Conference on: THE EU AND THE BALKANS: ASSESSMENT AND PERSPECTIVES Charles Kovacs Vice Chairman, Committee on Non-Member Economies, Business and Industry Advisory Committee to the OECD Jean Monnet Chair – Universite de Montreal 30 March 2005
Dec 29, 2015
Conference on:THE EU AND THE BALKANS:
ASSESSMENT AND PERSPECTIVES
Charles Kovacs
Vice Chairman, Committee on Non-Member Economies, Business and Industry Advisory Committee to the OECD
Jean Monnet Chair – Universite de Montreal30 March 2005
FROM 1990 TO KOSOVO
• INTRINSIC INSTABILITY OF YUGOSLAVIA• SLOWER LIBERALIZATION THAN IN NORTHERN
PART OF EASTERN EUROPE• STRONGER, LESS FLEXIBLE COMMUNIST
PARTIES AND OLIGARCHIES• EXPLOITATION OF NATIONALISM BY THE “LEFT”
FOR SURVIVAL/SLOWING OF REFORMS
=• SECESSIONIST WARS IN YUGOSLAVIA
FROM 1990 TO DAYTON
• ABSENCE OF COMMON EUROPEAN POLICY TOWARDS WARS
• UNILATERAL RECOGNITION OF SLOVENIA AND CROATIA WAS DECISIVE FOR THE FUTURE
• FAILURE TO CONTAIN VIOLENCE WITH UN/EU FORCE THROUGH 1994: ATROCITIES, MASSACRES, GENOCIDE, SREBRENICA
• US/NATO INTERVENTION IN BOSNIA-HERZEGOVINA: DAYTON ACCORDS IN 1995
FROM DAYTON TO KOSOVO
• TEMPORARY PEACE• CEASARISM IN CROATIA AND SERBIA• STABILITY ONLY IN SLOVENIA• UNREST IN MACEDONIA AND ALBANIA• BEGINNING OF REFORMS IN ROMANIA AND
BULGARIA• DEMONSTRATIONS IN BELGRADE FROM 1996• START OF CLASHES WITH ALBANIANS IN
KOSOVO IN 1997
FROM KOSOVO TO THE PRESENT• NATO/EU AIR WAR AGAINST SERBIA FOR
KOSOVO: AMBIGUOUS SETTLEMENT WITH SERBIA; FUTURE STILL UNKNOWN
• STABILITY PACT FOR SE EUROPE TO ENCOURAGE PEACE, STABILITY, REFORMS
• FALL OF MILOSEVICH; DEATH OF TUDJMAN• CONSISTENT GDP GROWTH IN MOST
COUNTRIES• $3 BILLION OF FOREIGN INVESTMENT P.A.
SINCE 2000• NATO MEMBERSHIP FOR BULGARIA, ROMANIA• PROMISE OF EVENTUAL EU MEMBERSHIP FOR
ALL
Global FDI Trends
• Figure 1: Global FDI Trends
-
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
450 000
500 000
550 000
600 000
650 000
700 000
750 000
1995 1996 1997 1998 1999 2000 2001 2002 2003
(milli
ons
of U
S$)
European Union
Asia and the Pacific
North America
Latin AmericaCEEAfrica
FDI inflows in CEE countries, 1998-2003
FDI Inflows (USD millions)
1998 1999 2000 2001 2002 2003
Central and Eastern Europe
24305.2
26518.1
27507.7
26370.7
31232.0
20970.4
Albania 45.0 41.2 143.0 207.3 135.0 180.4 Belarus 203.2 444.0 118.8 95.8 247.1 170.5 Bosnia and Herzegovina
