Political and economic reforms in the Western Balkans have stalled recently. The reasons include diminishing interest among political elites in the region, expansion fatigue in the EU and its Member States, severe economic effects of recent crises, and the growing role of geopolitics. Actions are needed to reinvigorate democratisation and EU integration in the region. These include strategic cooperation with the EU and China, alongside improving investment climates and policies. EU-guided reforms should be harmonized and parallel across the Western Balkans.
Through the technology-enabled processes of globalisation, the world has effectively grown smaller, introducing levels of interaction between countries that until recently were unimaginable. One aspect of globalisation is the formal political and economic integration of states in the interest of mutual benefit, best exemplified by the European Union (EU). European integration is an ongoing project that began in the wake of the unprecedented human suffering and material destruction of World War II. Initially, formal cooperation between states was intended to prevent future conflicts, but as peace returned to the continent, the realisation of economic benefits rose to the forefront of integration goals[1]. Economic integration eases restrictions on trade and foreign direct investment (FDI), which in turn has the potential to promote economic development[2].
The Western Balkan countries continue to petition for full EU membership[3], although the assumption that the EU will improve the lives of its citizens is sometimes challenged (consider, for example, Norway’s 1995 referendum and the Brexit vote of 2016). Concurrently, EU Member States have grown increasingly cautious of expansion following the addition of Romania and Bulgaria just prior to the Global Financial Crisis (GFC) of 2008, which also hit Mediterranean countries disproportionately hard, ultimately fueling Euroscepticism across the continent. Presently, sentiments against integraton are compounded by the closure of borders as governments struggle to protect their citizens from successive variants of COVID-19.
While the EU struggles with these distractions, China has re-emerged as a global player, both politically and economically. Over the past decade, China has made overtures to the Central and Eastern European countries (CEEC) through major projects such as the 17+ 1 framework and the Belt and Road Initiative (BRI). The 17+1 framework is intended to complement existing bilateral relations between China and CEEC. The BRI is a grand infrastructure project that will better link China with the rest of Asia as well as Europe and Africa to promote trade, investment, and cultural exchange.
For the Western Balkans, it has become clear that a return to the pre-COVID integration momentum is unlikely to happen soon[4]. The European Commission’s 2021 reports on EU enlargement for the Western Balkan region openly highlight concerns about the lack of progress in a number of areas, particularly the rule of law and fundamental rights. These concerns echo reservations about expansion among some influential members states.
The inhibitors to Western Balkan integration with the EU are numerous. They include declining commitment among political elites to make the necessary radical reforms that are both painful and difficult to begin with, and ultimately, they do not guarantee EU accession. At the same time, a clear reluctance by both the EU and its Member States to become more actively engaged in political and economic processes in the Western Balkans also plays a role. Moreover, the powerful negative economic impacts experienced during the GFC and COVID-19 pandemic exacerbate the challenge of further integration. Finally, the role of geopolitics is increasing in the region, with international tensions rising between the United States and China, concurrent to the EU’s ascent as a geopolitical player.
The recent reform of EU enlargement policy brought the introduction of new approaches and mechanisms in negotiation methodology. This has created a certain fear among the countries of the Western Balkans that they will remain outside the EU permanently. The goal was to create a more dynamic process by clustering the chapters of the acquis communautaire in the negotiation process and placing its essentials, notably the rule of law and fundamental rights, in the centre of the process. This also involves providing clear conditions and decisive measures that would sanction non-fulfilment. Concurrently, tangible benefits for citizens and opportunities for gradual integration into EU policies and programmes – including possible observer statuses in EU institutions – are emphasised as a means of increasing the political appeal of the process across the Western Balkans.
While the EU sees political criteria to be crucially important to the integration aspirations of the Western Balkans, it is also interesting to investigate from the bottom-up the reasons underlying political and democratic setbacks in the region. This brief suggests ways to move the political agenda forward in the region and create a dynamic that will take both political and economic needs into consideration. The brief argues that: i) Political consolidation is needed as a precondition for integration, ii) Mutual political and economic convergence with the EU must be a continuous and parallel process, and iii) Investment is an essential tool for the integration and development of the Western Balkans, through EU funding as well as China’s BRI initiative.
