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

1
Conference onTHE EU AND THE BALKANS ASSESSMENT
AND PERSPECTIVESCharles KovacsVice Chairman,
Committee on Non-Member Economies, Business and
Industry Advisory Committee to the OECDJean
Monnet Chair Universite de Montreal30 March
2005
2
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

3
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

4
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

5
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

6
Global FDI Trends

• Figure 1 Global FDI Trends

7
FDI inflows in CEE countries, 1998-2003

8
FOREIGN DIRECT INVESTMENT IN SOUTH EAST
EUROPEFDI inflows into select SEE countries,
2002, 2003
9
FOREIGN DIRECT INVESTMENT IN SOUTH EAST
EUROPEFDI stock, select SEE countries, 2002, 2003
10
Rankings by Freedom House, CEE countries, 2003
11
Rankings of the business climates, select CEE
countries, 2003-2007
12
Rankings by Transparency International, SEE
countries, 2003
13

• 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)

14
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

15
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

16
POLITICAL ELEMENTS

• OVERT
• 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?

17
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

18
ECONOMIC

• OVERT
• 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

19

TECHNICAL/JUDICIAL
OVERT Harmonization of laws Derogation Implementa
tion
HIDDEN TECHNICAL/JUDICIAL

• Harmonization Opportunity for
• Covert changes/modernization at national level
• Expansion of national civil service
• Political exploitation
• Movement towards common currency

20
SITUATION IN SOUTH EAST EUROPE

• THE GOOD NEWS
• SOUTH 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

21
SITUATION IN SOUTH EAST EUROPE
THE BAD NEWS VERY 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
22
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 EuropeBalkansTurkey will
  result in a new EU