4 March 2022
Economically the Western Balkans (WB) are passing through the most prosperous and longest period of economic growth since the times the individual countries gained sovereignty. The common denominator and driver of these three options is the defragmentation of the Balkan EU aspirants, on one side, and the prevention of ‘Balkanisation’ of the EU itself. This is the trajectory of development that transcends the current Balkan state of affairs with the EU, and this is the prospect that non-EU countries of the Peninsula eventually join the Union.
If the current state of affairs remains as it is — the Balkans fragmented by blockages to the prospect of joining the EU exercised currently by better-off neighbours like Bulgaria (effectively vis-a-vis North Macedonia and, in effect, Albania, since the fall of 2020) and Croatia (towards Serbia’s and de facto Montenegro’s prospect of EU membership, since the Spring of 2016) — the long-term probability is that the region will remain ‘Balkanised’ by counter-productive animosities stemming from past conflicts and nationalistic visions.
Defragmentation is a conditio sine qua non first for the existing Balkan members of the EU (i.e. Bulgaria and Croatia), for the EU enlargement sceptics and finally for the aspiring countries themselves; moreover, it can actually occur via economic cooperation within the Balkans and between the region and the EU, driven by the very gravity of the common market.
Both effective vetoes from Bulgaria and Croatia referred originally to the disrespecting of historic ‘truths’ by aspiring North Macedonia and Serbia, then the arguments evolved (partially disguised rhetorically) into claims about human rights and rule of law violations. In other words, focusing on the economy can overcome many of these issues by first reorienting the political thinking towards the future, helping resolve actual human rights and rule of law problems, and therefore, this reorientation de-Balkanises the political attitudes.
Intra-WB disagreements do exist, political inclinations to outside powers are well recognised and some regional backgrounds and pretensions pose obvious political risks (e.g., a conflict between Serbia and the Republic of Kosovo or disintegration of the post-Dayton territorial settlements). Yet, none of the major political players on the ground envisages isolation from the EU economically and almost none of them question the European perspective, identity and/or EU membership of their countries.
The eventual Western Balkans membership in the EU is not an economic challenge: to a significant extent, the WB are already part of the EU, in micro-sectoral economic terms of trade, banking sectors and FDIs (but not in terms of levels of GDP per capita or the convergence of incomes, etc.). The WB are a de facto part of the common EU market.
The possible fragmentation and isolation of the Balkans is risky not only for the countries themselves but for the EU as well: without a clear enlargement and membership agenda (as a policy and de facto), the Union would evolve into a new state of affairs with stronger centrifugal political tendencies. On the other side, the full membership of the WB matches both the centralization and confederative visions of the future of Europe.
WB countries are growing faster than Western Europe and the EU average. The path to prosperity for the WB was opened in 2001 by the unilateral EU trade liberalisation (from which they gained five times increase of the exports to the Union and better integration of their own economies), and politically, the countries seem less risky than the members of the Eurasian Economic Union. 65 cents of every euro of income in the Balkans results from economic integration with the EU, and this is true for at least 25 per cent of the fixed capital formation.
The WB represent ‘an integrated economic union’ of sorts: foreign ownership of banks overlaps the payment system, lead trading partners are from the common European area, Balkan countries and Moldova now constitute CEFTA, the markets are nearly unified and there is virtually common public procurement; shared civil society initiatives and structures are also commonplace though not universal.
By many international comparisons (The Good Country Index, Index for Economic Freedom, Global Terrorism Index, Doing Business, Rule of Law Index, Global Heath Security Index, World Electoral Freedom Index, suicide and homicide rates and Worldwide Governance Indicators), the Balkans tend to be near the group of the best-performing countries, just a notch below (but not always) the new EU member states and significantly better than countries that might be politically popular among the public in individual Balkan countries.
The economic influence of neighbouring geopolitical ‘powers’, like Turkey or Russia, is limited to certain sectoral dominance (e.g., the petrol production and supply of Serbia (but not the entire power sector) and real estate ownership in Montenegro) and up to 3 per cent ownership of banks in Republika Srpska. In contrast to economic presence, the political influence might be significant.
If the economic impact of the EU as a centre of gravity is a dominant factor in all Balkan economies and their EU integration is a venue of natural political influence, the political impact of the Union at the moment fails to match its economic and business presence.
The core assumption is that the economic cooperation between the Balkan countries and the EU is already a proven venue for overcoming the political tensions between some EU members and countries of the Western Balkans. Related to this is the understanding that the EU has the means to tame the fragmenting vetoes of Bulgaria and Croatia applied currently to North Macedonia and Serbia, respectively. It is in the interest of the public, businesses and leading political parties on either side of the Balkan EU accession standoff that the issues raised are circumvented by projects and cooperation of mutual benefit.
The second assumption is that the intra-EU centrifugal and/or centralisation political tendencies will remain ‘in-limbo’ and neither tendency will dominate for a period longer than the period of the EU accession of the Balkans.
The Balkan optimism for EU membership in the observable future is fading. This is well indicated by the public opinion polls of the Balkan Barometer. The pessimism is universally common for ex-Yugoslav countries but not so much for Albania and Kosovo. The assumption is that this mood can be and will be overturned relatively promptly if and when one or two of the countries enter the final stage of membership negotiations.
Last but not least, the developments associated with the state of affairs within or in relation to the ‘rival powers’ — e.g. the political developments on the periphery and with neighbours of the Russian Federation, Chinese loans to the government of Montenegro and the economic instability of Turkey — are expected to limit the political popularity of anti-EU and anti-NATO sentiments.
The main outcome would be a reinforcement of the positive economic developments of the last 20 years. Territorial disputes (associated with the recognition of Kosovo independence) and disagreements about the past will become of secondary importance, postponing matters that await better times to be resolved.
The reduced fragmentation of the Balkans will also benefit neighbouring countries. For instance, measured through the volumes of export, for the last 10-11 years North Macedonia has been more important for the revenue side of Bulgaria’s economy than the Russian Federation and almost equally important as Hungary or Czechia. All the countries of the Balkans are very important for the banking industry of Italy, providing stability and arbitrage. The benefits of investing in the future of new Balkan EU members will be reinforced by the expected political and economic predictability.
In the past 12-13 years, the Western Balkan countries have profited from recessions and capital flight from Greece, Turkey and the Russian Federation. The possible negative developments in the main EU economies (inflation, government debt, non-performing loans, energy prices, etc.) would not negatively affect the prospects of doing business in the WB, but rather the opposite: due to comparative advantages of the region (e.g., lower prices and labour costs, productivity gains and better access to markets and pan-European initiatives), the already politically-connected economies of the peninsula will open opportunities for near-shoring.
The economic realities and EU political integration will eventually resolve the existing human rights and rule of law challenges, and the Western Balkans would contain elements of all of these challenging scenarios.
Narrated by Krassen Stanchev.
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