55.8 154.1 147.2 130.2 265.4 380.9
Bulgaria 537.3 818.8 1001.5 812.9 904.7 1419.4 Croatia 932.4 1467.2 1088.7 1561.3 1124.0 1713.0 Czech Republic 3700.0 6309.8 4984.4 5638.9 8482.7 2582.6 Estonia 580.6 305.0 387.0 542.4 284.4 890.6 Hungary 3827.9 3311.9 2764.1 3936.0 2844.5 2470.0 Latvia 356.7 347.5 410.5 163.3 383.9 359.7 Lithuania 925.5 486.5 378.9 445.8 732.0 179.2 Moldova 75.5 37.9 134.3 146.1 116.6 58.5 Poland 6365.0 7270.0 9341.0 5713.0 4131.0 4225.0 Romania 2031.0 1041.0 1037.0 1157.0 1144.0 1566.0 Russian Federation
2761.0 3309.0 2714.0 2469.0 3461.0 1144.0
Serbia and Montenegro
113.0 112.0 25.0 165.0 475.0 1360.0
Slovakia 706.7 427.9 1925.4 1584.1 4123.4 571.2 Slovenia 217.9 105.7 137.4 369.0 1606.4 181.0 TFYR Macedonia 127.7 32.7 174.5 441.5 77.8 94.6 Ukraine 743.0 496.0 595.0 792.0 693.0 1424.0
Source: UNCTAD, FDI/TNC Database
FOREIGN DIRECT INVESTMENT IN SOUTH EAST EUROPE
FDI inflows into select SEE countries, 2002, 2003
2002
2003
17131566
14191360
381
180
1124 1144
905
475
265
1350
200
400
600
800
1,000
1,200
1,400
1,600
1,800
(US
D m
illio
n)
FOREIGN DIRECT INVESTMENT IN SOUTH EAST EUROPE
FDI stock, select SEE countries, 2002, 2003
2002
2003
12 693
11 351
5 082
3 319
1 153 1 091
8 873
6 711
3 662
1 959
772
9100
2 000
4 000
6 000
8 000
10 000
12 000
14 000
(US
D m
illio
n)
Rankings by Freedom House, CEE countries, 2003
Country Democratisation Rating Rule of Law Corruption
Slovenia 1.8 1.9 2.0Hungary 1.8 2.3 2.8Estonia 1.9 2.1 2.5Czech Republic 2.0 3.0 3.5Bulgaria 3.1 3.9 4.3Romania 3.3 4.4 4.5Croatia 3.4 4.5 4.8Serbia and Montenegro 3.5 4.6 5.0Macedonia 3.9 5.0 5.5Bosnia and Herzegovina 4.3 5.0 5.0Moldova 4.4 5.4 6.3Ukraine 4.5 5.1 5.8Georgia 4.7 5.1 5.8Russia 4.9 5.1 5.8Albania 5.0 4.6 5.0
Source: Freedom House
Rankings of the business climates, select CEE countries, 2003-2007
Country Expected for Historical 2003 - 2007 1998 - 2002
Estonia 7.6 6.9Czech Republic 7.3 6.6Hungary 7.2 6.8Slovenia 7.2 6.3Croatia 6.5 5.8Bulgaria 6.2 5.4Russia 5.9 4.6Romania 5.7 4.7Serbia-Montenegro 5.5 3.2Macedonia 5.4 4.7Ukraine 5.3 4.2Albania 5.2 4.5Moldova 5.0 4.2Georgia 5.0 4.1Bosnia-Herzegovina 4.8 4.2
Average 5.7 4.9
Source: Economic Intelligence Unit
Note: Rankings are done on a scale from 1 (the worst) to 10 (the best).