Sustained Political Reform is Essential
The need to strengthen the rule of law and protect fundamental rights are key pillars of any stable liberal democracy. This is especially true when we consider the fact that the modern world is experiencing a rise in populism, polarisation, and authoritarian tendencies.
Usually, a significant crisis (whether financial or in relation to health) is seen as a major game changer, most notably in recent economic history. In our globalised world, the impacts of crises have become more rapid and extensive, and are especially dangerous for weak and less-developed systems. Where economic instability exists, such crises are usually accompanied by political and geopolitical tensions. Such is the case in the Western Balkans, although the effects of past and current crises are visible everywhere.
Usually, a significant crisis (whether financial or in relation to health) is seen as a major game changer, most notably in recent economic history. In our globalised world, the impacts of crises have become more rapid and extensive, and are especially dangerous for weak and less-developed systems. Where economic instability exists, such crises are usually accompanied by political and geopolitical tensions.
While the EU continues to face the negative economic consequences of major global crises, Alizada et al.[5] argue that the situation is compounded by the problematic behaviour of two new Member States that have experienced the most rapid autocratic transition in the last decade (2010-2020). These countries are shaking the EU’s internal political scene. The problematic policies and rhetoric of these governments not only pose a threat to the EU’s internal democratic foundations, but also spread scepticism towards further EU enlargement to the Western Balkans because some candidate countries are viewed as potential hiers to such rule of law problems[6].
Western Balkan countries were devastated by the GFC of 2008, which challenged the weak fiscal systems of their economies. At the same time, EU countries, and especially Eurozone countries, received generous financial help that contributed to a significantly faster recovery. The small and less-developed neighbouring countries received minimal financial assistance from the EU, which is especially notable given that both Montenegro and Kosovo use the Euro as their official currency. Additionally, the situation worsened over time, with the withdrawal of some EU-based FDI projects during the crisis period. Downsizing economic activity ultimately resulted in higher social and political tensions in the region. In sum, the GFC hampered Western Balkan development in several ways over the past twelve years. These include: i) people lost hope for prosperity and began seeking EU working permits, ii) the appeal of right-wing populist and authoritarian leaders has increased, and iii) the region has progressively looked to Turkey, the Arab states, and China to fill the void in investment from EU origins[7].
In addition, the ongoing COVID-19 crisis has caused immeasurable damage. It will take years to rebuild and recover from the economic devastation and to restore jobs and growth in the region. The GFC and COVID-19 have also affected domestic political spaces across the Western Balkans, meaning that this region has experienced substantial democratic backsliding[8]. This development is to some degree associated with recent geopolitical changes.
The European Commision and several Member States have pointed to the need for EU internal reform towards domestic democratic challenges, as well as concerns about departures from democracy in the Western Balkans. This has made the process of integration more demanding, creating a situation where “the EU accession perspective of the Western Balkan countries and the EU’s internal developments are as strongly tied together as they have ever been“ [9]. Indeed, it is becoming more obvious that the coming years will be decisive for the democratic and EU-oriented future of the region.
On the basis of findings by Böttger and Maugeais (2021), the EU and its Member States should step up their efforts to promote the rule of law in the Western Balkans, and perhaps take some responsibility for the region’s democratic setbacks. The Aspen Institute suggests that without improved monitoring and assessment of reform mechanisms supported by political consequences for governments in the region, it is unrealistic to expect any major changes or a transformative effect purely on the basis of the revised methodology[10].
This already-difficult situation has become more serious with the ongoing impact of COVID-19. The regional economic shock caused by the pandemic cannot be overcome by Western Balkan countries alone. The Ambassador of the European Union to Montenegro, Oana Kristina Popa, pointed out that mutual political and economic rapprochement with the EU is a continuous, parallel and challenging process, emphasising that “one cannot have an advantage over the other, because both processes are closely connected. The EU is ready to help both politically and with large investments through the Economic Investment Plan, Pre-Accession Assistance Instrument (IPA) projects, and other investments”[11].
