The European Commission has just approved its EU Enlargement Package 2020. It is based on specific conditions for each country, accompanied by a new funding package that will be 9 billion euros for the period 2021-2017. The Vienna Institute for International Economic Studies analyzed that, since the integration process will be individual for each country, Albania is weaker than other countries in the region such as Serbia, Montenegro, and Macedonia.
Political and economic developments in Europe and the region suggest that North Macedonia and Serbia will have faster integration than Albania, Kosovo, and Bosnia, Vienna experts analyze. According to them, Europe needs to clarify its integration strategy for the Balkans, initially making it more economically powerful, especially in terms of infrastructural ties with the EU.
Experts, in a detailed analysis, claim that inter-regional economic integration that would pave the way for EU membership has failed and proposes that the EU should strengthen economic ties with the Region. The acting Minister for Europe and Foreign Affairs, Gent Cakaj, said that according to the new rules, the European perspective of the Western Balkans depends on the dynamics of meeting the necessary conditions to become an EU member.
The common economic zone in the Balkans has failed
Two decades later, it is now clear that the EU's hopes of fostering political reconciliation through economic integration in the Western Balkans have not been met. This is not surprising as many of the key preconditions for effective regional cooperation have never existed in the Western Balkans.
Regional economic integration has progressed in the Western Balkans in the last 20 years, but not in the same way for all countries. Most importantly, Serbia, the main player in the region, is less economically integrated with the rest.
The improvement of the economic co-operation has had little impact on territorial disputes in the Western Balkans. In terms of GDP per capita compared to Germany, over the last 20 years the Western Balkans has not progressed. Large-scale emigration shows hopelessness.
Vienna experts recommend that further regional economic integration is unlikely to lead to the resolution of constitutional and territorial disputes in the region, nor will it significantly increase development levels. The potential boost to economic growth through increased economic integration among the six small and fairly poor countries is profoundly low.
European experts conclude that strengthening economic co-operation with the EU before full membership is the most promising path.
Moreover, the example of the Visegrad countries ((the Czech Republic, Hungary, Poland and Slovakia)) shows that deeper EU integration can foster deeper regional ties.
Is EU accession still possible?
The EU accession process is dragging on for the region, the steps are very slow. Even for Serbia and Montenegro, which began accession negotiations several years ago, membership is still many years away.
At best, they will join the EU two decades after Romania and Bulgaria, but recent developments suggest it will be much longer than that. North Macedonia and Albania, at least now, are able to start accession talks, which have run into difficulties due to French opposition.
President Emmanuel Macron prefers EU reform before new members are accepted. In 2019, France published a document submitting its request for a new reform of the enlargement process. The idea was joined by the Netherlands and Denmark, which are also skeptical, especially with Albania's accession. But opposition to enlargement across Western Europe appears to be growing. Bulgaria's accession experience in 2007 made Western countries skeptical, as they felt they should have done more in the pre-accession process to strengthen the rule of law in the country.
Thirteen years after accession, Bulgaria, and Romania are still under special monitoring conditions in the areas of corruption, the judiciary, and reforms against organized crime.
Two polls show unwavering commitment to enlargement among EU citizens. Only 22% of French and 26% of Germans think that Balkan countries, which have started negotiations earlier, such as Serbia and Montenegro, should be accepted in the next decade, despite the Commission's target date being 2025. The changing political background in the EU and Brexit have had an impact on the integration process.
In March 2020, the European Council agreed to start accession talks for Albania and Northern Macedonia. However, it has been determined that before the talks can begin, in reality Albania needs to make progress in a number of areas, including electoral reform, justice and the fight against organized crime.
The council also approved the start of negotiations with a new methodology, which included France's demands. The Zagreb summit, aimed at a new integration perspective, coincided with the pandemic crisis, which appears to have served for greater unity between the EU and the Balkan region.
The joint statement stressed that "the scale of the coronavirus crisis requires our unity and solidarity. The European Union stands by its Western Balkan partners and remains committed to actively supporting their efforts in the fight against the coronavirus pandemic and its consequences on societies and economies. The EU and the Western Balkans are fighting the coronavirus and its aftermath together. "The EU has rapidly mobilized a € 3.3 billion aid package to the Western Balkans."
