here. And that's an amazing story that most people don't know, is that the partisans, Tito's opposition to the Nazis, who were a communist socialist group, they, without any foreign aid, without any Allied troops ever setting foot in Yugoslavia, without any Allied bombing in Yugoslavia, until the very, very end, they single-handedly beat the Nazis in a feat that was equivalent to, I think, historically, the Russian defeat of the Nazis, but people don't talk about it.

22:53Right. Can I just ask you about Tito just for a second? Because the perception I have, rightly or wrongly, is that Tito was a very strong leader, obviously because he kept Yugoslavia together. All those people of different backgrounds together. But that he was a relatively moderate leader in terms politically. Am I right in saying that? Like, I know he was a dictator, but what kind of a dictator was he?

23:18David McWilliams: He was much... So fascinating person, Tito. Tito, the first thing Tito does, which is fascinating, in 1946 and 47, so just imagine how powerful Stalin was in 1946 and 47. Stalin assumed that the Yugoslav partisans, because they were communists or socialists, would be part of his remit. Yeah. And would be part of the Warsaw Pact and would join Russia and the Soviet Union. And Tito told him to fuck off. And basically said, come and have a go if you think you're hard enough. Really? Stalin backed down because Stalin realized that they would not beat the Yugoslavs on their own turf, even the Russians.

23:56Yeah, because they had formed after the Nazis.

24:00David McWilliams: They had formed because they had destroyed the Nazis. Yeah. It was a Nazi-Italian combination that they destroyed here. But of course, the Second World War left very, very, very deep scars in Yugoslavia because the Croats set up their own fascist state here in 1941 under a guy called Ante Pavlevic. They were called the Ustazae. And the Ustazae were the Croat fascist regime that killed hundreds of thousands of Serbs. Okay. In concentration camps, the third biggest concentration camp in Europe was in a place called Jasenovac. That's J-A-S-E-N-O-V-A-C. Right. So during the Second World War, the ethnic divisions within Yugoslavia became very apparent.

24:53So initially, just so you know, there are three main religions, as we talked about. there are, in Yugoslavia, there's six countries. There's Slovenia, Serbia, Croatia, Montenegro, and Macedonia. Within Serbia, there are two autonomous regions. One is called Kosovo, which is now an independent state, which is largely populated by Albanians, but wasn't at the time. And there's a place called Vovedina, which is in the north of Serbia, which is largely populated, had a significant Hungarian minority. And the reason the Hungarians are there, because obviously originally this was part of the Austria-Hungarian Empire.

25:37So within Yugoslavia, there's a multitude of different customs, religions, ethnicities, all that stuff, unified by the language that is Serbo-Croat, which is the language of Croatia and the language of Serbia. the only actual difference, although people will say technically there are some small differences, the only actual difference is the fact that the Serbs use the Cyrillic alphabet like the Greeks and the Russians, the Bulgarians, and the Croats use the Latin alphabet like the rest of Europe, or the rest of Western Europe. I don't know if you know this, is the accents, since the words are pretty much similar, are the accents very different?

26:20David McWilliams: The accents are very, very different. I am Dan here in Dalmatia. So the Dalmatians are sort of a sub-tribe of the Croats. The Dalmatians are what I call the sunny Croats. They live on the seaside. The Dalmatians have a very heavy accent. I love it. You can really hear the difference. Like a cork accent, is it? It's like a Kerry accent. They speak like it. It's a really heavy, heavy accent. And it's very sing-song. It's inflected by lots and lots of Italian because the Italians occupied Dalmatia for many, many hundreds of years. Yeah. They were also kicked out at the end of the Second World War because Dalmatia was given by the Nazis to, and the Ustazae, the regime in Zagreb, was given to the Italians as a sort of a present.

27:04The Italians behave very, very badly here, Italian fascists in Dalmatia, which is why Dalmatians were much more likely to be in the partisans than other Croats.

