speri.comment: the political economy blog

Creeping towards the EU

The ‘new born states’ of the former Yugoslavia still face real economic and political problems

Nick Williams, Associate Fellow of SPERI & Lecturer in Entrepreneurship, Management School, University of Sheffield

nick_williamsThe opening of an accession chapter with Montenegro and the tying of accession for Serbia to the normalisation of relations with Kosovo demonstrate a piecemeal approach to policy making by the European Union in the south-east corner of Europe.   In part, these strategies are shaped by the EU’s relations with Russia:  for example, Europe wants to slow the growth of Russian influence in Montenegro and to get Serbia to support sanctions.  But they also reflect different rates of political and economic development in the former Yugoslavian nations.

When a drone carrying an Albanian flag flew over the Serbia vs Albania Euro 2016 qualifying football match in October last year, the result was a mass brawl between the two sets of players.  Similar, though less violent, examples of tensions are also regular features of political life in the Balkans.  For example, in January this year a lecture on ‘NATO integrations’ by Kosovo Deputy Prime Minister, Hashim Thaci, due to be delivered in Montenegro, was cancelled after security could not be guaranteed; Montenegro has established diplomatic ties with Kosovo despite opposition from Serbia which continues to refuse to recognise its former province as an independent state; and protests against Serbian influence in Kosovo are still features of everyday life.

In some ways, these ‘new born states’ are similar to the former transition economies of Eastern Europe in that they have moved from centrally planned to more open market economies.  However, the creation and emergence of these states has in other ways been markedly different.  As previously semi-autonomous regions within Yugoslavia possessed of varying degrees of policy-making power, all of them lacked national rules and regulations by which to govern economic activity, and all declared independence at different times with different outcomes.  For example, Croatia moved to independence in 1991 during the height of war and international recognition came later; Montenegro became independent following a peaceful referendum in 2006 after being part of Serbia following the wars; while Kosovo’s declaration of independence in 2008 is still disputed, not least by Serbia and Russia. 

Their independent status has posed challenges for each of these states.  Reforms have not been straightforward and have at times been stymied by the inexperience and lack of expertise of policy-makers.  In his book Kosovo: War and Revenge, Tim Judah discusses how leaders had either worked abroad during the war to escape conflict (for example, the future Foreign Minister and Prime Minister both drove taxis around the Finchley Road in London) or had stayed and fought in the wars.  As such, many lacked political or technical experience and yet were thrust into positions of power following the end of the wars.

This of itself presents real challenges in terms of what to do to create a stable state capable of supporting and nurturing economic activity.  In consequence, policy-makers often simply borrowed policy from abroad.  Indeed, when discussing policy-making with Kosovar government representatives, I asked how they decided on appropriate policy reforms, and got the answer: ‘It’s easy, if we don’t know what to do, we go over to the American embassy and ask them what we should do’.  Such an approach to policy-making is not necessarily helpful as it means implanting rules and regulations that do not fit within the history or culture of a country.

Yet the experience of policy-makers has grown over time and, as rules have been established, there has also come a desire to join the EU.  Among the former Yugoslavian states, Croatia joined in 2013; Macedonia, Montenegro and Serbia are official candidates; while Bosnia & Herzogovina and Kosovo have EU accession as an explicit element of their foreign policy, although they are not official candidates.  This widespread desire to join the EU is simply explained: protection of their independent status and the gaining of access to a large economic and labour market.

For the EU’s part, it has stated that Macedonia needs to do more to tackle the politicisation of its state institutions, secure the independence of the law courts and improve media freedoms. It has also tied the opening of accession chapters for Serbia to the normalisation of relations with Kosovo and the adoption of EU sanctions on Russia.  After its move to support the sanctions, the EU has recently opened up new chapters on accession for Montenegro.  In response, Russian investment in schemes such as the Porto Montenegro, backed by oligarch Oleg Deripaska as well as British banker Nat Rothschild, may take a hit.  However, aligning with the EU is seen as the only viable option by Montenegrin policy-makers.

To many policy-makers in these new born states, joining the EU is indeed a panacea: a solution that will solve all political and economic problems.  However, it’s far from clear whether such countries are ‘ready’ for accession.  The experience of Romania and Bulgaria shows that, despite reforms undertaken at the insistence of the EU, corruption has not been adequately tackled.  In many ways, joining the EU is a painful process, requiring a commitment to reforms that require businesses to make significant adjustments to their practices.  This takes up valuable time and resources.

In light of this, the former Yugoslavian states may be better served by using the period until accession to establish greater regional integration, with common agreements on regulation, taxation, trade and migration.  This would assist in attracting investors to the region and thus foster economic growth and development.  The countries also have much to gain from trading more freely and openly with each other, as well as the rest of Europe.  Yet all of this requires real political will to solve tensions.

The EU itself has a role to play here.  An insistence on an improvement in relations and a de-escalation of tensions should be part of its regular dialogue with these states.  Similarly, corruption needs to be tackled in order to move some of the countries away from being seen as ‘mafia states’.  The EU’s record on this front is not spectacular – witness the ongoing corruption problems of Romania and Bulgaria.

Nevertheless, further integration at the regional level remains the best means to reduce tensions and secure positive developments in these new European political economies.

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