In concrete terms, the statement by EU leaders said nothing about the enlargement but spoke only about perspective.
Covid-19 leads to regression of the process
The reforms that countries must carry out to achieve EU membership face regional obstacles. First, tensions on traditional lines of conflict (Serbia-Kosovo and within Bosnia) are still high as borders have not been demarcated and exchanges of territory are alleged.
Among other things, Europe, the Balkans, and the whole world are already facing the Covid-19 pandemic and the impact it will have on the region, in economic, social, and political terms, will be considerable. In 2020, almost all EU and region countries will experience a strong economic downturn due to the pandemic.
Weak health care capacities, declining remittances, investment and foreign visitors make the impact of the pandemic more aggressive for the Balkan countries and especially Albania, with higher dependence on these flows.
Due to the pandemic, the countries of the region have taken steps back in the process of regional cooperation. Despite the disappointing results of the last 20 years, some countries within the region such as Serbia, Albania and Northern Macedonia are ready to renew cooperation and integration, especially in terms of creating a common regional economic zone, which has been recently accepted also by Kosovo. While other countries have in their policies EU integration more than regional cooperation.
Political or economic integration
Even in the case of the creation of a common economic zone, the Balkans is still a small economy in the interests of Europe. The GDP of the Balkans is as much as 1% of that of the EU. While GDP per capita reaches 27-40% of the EU average. In a normal scenario, the European Bank for Reconstruction and Development estimates that the Balkans will need 60 years to meet EU standards at the rate of growth in 2014-2017. For Albania, this time is even more distant.
But some countries have chosen to integrate economically into the EU ahead of the political process. This is especially true for Serbia, which is widely integrated into the German market. Serbia has also signed a free trade agreement with several Eurasian countries and has recently begun to attract larger amounts of Chinese investment and other forms of foreign capital.
In addition to these developments, China and Russia will make EU integration more difficult, not because investment from China or Russia is problematic in itself, but because the type of money coming from these sources is against EU rules and thus complicating the integration.
The Common Economic Zone will have difficulties
The countries of the Western Balkans have almost the same production structures, except for Serbia and North Macedonia, which have recently developed the automotive industry for the needs of the European market and beyond. But when it comes to creating a common economic zone, interests fade as production structures are similar, and not like in Europe since World War II, thus the co-operation was postponed due to meeting supply needs from these countries.
The need for coal and steel supplies in the EU pushed the customs union forward. At the time, France wanted cooperation because its steel industry needed coal and a market to export. But even if production in the region starts to diversify, regional integration becomes difficult due to tariff and non-tariff barriers. Although there has been little progress recently, there are significant trade barriers in the Western Balkans and customs and trade regulations are a major problem for many exporters.
World Bank studies on the business climate have seen the trade climate deteriorate, as some countries have tightened procedures, increasing trade costs in recent years.
Obstacles to trade in the Western Balkans in terms of time and costs are significantly higher than for Slovenia and Croatia bordering the Balkan countries. Using Croatia as a benchmark, for trade in the 6 Balkan countries the complex regulations are problematic, more than time and payments,.
Trade barriers in the Balkans are often greater than in non-EU countries such as Ukraine, Moldova, Turkey, etc. On the other hand, there is a big difference in the region. Serbia is better integrated into global markets, due to the development of the vehicle support industry, but this does not apply to Kosovo, Albania, and Montenegro. Politicians in the region should ease trade conditions and see this as an opportunity for prosperity, Vienna experts say.
Albania, the loser in the regional market
In the early 2000s, countries in the Western Balkans had marked differences not only in the level of development but also in terms of economic specialization and development priorities. Unlike the French and German post-World War II mentality, which places cooperation on a clear development strategy and economic interests.
However, most countries are increasingly specializing in their fields. Albania, Croatia, and Montenegro have an advantage in tourism, while Serbia and North Macedonia, landlocked, have followed a development path based on production exports. Both of these countries are integrated into the core of German production, albeit in a relatively low-value part of the production chain in the case of North Macedonia.
The exception is Kosovo, which has an extremely closed economy and little international integration, excluding inflows of remittances from citizens working abroad. The real issue is not that economies have been similarly specialized, or have necessarily had different development advantages. As the economies in the region become more integrated with each other, the richer areas attract capital and skills and the poorer areas lose.