27:13David McWilliams: And so the Dalmatians ended up very, very close, ironically to the Serbs in the Second World War and the partisans, but today the Dalmatians are much more defined by Croatian nationalism and Catholicism than they were 30 years ago. And this is the weird thing. So the axis has shifted over this part of the world. But in general, that's what we're looking at a lot during the Second World War, the fascist regime in Croatia, what they call continental Croatia, which is Croatia, not on the sea, not the sliver that goes right down the coast, but inland, mass extermination of Jews, mass extermination of Roma, and mass extermination of Serbs.

27:54David McWilliams: So that is what's going on. Then the opposition to the Nazis is split between two groups, the Chetniks, who are Serb royalists who want to re-establish the monarchy after the Second World War, and partisans who were Yugoslav communists. And the reason that the partisans could pick up people was because they were driven by ideology and not nationalism. So you could be a Croat partisan. In fact, Tito himself was a Croat. Okay. So it's really complicated. Yeah, yeah, yeah. So Tito himself is a Croat. You could be a Croat partisan. You could be a Serb partisan. You could be Slovenian. You could be Macedonian.

28:31David McWilliams: All that sort of thing. Just one last word on Macedonia. Macedonia always close to Turkey because that was much more part of the Turkish Empire. Do you remember we were talking about Ismail Pasha last week? Yes, yeah. From Macedonia. Right. And Montenegrins, apart from being the tallest people in the world, are what you would call proto-Serbs. The Montenegrins are the tallest people in the world. They're giants. What? What? I never heard that. I thought the Ethiopians were, actually. No, no, no. The Montenegrins, you go down there, they are all giants. They're all about six foot five, which is why they're great basketball players.

29:04David McWilliams: Yes, yeah. Basketball is huge there, isn't it? Yeah, yeah, yeah, yeah. Yeah, basketball, water, polo, these sort of things. I only take solace in the fact that Luka Modric is actually smaller than me. And he is... Oh, yeah, of course. Yeah, yeah, yeah. But anyway, so that's going on. So the Second World War, the partisans beat the Nazis. They start in deepest Serbia. They expand. They expand over three or four years. And at the top is this enigmatic character called Joseph Broz Tito. Tito wins the war, declares Yugoslavia Yugoslavia, independent of the Soviet Union, gives the two fingers to Stalin, decides that they're going to have their own third way.

29:43So this goes back to your idea of what sort of a dictator was he. He was a dictator, right? But what he said is he sets up the constitution of Yugoslavia where all the different regions have similar powers, but he sits in the top. And from 1945 or six, the end of the Second War, to 1980, he runs the place. And not only does he run the place, but he plays a great game. He basically plays the West and the East off each other. So Yugoslavia positions itself as an independent third way force between the Soviet Union and the Americans. And what does that do? It allows the Yugoslavs to become very, very good traders of commodities and all stuff out of the Soviet Union, while at the same time allowing them to incur significant debts to build the economy from the West.

30:32So he's playing this game. Yeah, yeah. Which is a very, very clever game, a very, very skillful diplomatic game. And all the while, the incomes of Yugoslavia begin to rise, not dramatically, but progressively. But it's a socialist country. It is, then comes unstuck. Quito dies in 1980. This is a total disaster for the country. Yeah, of natural causes. Yeah, but like a lot of dictators doesn't leave an heir. So there is no person that emerges. So suddenly then what you get is there becomes this idea of a rotating presidency. So the Serbs have it for a year or two, the Croats have it for a year or two, etc.

31:17So this is a sort of a recipe for disaster. All the while, you have Gorbachev emerges in the Soviet Union. And what Gorbachev says is, look, you know, socialism is over. Communism is over. We need to embrace the market. we need to go a bit closer to the West, etc., etc. This kind of shatters the illusion of the permanence of socialism worldwide. And of course, what happens all over Eastern Europe is that the biggest movement against socialism or communism is nationalism. So suddenly you're no longer a Yugoslav, you're a Croat, or you're a Serb, or you're a Bosnian, or you're a Macedonian, or you're a Slovene, etc.

