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Harsh Reality

Filip Slavkovic (kjb)
March 14, 2008

Serbia shunned Western Europe for its support of an independent Kosovo. But the EU is its most important trade partner and now the Balkan country is feeling the crunch, both economically and politically.

A woman wears a hat with campaign buttons representing Serbia's Radical Party
Nationalist sentiment is fueled by economic difficultiesImage: AP

According to opinion polls, 70 percent of Serbians are in favor of their county joining the European Union. But in the last elections, half of them voted for the nationalist euroskeptic parties.

One reason is the West's support of independence for Kosovo. Another is the nationalists' populist stance. They want to undo the country's recent democratic transformation and win the attention of those who haven't profited from the economic upswing.

"These people are discontent because the democratic government treated them with arrogance in the past seven years and didn't want to hear about the problems of the people in the middle of the country," said former Foreign Minister Goran Svilanovic.

"Distinctively neo-liberal politics makes them unhappy, but the majority of them don't oppose the EU," he said.

Long way to go

"Free Kosova" sign resembling a Coca-Cola ad
"Free Kosova" isn't bringing more Coca-Cola to SerbiaImage: AP

In comparison to the last decade of war and economic embargos, Serbs are living in much better circumstances today. In 2007, overall production rose by seven percent over the previous year.

Nevertheless, they are still far away from the central-European standard of living. The gross national income in Serbia is only about $5,500 per capita.

The loss of the southern province of Kosovo this year was another blow to the Serbian economy. The government, which stepped down as a result of the conflict over the EU's Kosovo policy, can no longer implement their plans to boost the economy. Since nearly all of its important trade partners have recognized the new state, the anti-Western attitude in Serbia is deterring potential investors.

"Serbia will experience political turbulence this year, which is why a lot of direct foreign investment can't be expected," said Belgrade economist Sasa Djogovic

But the foreign companies that are already in Serbia won't pull out, added Djogovic.

"That's especially true of the finance sector," he said. "For them, Serbia's transformation market is very lucrative due to the high demand for capital."

Unfair bank practices

EU demonstration in Belgrade
Most Serbs support EU membershipImage: AP

After a decade and a half of poverty, Serbs are just starting to purchase new furniture and household appliances -- but they have to pay a high price to borrow money. Currently, Austrian, Greek and Italian firms dominate the bank sector.

"Brussels' tolerance of the business practices of European banks in Serbia is unacceptable," said political scientist Dusan Janjic.

"Raiffeisen Bank, Credit Agricole, Societe Generale and HVB are representatives of Europe here, but for the people of Serbia they are plunderers. They charge the highest interest rates in Europe and charge double interest via bogus firms in Austria," he said.

On the other hands, the banks are reluctant to approve corporate loans. The most important employers continue to be large state-run companies and the few trade monopolies. The state is too weak to confront oligarchies and many of the state-run companies, like oil, end up being sold to Russian conglomerates at low prices.

Alternative strategies

"You can't really expect Serbia to be able to export retail products to the European Union," said Djogovic.

"We'll continue to send resources to the industrial nations, but we should also import technologies from these countries in order to become more competitive ourselves. Instead we import mass produced goods," he said.

As an alternative, Serbia could explore new markets, or return to forgotten markets, like North Africa, suggested the economist.