At the same time, further economic integration can provide a springboard in the process of EU accession. However, this process is likely to suffer from the same political handicaps that have undermined progress in the reforms set out in the integration agenda. For the region to truly develop, economic integration must be accompanied by reforms regarding the rule of law.
According to Džihić, Schmidt and Poli (2021), what is needed is a new development strategy that focuses on specific sectors in order to strengthen national and regional comparative advantages, and one of the concrete measures should be the acceleration of the EU’s promised investment plans[12].
The Importance of Economic Integration and FDI
For the Western Balkans to truly progress towards the EU and gradually adopt European values, strong political and economic action is required by Brussels. Unfortunately, all countries of the region have experienced setbacks in this area.
The Economic and Investment Plan (EIP) for the Western Balkans, launched in October 2020, represents a substantial investment package that has ambitions to boost economic development. This will be done through support for competitiveness and inclusive growth based upon sustainable connectivity with an emphasis on green and digital technology. The EIP will mobilize up to EUR 9 billion from IPA III for the period 2021-27, plus up to EUR 20 billion in investment over the next decade.
The Western Balkans Investment Framework[13] provides financial and technical assistance, mainly focusing on transportation projects, both by improving existing infrastructure in the region and developing new projects. One example is the Balkan portion of Europe’s Trans-European Transport network, which will connect larger Balkan cities with those in EU Member States. Through grants, loans, and investments, this will mainly benefit cities in Serbia, Montenegro, Bosnia and Herzegovina, and Kosovo. For the EIP to be successfully implemented, these funds must be fully disbursed for the specified projects. EU assistance is required to support local governments and enhance their administrative and technical capacities to apply for funding, then guide them in implementing the approved projects in a timely manner. However, the question arises as to whether the allocated amount is sufficient, bearing in mind the effects of the prolonged COVID-19 crisis. By comparison, some neighbours of the Western Balkans are expected to receive ten times more aid.
Although the EIP has great ambitions, the announced IPA III has seen only an increase of EUR 800 million in availalbe funding compared to the previous programming period (at 2018 prices). The Aspen Institute stated that it is encouraging that the EU has decided to increase the package for the region, but the marginal increase of 6.8 % demonstrates that the EU is missing another opportunity to narrow the socio-economic gap between the EU and the Western Balkans[14].
Bartlett argues that the most important aspect of Balkan integration with the EU is economic security through trade, FDI, and inclusion in international supply networks[15]. All of these require improved infrastructure. In the Balkans, connectivity lags far behind other regions of Europe. The EU and China have both introduced projects that will make this region far more accessible to the global economy.
The investment needs of the region are significant, and all countries in the region are extremely reliant on FDI inflows. The speed of their recovery and sustainable convergence with the EU will thus depend on the rate and level of inflow of capital. Deichmann’s edited volume[16] examines the role of foreign direct investment across the region, with country-specific chapters contributed by local scholars from Yugoslavia’s successor states. Without exception, the authors arrive at a consensus that FDI is a necessary tool for Western Balkan governments in pursuing their objectives of integration and development. FDI will enable greater transfers of know-how and technology to domestic firms, which is essential for post-pandemic recovery. However, the attraction of sufficient FDI into the Balkans requires further integration with the EU as well as infrastructure improvements through both EU funding and projects such as China’s BRI initiative.
Although not among the leading global destinations for FDI, the importance of FDI inflows to the Western Balkans cannot be overstated. Unfortunately, even before the dramatic drop-off due to COVID-19, overall global FDI flows had already declined for 5 years[17]. Western Balkan countries, faced with decreasing financial flows from European countries in the last decade, have sought to replace this FDI with projects from “new” origins such as the United Arab Emirates and Turkey, and more recently from China[18].
Chinese interest in Europe has received considerable scholarly attention in recent years[19]. As FDI flows from China increase, many in the EU view China’s economic presence in the Western Balkans in negative terms[20] with fears about the long-term motives behind Chinese infrastructure projects. There have even been cases of politicians in the Western Balkans overplaying Chinese influence to attract greater attention from the EU, warning that if the EU withdraws from the region, the void will be filled by China.