31:56So these embryonic nationalist movements are emerging all over Eastern Europe But the spice in the dish in Yugoslavia is there are historical enmities between these various tribes down here. Be they cultural, be they religious, be they geostrategic, etc. The Croats always felt that they generated all the income for Yugoslavia through tourism.

32:22David McWilliams: And they gave that money to Belgrade and Belgrade gave it to the Serbs. So all that stuff is going on. So hang on a second, Mike. What year are we here? So we're talking the mid-80s here, John, with all these mid to late 80s. Before the wall came down. Before the wall came down, kind of around the same time as the wall coming down. And the added complication, not just ethnic, religious, etc., is the fact that Yugoslavia experiences hyperinflation in the 1980s. Okay, so let's talk about what was going on economically at the time in the region and why hyperinflation took off at this time. But let's do that after a bit of this.

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35:27so mike this whole region is a melting pot of different cultures and different religions and different ideas and it's kind of thrown into disarray by number one tito dying who kept the whole thing together but also the fall of the berlin wall so there's this growing tension and then to add to that there is a growing hyperinflation in in the region so how has that impacted stuff

35:55David McWilliams: what's the upshot of that so tito incurred all these debts these these debts which are dollar denominated debts yeah and as the sort of soviet system began to break down the sort of trump card of the yugoslavs which is we are this east versus west we're this trading partner began to be questioned, number one. Number two, the Central Bank of Yugoslavia, that was the institution that printed the dinar, decided to alleviate, or the strategy was, you will alleviate all these ethnic strains and stresses by giving money, by printing money, by basically saying to the Bosnians, look, here's a couple of hundred million dinars.

36:37David McWilliams: To the Croats, here's a couple of million dinars, sort yourselves out. So it was a case of using monetary policy to try and suppress nationalism. So the idea was, how do you keep the whole thing together? And the dinar had never been an openly traded currency in the way we know in the West. It had always been exchange controls. And of course, once you get a sniff of inflation, when people's perceptions of the currency is already fragile, because Yugoslav, so for example, my neighbors used to always drive up to Trieste where we were the other day to buy Levi's and to buy records and to buy albums.

37:12David McWilliams: Like they go and buy Dark Side of the Moon and get 10 pairs of Levi's and come down and trade them here. Yeah, yeah. So the default currency was also always the Deutschmark because you could use that outside the country. You could never use the DINAR outside the country. And as a result of that, the DINAR was used for sort of Mickey Mouse trading here in the Yugoslav Federation. But if you really wanted to buy big things, you bought with Deutschmarks. Now, of course, if that's the psychology of the currency, when you get inflation, what you'll tend to get is hyperinflation. Because once there's a perception that inflation is rising in dinars, people bought Deutschmarks to protect their savings.

37:52And that very rapidly becomes a stampede. What you get then is a vicious cycle, which is the more the currency falls, the higher the imported rate of inflation. So if you're buying Levi's, they're more expensive in dinars. Yes, of course.

38:09David McWilliams: The higher the rate of inflation due to imports, the more the people panic. The more the people panic, the more they sell the currency and they buy Deutschmarks. The more the currency falls, the more the panic goes on. So you get two things. One is the initial inflationary boost. This is what happens in Argentina all the time. The initial inflationary boost was due to money printing and a lack of budget discipline. But the psychology of the depreciation of the currency was actually what drove the currency down. And that drove what you call inflationary expectations. And then people expected inflation to be very high.

38:45And suddenly you get this unbelievably difficult situation where you've got runaway inflation.

