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Friday, 24 January 2014

Will the opening of EU accession be a game-changer in Serbian politics, and what should we expect?

Jessie Hronesova (St Antony's College, Oxford)

On the eve of Serbia’s long-awaited opening of EU accession negotiations, Milica Delevic and Peter Sanfey from the EBRD started off the Hilary SEESOX Seminar Series by pinpointing the most pressing political and economic challenges lying ahead of Serbia’s European accession path.

Milica Delevic, the Deputy Secretary General for Shareholders Relations of the EBRD, noted that Serbia has gone through a long and tortuous road to membership since the fall of the regime of Slobodan Milosevic in October 2000. There had been some crucial milestones over the 14-year long process of securing Serbia’s candidacy, such as the first meeting of the Consultative Task Force in July 2001, the signing of the Stabilization and Association Agreement in 2007, visa liberalization in 2009, and finally the green light given by the EU in December 2013 to open negotiations on the 21st January 2014.

In her view, there were three primary reasons for the protracted nature of the process. Belgrade first had to settle on its relationship with Montenegro, which eventually sought independence in 2006. The second pressing problem was the cooperation with the ICTY until the last indicted person at large, Ratko Mladic was arrested in 2011. Yet the most contentious problem, which originally seemed close to impossible to solve, was Serbia’s stance on the independence of Kosovo from 2008 and the normalization of Pristina-Belgrade relations. As there had not been general agreement on these issues among the main stakeholders for nearly a decade, Serbia’s widely popular EU aspirations could not materialize as speedily as it has been initially expected. Moreover, the deep economic crisis in the EU has also moved enlargement down the EU agenda.

A change came in 2012 with a new coalition government, led by Ivica Dacic, and the new president Tomislav Nikolic. Having been part of the Milosevic regime during the 1990s, two biggest parties in the new government - the Serbian Progressive Party and the Socialist Party - were eager to seen as credible pro-Europeans and therefore made significant progress. The fact that they were perceived as nationalist and could thus better manage dissent caused by compromising on Kosovo, meant they were better poised to deal with what was the main stumbling block on Serbia’s European path. Nevertheless, tackling the Kosovo issues took courage. Since October 2012, when high-level political talks finally started between Pristina and Belgrade, with strong support from Brussels, discussions about the potential Serbian membership in the EU at last started taking shape, resulting in the most recently achieved milestone, i.e. opening of the negotiations.

Apart from the Kosovo-related chapter (35), the negotiations would focus carefully on Chapters 23 and 24, dealing with the reform of the judiciary, human rights, and security, justice, and freedom. Some detailed and thought-through reforms would be needed. A new Labour code, a pension reform, and a number of other policies would also be required. The main challenges for Serbia were whether institutions took precedence over some prominent political figures, whether the main political leaders adopted the approach of implementing small reform steps, rather than making overambitious promises and whether political parties discovered what they actually stood for on the political continuum.

Leading on from this political assessment, Peter Sanfey, Deputy Director of Country Strategy and Policy in the Office of the Chief Economist at the EBRD, demonstrated a diagnostics exercise of the main failures of the Serbian economic market in terms of attracting foreign business. There was a huge general government deficit (nearly 8% of GDP for 2013), high unemployment (20-25% of the labour force), and the great number of non-performing loans (over 20% of all loans in the banking sector).

Applying the Hausman, Klinger, and Rodrigo method based on their paper “Doing Growth Diagnostics in Practice”, he identified the main culprits in holding Serbia’s growth back through an elimination mechanism. Based on the premise that growth was driven by private investment, his analysis showed that the main constraints for potential investments in Serbia should be categorized as government failures on the micro-economic side. In the majority of world indicators (e.g. World Bank’s Doing Business) which assessed the quality of doing business with focus on technical aspects such as construction permits and resolving insolvency, Serbia scored lower than most countries in South Eastern Europe. It also scored poorly on Transparency International’s Corruption Perception Index, on measurement of the quality of market regulations, and on the indicators showing the extent of market dominance, procurement and competition.

There was a need to tackle business regulations in the country, curb corruption, and create transparent institutions in order to attract investment. In this respect, the accession negotiations could assist, as the EU acquis was quite specific about its demands on the size of markets, procurement and competition policies. A regional approach, especially capitalizing on Croatia’s membership in the EU, and inter-country cooperation could also significantly help.

The opening of the accession negotiations was certainly a historical milestone for Serbia, with the country entering a new period of its post-Milosevic political development. However, there was much to be done apart from opening and closing individual negotiation chapters. It was now in the hands of the current and the next government to lock in transparent democratic institutions and procedures as well as reform Serbia’s poor business sector.

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