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EU crisis infects Balkans

Panagiotis Kouparanis / nhDecember 2, 2013

The EU’s financial and economic crisis has severely affected the Western Balkans. The countries’ heavy dependence on the EU and their national deficits leave them little room to improve the situation.

A worker using dated technology in a factory in Bosnia and Herzegovina (Photo: Emir Musli, DW)
Image: DW/Emir Musli

Before the economic crisis hit the European Union, Greek banks were important financial players in the Balkans. They had more than 1900 branches there, with some 23,000 employees and financial commitments of 70 billion euros (95 billion US dollars), or a 15 percent share of the overall basic capital of all banks in the Balkans.

Together with Austrian and Italian financial institutes, that made them an important port of call for the domestic economy. The Greek branches provided loans to local businesses. Today, five years after the beginning of the financial and economic crisis in Greece, the tide has turned, said Franz-Lothar Altmann, a professor for European Studies at Bucharest University.

A worker cleaning the logo of the Bank of Greece (Photo: Thanassis Stavrakis/AP/dapd)
Local branches of Greek banks used to be important financial players.Image: dapd

The Greek banks' foreign branches did operate profitably, he said, but because of the financial shortage in Greece, the parent companies were forced to withdraw more and more of their capital from the neighboring countries. "That helps worsen the credit crunch in the Balkans."

EU-Western Balkans strongly intertwined

But the region suffered even more. The Western Balkans (an area of the Balkans which includes Croatia, Serbia, Bosnia and Herzegovina, Montenegro, Kosovo, Macedonia and Albania) are being affected by the consequences of the European Union's economic and financial crisis in all its might. They have strong economic ties with the EU. Two thirds of all trade registered in those countries happens with EU member states.

But exports to the EU have dropped, as have foreign investment and the important money transfers from expatriates. That has led to minimum, or even negative, growth. Franz-Lothar Altmann said the consequences for the region's people are disastrous. Roughly one third of the population in the Western Balkans live in poverty, unemployment has reached Greek levels, and emigration is on the rise.

It's a fate the region wanted to escape when it first started establishing stronger ties with the European Union. But now, the EU has turned its crisis into one for the Western Balkans too, said Milica Delevic, deputy general secretary of the European Bank for Reconstruction and Development in Brussels. She made the remark at an international conference jointly organized by the Southeast Europe Association (SOG) and the Friedrich Ebert foundation in Berlin. Nobody contradicted her - not even when she drew the conclusion that the crisis would eventually lead to the European Union focusing on overcoming its own economic and financial crisis. "As long as you're very busy dealing with an important matter you have little time advancing other matters," said Delevic.

Milica Delević, deputy general secretary of the European Bank for Reconstruction and Development (Photo: DW)
Milica Delevic: "EU too busy with itself to deal with Balkans"Image: DW

The Western Balkans can't influence the process, she added, but they could try and make use of the situation as a chance to implement structural reforms at home. Delevic said the consequences of the imported crisis were particularly bad because of the continuing structural deficits in the region. Privatization is not making progress everywhere, social welfare systems are still operating ineffectively, and red tape and political influence are often obstacles to proper renewal.

EU to impose stricter criteria

Economic prosperity is dependent on high education levels. But in comparison to Western European countries, Western Balkan states are lagging behind, said Gerald Knaus, chairman of the think tank “European Stability Initiative”. The high number of new universities that have been founded since the collapse of the Soviet Union hasn't helped improve the situation, he added - and the same applied to the field of job training. Vocational training schools in those countries were, he said, largely considered "schools for losers."

Knaus stressed that education and professional training schemes have to be aligned with the needs of the economy so that companies can pick candidates with the knowledge and skills they need to manufacture products that can be exported abroad, for instance. But he warned that, as a first step, it was important for political and educational elites in those countries to know where they wanted to go over the next 10 to 15 years. He deplored a lack of vision in this respect.

Gerald Knaus' impression, based on many personal conversations, is that not just the political elite but also the authorities in general are in an overall "anti-entrepreneurial mood", and he believes that this is deterring investors from getting involved in the Western Balkans. The same, he said, applied to entrepreneurs from the region who are working abroad: They don't want to take the risk of investing in forestry in Bosnia, in the Albanian textile industry, or the food industry in Macedonia.

A picture of a party on a beach Zrce, Pag, Kroatien. (Photo: DW-Correspondent Volzana Anders, August 2011)
Tourism is often the most important industry in the Balkans.Image: DW

The EU could play an important role in changing that attitude, he believes. Knaus suggests the EU could define - in a much clearer way than today - the criteria of what constitutes a good administration, regulating the economy according to European standards. He wants the annual progress reports for all EU accession candidates to be much more concrete and analytical in that field.

Knaus dismisses the suggestion that such an approach would be patronizing towards the countries in question. Rather, he said, it would help the Balkan states develop a competitive and export-oriented economy.