Imagine for a moment that the so-called Western Balkan countries were as rich and democratically consolidated as Switzerland, Norway or even tiny Iceland: would you doubt for a second that the EU leaders would not beg them to join the Union? Especially after Brexit has instilled so much impending doom into minds of the political class in Berlin, Paris and elsewhere. Accepting rich and politically straightforward new members would be a welcome remedy against Angst in the corridors of power throughout the continent!
However, what is at offer are five countries in southeast Europe (or six, if you count Kosovo to be a sovereign state – which five EU members state do not do - but here the political travails start already….), poor and bothersome. There is an unbreakable nexus between political institutions, democracy, rule of law and socio-economic trends. Almost every country in the region has experienced increasing poverty and worsening living conditions in comparison to the pre-1990 levels, together with de-industrialisation, low employment rates and high unemployment. In addition, the EU financial and economic crisis hit the Balkan countries disproportionally due to their by this time close links and at the same time absence of the right to use EU solidarity mechanisms to ameliorate the effects.
The GDP of the Southeast Europe Six (SEE6 in the parlance of the World Bank) stagnates at around a third of the EU-28 average. However, from an economic and political perspective, the pre-accession countries in the Balkans are already part of the European Union (and geographically surrounded by EU member states), sharing 76% of their total trade in goods with the EU within a nearly completely liberalised trade regime. Between the years 2005 and 2016, the deficit of the Western Balkan countries in trade with the European Union added up to almost 94 billion euro. In order to come up for the import bill and cover the void in the state coffers, the Western Balkan countries continue taking fresh loans – mostly from banks from EU countries. The present external debt of the region is estimated to be higher than 100 billion Euro. Italian, Austrian, French, German and Greek banks command around 90% of the banking capital in the region.
So far EU integration seems to have augmented the structural problems of the SEE6. Their competitiveness rests mainly on providing cheap local labour particularly for German and Italian manufacturers. The Vienna Institute for International Economic Studies (WIIW) pointed out that the Western Balkan governments have engaged in “fiscal depreciation” over recent years in an attempt to improve competitiveness. This means that they increased VAT rates while slashing income taxes and social security contributions. The Viennese institute determined that this may have helped promote import substitution and exports. At the same time, however, fiscal depreciation “increased the burden on low-income groups while providing relief to top earners”. Furthermore, the conclusion of a new study published by the London School of Economics (LSE) was that it is an “unlikely outcome” that improving competitiveness of the Western Balkan countries and inducing export led growth will be attained by continuing with austerity policies.
According to a recent calculation by the World Bank, if the EU stagnated for the next two decades, and the Western Balkans achieved an annual GDP growth rate higher than six percent (twice higher than now) they would catch up with the average GDP of the EU28. Plainly, the chances for an economic convergence between the Western Balkans and the EU are slim. Just the opposite – the spill-over effects of Eurozone crisis to the Western Balkans and their lack of competitiveness on the global markets against the backdrop of a rapidly aging population and increasing emigration from the region point to even more socio-economic depravation in the future. Also, add to this the poor performance of the judiciary and other important political institutions and wide-spread corruption, and it becomes utterly clear why the majority of the people in the Western Balkans and especially the young (the unemployment rate among the youth in the region is between 40 and 70 percent) are losing hope that perspectives might brighten in their life-time.
Thus, the Trieste summit in July could be the last exit from the present road which only steers the EU and the Western Balkans further apart. If the EU is serious with further enlargement, than zero hour has come to launch a plan to boost the socio-economic development in the region. In Trieste, the EU leaders should make it clear that they accept this new agenda at the threshold of the new EU institutional cycle in 2019 with elections to the European Parliament, a new Commission and a new EU budget.
Dušan Reljić, Head of the Brussels Office of the German Institute for International and Security Affairs (SWP), Berlin