38:51David McWilliams: And you have a government that is basically every nation has a go at governing every couple of years. So nobody can make any decisions. And so tensions were rising. Tensions are rising. You've got hyperinflation. And then into the mix, and we'll end here, John, before we do part two, emerges a leader called Slobodan Milosevic, who is the leader of the Serbian Socialist Party. And Milosevic, former banker, a guy who understood finance, a very, very deeply disturbed person. Both his parents committed suicide. there is a deep Jesus yeah so this is like this is a guy who's like the the psychological backdrop his wife also a very very seemed to me yeah disturbed person he emerges and he realizes the only way I can stay in power in a world where communism and socialism is on the way out because Gorbachev triggered that, is if I turn myself from a socialist into a hyper-nationalist.

40:00And he goes to Kosovo, which is sacred for the Serbs because it's the scene of what they call the field of the Black Crows, John. Yes. 1300 and whatever, I think 40 or something, where the Serbs put up a fight against the Ottomans. He goes to Kosovo. At the time, the Serbs in Kosovo are freaked out by the increase in the Muslim Albanian population. And he says, I will not let anybody beat you. We, the Yugoslav National Army, which is the army of the whole federation, will now become the Serb army and we will impose Serb dominance on everyone. And this is when he almost uniquely, now there's a whole lot of other people in the background, but almost uniquely decides to smash nationalism in Croatia in particular, in Slovenia, and ultimately where the real tragedy occurred in Bosnia with the Serb army, which was the JNA.

41:02Now the JNA, just before we go, the Yugoslav National Army, was the biggest army in Europe.

41:07David McWilliams: Bigger than the Germans, bigger than the French. Yeah. Yeah. So in 1991, in 87, 89, he goes to Kosovo. In 89, 90, he switches from being a socialist to a hyper-nationalist. And he turns on all the other federations, all the other republics and says, we are now going for a greater Serbia. So wherever there are Serbs is part of Serbia, and we are going to expand that, and we are going to get the Yugoslav National Army to actually back us up. Now, of course, finally, the Croats have 300 ,000 Serbs in Kraina, which is up the road here. The Muslims in Bosnia have a huge Serb population. There's a Serb population, a small one in Slovenia.

41:57And, of course, the Montenegrins are sort of proto-Serbs, okay? Yeah, yeah. And the scene is set and he turns on particularly the Croats and in 1991 August, John, remember we come back to August? Yeah. The Yugoslav war starts with skirmishes against the Croats and then with the Yugoslav bombardment of a town called Vukovar, which is in eastern Croatia. Yeah, I remember the name. And that's where the war starts. You remember the place? And that's where we'll stop this and we'll... Part two, we'll talk about the war, the legacy, the economics, what has happened since,

42:37David McWilliams: leading us all the way up to a student revolution in Serbia right now. Yes, and of course, and why it matters, Mac. Why it matters is the emigration out of the Balkans since the war has proven that the single biggest migrant ethnic minority in Europe that are Europeans, are people from the former Yugoslavia. Yeah. That's the first thing. Ireland gave out 40 ,000 PPS numbers to Croats alone in the last five years. 40 ,000. Wow. Croatians alone, right? Number two, it shows the fault lines in the European Union. Get back to our Jamie Dimon idea. Yeah. Right? It shows you that old alliances in Europe are still very significant.

43:27So Serbia is in the pocket of Russia. Croatia and Slovenia are very much part of the EU and Bosnia has been left adrift in a sort of a vacuum so it's a geopolitical story but it's also an apocryphal story of what happens without the EU because the Balkans were no different to the French and Germans fighting each other for hundreds of years so you need a superstructure The reason it's important is that Yugoslavia is the cautionary lesson for all us Europeans about what can happen if you allow nationalism, which is exactly what's happening now. Think about it, right?

44:11David McWilliams: What is happening in Europe now with the AFD, with reform, with all these people, John, is they're going down, I wouldn't be too dramatic, but a road that can ultimately lead to crazy nationalist policies at a time when the evidence is Europeans, even for all its faults, are better together than scrapping with each other. So that's why it matters. So let's talk about that in our next episode on Yugoslavia. Absolutely.

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