There is some evidence that this effect persists over time, causing growing inequality in the region and requiring a high degree of policy coordination and intervention to address it. Serbia, Bosnia, Montenegro will further be developed within the common economic zone as Albania and Kosovo lose. For regional co-operation to really work, policies need to be coordinated. However, for political and other reasons, policy coordination has been very limited in the Western Balkans in recent decades.
Competitive fiscal policy should end and the same policy should be applied instead so that countries benefit equally and put equality in competitiveness. But in the meantime, the coordination of fiscal policy is still far away and Albania, which is presented with the highest fiscal burden in the region in this context, is losing. Countries in parallel with the harmonization of fiscal policy will have to fight hard against informality, which is a widespread phenomenon in the region.
Political divisions have produced shortcomings in infrastructure
Compared to most of Eastern Europe, infrastructure connections in the Western Balkans have been weak for at least the last two centuries. Infrastructure development reflects political developments in the Western Balkans. In terms of infrastructure, as in many others, most Western Balkan countries are oriented from the outside rather than the inside.
Croatia, for example, has historically suffered from bad internal ties, as a legacy of the Austro-Hungarian Empire. The Istria region is linked to Italy, but has not been linked to Zagreb. In some cases, connections between the various former Yugoslav states were the main transport route in the region via an old Orient Express line, starting in Thessaloniki, continuing to Skopje, Belgrade, Zagreb and Ljubljana, and then to Munich. Many of these connections were cut off in 1991.
Funding options to overcome these weak links were limited in the early 2000s, as the Western Balkan countries had only limited access to EU funds compared to Central and Eastern European member states, where EU funding were as much as 5% of national budgets. In the former communist countries that joined the EU, starting in 2004, EU funds have financed most of the public infrastructure expenditures.
The Transport Observatory (SEETO) is now operational and the Energy Community, together with the Joint Civil Aviation Area, has launched joint infrastructure projects in the Balkans. SEETO, the Transport Observatory, aims to include the internal infrastructure of the Balkans in the main European Network (TEN-T). For the security of the power grid, established in 2006, the Energy Community for Southeast Europe, which has encouraged investment in interconnection lines.
Its main objective is to coordinate the implementation and monitoring of the adaptation of EU standards in the Balkan electricity market. Various infrastructure cooperation projects were launched in the early 2000s, especially in the area of cross-border cooperation. Grants allocated to the region amounted to about 3.8 billion euros in the period 2007–2013 and 4.2 billion euros in the period 2014-2020.
These countries generally received the equivalent of 0.5 to 1% of GDP per year, or slightly more in the case of Kosovo (1.3 to 2%). Nearly a quarter of these funds have been allocated to infrastructure projects. Overall, this amount is significantly lower than what was given to countries like Romania and Bulgaria.
Gaps, Albania and Kosovo less beneficiaries of funds
To maximize the impact of IPA infrastructure with multi-donor grants was established the Western Balkans Investment Framework (WBIF). WBIF is a joint initiative between the EU and bilateral donors to support infrastructure and private sector development in the region.
Since the establishment of WBIF in 2008 until the end of 2019, 229 projects were planned, for which the various sources of financing through loan grants, etc., amount to 21 billion euros for the implementation of all projects (approximately 20 % of GDP of the region in 2019).
Of these investments, the weakest beneficiaries were Kosovo and Albania with 1.1 and 1.5% of the funds, respectively, while Bosnia received over 7%. The few benefits are attributed to the fact that many projects are in the planning stage. This is especially the case of Albania and Kosovo, where only 26 and 18% of projects have managed to be funded.
In the first two years, WBIF provided substantial loans to finance road construction. Recently, the focus has shifted to railways, renewable energy, and gas pipelines.
In this regard, WBIF will mainly support the deployment of digital infrastructure through technical assistance and the preparation of investment projects. Priorities are the connection of areas without access to a broadband network and rural areas, as well as the improvement of the digital connection of education, health care, etc. Since then the WBIF will approve the digital infrastructure projects (mainly broadband) in each of the Western Balkan countries, although none of these projects have yet reached the implementation stage.