However, China argues that it does not have geopolitical ambitions in the region[21]. Over the past decade, China set forth the Cooperation Framework with CEEC. As part of CEEC, the Western Balkan countries are an essential component of China’s foreign policy. Specifically, the BRI gives new importance to relations between China and the Western Balkan countries. China assures Europe that it does not wish to transform the Western Balkans or export its governance model. Currently, China’s trade with the Western Balkans remains negligible compared to that of the EU, its investment in the region is still at relative low level, and its economic engagement focuses on transportation and energy infrastructures. China’s government states that it supports the European perspective of the Western Balkans countries, and its presence in the region does not undermine the process of EU accession[22].
Despite the rhetoric of some politicians fueling geopolitical tensions, currently China’s influence in the region remains minor. Unfortunately, normal economic exchanges are sometimes feared to be politically motivated. In addition, economic cooperation is suspected as a play for political influence, and infrastructure project financing is perceived as a potential “debt trap”. China’s economic engagement serves the development needs of the Western Balkans countries and does not constitute a zero-sum game for the EU. The Western Balkans region is at the forefront of geopolitical competition and as such the Western Balkans countries are affected by this geopolitical game to varying degrees.
On the one hand, China has followed closely the trends of geopolitical changes and paid attention to geopolitical risks, while on the other, China has not given up attempt to ramp up mutually-beneficial cooperation with the Western Balkans countries. As far as the economic affairs are concerned, there is still room for both China and the EU to cooperate in the Western Balkans.
Conclusion
In conclusion, the political and economic future of the Western Balkans lies in the balance. This brief highlights the geostrategic importance of the region in the present context of economic stagnation and capital scarcity induced by the ongoing COVID-19 pandemic. In their efforts to facilitate economic recovery and greater participation in the global economy, the countries’ leaders find themselves weighing tradeoffs between two principal partners for the future: the EU and China. European integration is widely seen as the panacea to the challenges facing the Western Balkans. However, the window of opportunity for the EU is closing. In recent years, it is China that has been increasingly assertive in reaching out to the region with infrastructure assistance, which is bound to be followed by more Chinese FDI and other involvement that some critics view as a potential threat to Europe[23].
To be proactive, the EU should seek ways to swiftly and significantly increase its investment in the region by allocating more funds than those already committed through the EIP. One option could be to grant Western Balkan governments gradual access to the EU’s structural funds. In this way, the region’s governments would be incentivised to honor their commitments for reform. This would also improve the EU’s image in the Western Balkans through tangible and visible benefits for the local populations. By narrowing the development gap, the countries of the region will have less need to look for assistance from external actors such as China, Russia, Turkey, and the Arab states.
However, the window of opportunity will not remain open indefinitely for the EU to consolidate its role in the Western Balkans. As reported by Brennan, Montenegro’s Minister for Foreign Affairs, Đorđe Radulović, stated:
We want to see more investment from the West. The Western Balkans is the heart of Europe, not the EU, but of Europe, and Montenegro is in the heart of the region. Americans and Europeans must be more determined in the region. We are part of the political West, but our economy depends on the political East. We have a Chinese loan, we have tourism that depends on visits from the former Soviet republics… We have to ask ourselves, what is more important – values and ideas or investments. Cooperation with China is inevitable. We have to cooperate with almost everyone, without exception. Cooperation and economic cooperation is one thing, and political orientation and values are something totally different. In our thinking and values we are the political West[24].
Indeed, foreign capital remains an essential tool for development in the Western Balkans. FDI is linked to integration with Europe as well as with the global economy. Like the EU, China and other countries can be partners for Western Balkan development. While FDI is essential to promote economic growth as well as transfer of skills and technology, Deichmann argues that governments should prudently screen FDI for potential negative impacts on the societies and environment of the Western Balkans[25]. As regional advantages, policy-makers and investment promotion teams should leverage lower labour costs and favorable corporate tax regimes in the Western Balkans. Other keys to attracting FDI to the region include further integration with the EU as well as infrastructure improvements through EU funding and projects such as China’s BRI initiative as well as smaller infrastructure projects in major cities. Finally, in this time of pandemic-induced economic crisis, the EU and its Member States should capture the present opportunity to consolidate their role in the Western Balkans by engaging the region more fully.