Rankings by Transparency International, SEE countries, 2003
Country rank Country CPI 2003 scoreNumber of
surveys usedHigh-low
range
50 Greece 4.3 9 3.7-5.654 Bulgaria 3.9 10 2.8-5.759 Croatia 3.7 8 2.6-4.7
70Bosnia and Herzegovina 3.3 6 2.2-3.9
83 Romania 2.8 12 1.6-5.092 Albania 2,5 5 1.9-3.2106 Macedonia 2.3 5 2.0-2.7
106Serbia and Montenegro 2.3 5 2.0-3.2
Source: Transparency International
SE European Countries Split in Two Tiers
•FDI Concentration in Romania, Bulgaria, and Croatia
•BiH, Albania, Macedonia each with only cca. $1 Billion of FDI
•Serbia and Montenegro in limbo (pending resolution of political issues, but attractive for privatization transactions)
EU ACCESSION
•THE EU IS NOT A MONOLITH BUT AN INSTITUTION OF COMPETING OF STATES AND INTERESTS AMONG WHICH IS ITS OWN BUREAUCRACY
•THE SPECIFIC TERMS OF THE ACCESSION TREATIES ARE OF GREATER IMPORTANCE TO THE NEW MEMBERS THAN TO THE EU
•THE ACCESSION PROCESS IS A CLASH OF MANY INTERESTS
ELEMENTS OF ACCESSION
•POLITICAL
•ECONOMIC
•TECHNICAL/JUDICIAL
•ACCESSION = MAJOR CHANGES IN POWER AND ECONOMIC RELATIONS, THEREFORE:
–Each has its own overt and hidden dimension
–Overt and hidden dimensions have both national and international/EU elements and committed actors/special interests
POLITICAL ELEMENTSOVERT
•Representation in EU
•Acceptance of acquis
•Cross-border migration
HIDDEN
•Representation = Balance of power within EU:
North vs. South?
Rich vs. Poor?
Left vs. Right?
Pro-USA vs. Anti-USA?
HIDDEN ELEMENTS (continued)
•Acceptance of acquis = Accretion of power to EU
Fear of competitiveness of new members
EU fear of alternate political models
•Cross-border migration = Immigration
Disliked by old and new members, promoted by the EU
Impact on local politics
Threat to national guilds, political class
ECONOMICOVERT
•Contributions to EU budget
•Agricultural subsidies
•Regional assistance payments
•Acceptance of EU trade regime
HIDDEN
•Contributions = Higher taxes or deficits in net contributor countries, where
–Taxes are already too high
–Welfare states are in crisis
•Agricultural subsidies = An impossible political dilemma
–Powerful special interests
–˝Agrolobby
TECHNICAL/JUDICIALOVERT
Harmonization of laws
Derogation
Implementation
HIDDEN TECHNICAL/JUDICIAL
Harmonization = Opportunity for:
Covert changes/modernization at national level
–Expansion of national civil service
–Political exploitation
–Movement towards common currency
SITUATION IN SOUTH EAST EUROPE
THE GOOD NEWSSOUTH EAST EUROPE INVESTMENT
COMPACT – MONITORING OF REFORM EFFORTS
IDENTIFICATION OF TOP PRIORITIES:
•PRIVATE INVESTMENT
•ENTERPRISE AND SME DEVELOPMENT
•PUBLIC AND PRIVATE GOVERNANCE, INCLUDING REGULATORY REFORM
SUSTAINED GDP GROWTH OF 4%+ P.A.
FOREIGN INVESTMENT OF $3 BILLION+ P.A. SINCE 2000
COMMITMENT AND PROGRESS TOWARDS MARKET ECONOMY STRUCTURES
INCREASING TRADE AND EXPORTS
SITUATION IN SOUTH EAST EUROPE
THE BAD NEWSVERY SLOW PROGRESS ON INFRASTRUCTURE
UNEVEN PROGRESS: INCREASING GAPS BETWEEN THE TIERS
CONCENTRATION OF FDI IN THREE COUNTRIES
LIMITED REGIONAL COOPERATION
SLOW RESOLUTION OF YUGOSLAV SUCCESSION ISSUES
ADVERSE POLITICAL DEVELOPMENTS IN SEVERAL COUNTRIES
DECREASING US/EU INTEREST DUE TO CHANGING PRIORITIES
SLOW PACE OF STRUCTURAL REFORMS
EU ACTIONS AND OUTLOOK
• Membership for Bulgaria, Romania in 2007• Croatia and Serbia: political problems with both; may join in 2009 at earliest• Pre-accession discussions/reviews with second-tier countries, no membership before 2012• Actual expansion will be in affected by:
– EU experience with current round of 10 new members– Constitutional developments– Military and security implications– East European members’ views– Fate of agricultural and regional support programs– The specter of Turkey– Realization that East Europe+Balkans+Turkey will result in a new EU