[1] Martin, P., Mayer, T. and Thoenig, M. (2012) “The geography of conflicts and regional trade agreements“, American Economic Journal: Macroeconomics, 4(4), pp. 1-35.
[2] Alfaro, L. (2017) “Gains from foreign direct investment: Macro and micro approaches“, World Bank Economic Review, 30, Supplement 1, pp. 2-15.
[3] Western Balkan countries had different levels of success ranging from Croatia’s 2013 full EU accession to arms-length Stabilization and Association Agreement (SAA) signed by Bosnia and Herzegovina in 2015 and Kosovo in 2016, the latter remaining unrecognized by five EU members.
[4] Ruge, M. (2021) “Six Principles to Guide EU Action in the Western Balkans“, IAI Commentaries, Rome: Istituto Affari Internazionali.
[5] Alizada, N., et al. (2021) Autocratization Turns Viral. Democracy Report 2021, University of Gothenburg: V-Dem Institute.
[6] Böttger, K. and Maugeais, D. (2021): “Countering the Rule of Law Backsliding in the Western Balkans“, ÖgfE Policy Brief, No 11 (Accessed 15 November 2021).
[7] Deichmann, J. (2021) (ed.) Foreign Direct Investment in the Successor States of Yugoslavia: A Comparative Economic Geography 25 Years Later, Basel, Switzerland: Springer Nature.
[8] Alizada et al. op cit.
[9] Böttger, K. and Maugeais, D. op. cit.
[10] Aspen Institute (2021) Do the Western Balkan countries need a different model of EU accession? 16 September 2021 (Accessed 15 November 2021).
[11] Comments made at the Public debate entitled “Enlargement solidarity: between political and economic convergence and solidarity in the Third volume: European Solidarity in Action and the Future of Europe: Views from the Capitals (2021), published by Springer, Faculty of Economics, University of Montenegro, 3 November, 2021). More information can be found at http://cepeuch.com
[12] Džihić V., Schmidt, P. and Poli, E. (2021) “The Plight of the Western Balkans Is a Wake-up Call for Europe“, IAI Commentaries, Rome: Istituto Affari Internazionali.
[13] For more information, see https://wbif.eu/
[14] Aspen Institute. op. cit.
[15] Bartlett, W. (2009) “Economic development in the European super-periphery: evidence from the Western Balkans“, Economic Annals, 54(181), pp. 21-44.
[16] Deichmann, J. op. cit.
[17] See OECD (2020) Foreign direct investment flows in the time of COVID-19 (Accessed 15 November 2021); OECD (2021a) COVID-19 fallout sinks global FDI flows by 38% in 2020 (Accessed 15 November 2021) and OECD (2021b) Global FDI flows rebound to exceed pre-pandemic levels (Accessed 15 November 2021).
[18] Deichmann, J. op. cit.
[19] See for instance Pavlićević, D. (2018) “‘China threat’ and ‘China opportunity’: politics of dreams and fears in China-Central and Eastern European relations“, Journal of Contemporary China, 27(113), pp. 688-702; Richet, X. (2019), “Geographical and Stratefic Factors in Chinese Foreign Direct Investment in Europe“, Asian Economic Papers,18(2), pp. 102-119 and Deichmann, J. op cit.
[20] Pavlićević, D. op. cit.
[21] Lijian Z., Foreign Ministry Spokesperson’s Regular Press Conference on July 13, 2021 accessed 20 July 2021).
[22] Jin L., Chinese Ambassador to Montenegro, statement at the seminar “The EU, China and the Western Balkans: The Challenges and Prospects of Further Integration“, organized with the Jean Monett Centre of Excellency: Challenges of Enlargement Policy: EU versus Chinese diplomacy in Western Balkans, hosted by the Faculty of Economics of the University of Montenegro, May 2021.
[23] Pavlićević, D. op. cit.
[24] Brennan, D. (2021) ”U.S., EU Risk Losing ‘Heart of Europe’ to China, Montenegro Warns”, Newsweek, 12 November 2021 (Accessed 15 November 2021).
[25] Deichmann, J. op. cit.
