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Economic reconstructionin Southeast Europe: Awestern viewFranz‐Lothar Altmann a

a Serves on the Board of Directors and Headsof the Suedost‐Institut, Department ofContemporary Research , MunichPublished online: 17 Apr 2008.

To cite this article: Franz‐Lothar Altmann (2001) Economic reconstruction inSoutheast Europe: A western view, Southeast European and Black Sea Studies,1:1, 114-118, DOI: 10.1080/14683850108454624

To link to this article: http://dx.doi.org/10.1080/14683850108454624

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Economic Reconstruction in SoutheastEurope: A Western View

FRANZ-LOTHAR ALTMANN

In its 1999 economic survey of Europe,1 the secretariat of the UnitedNations Economic Commission for Europe provided a comprehensiveassessment of the situation in which Southeast European countries mustbe viewed at the beginning of the twenty-first century. It rightly statedthat historically the region has always been among the least developedareas in Europe, located at the Continent's periphery. In addition, for thelast four decades, industrialization in this area took place underCommunist rule; it was based on a development and co-operationconcept that does not fit into the present process of globalization.Geographic disadvantages vis-a-vis the important "Western Europeanmarkets, unfavourable initial conditions inherited from a recentCommunist past and the lack of a tradition in institutional developmentresulted in a regional compound of economies already destabilizedbefore the bellicose conflicts of the break-up of the former SocialistFederal Republic of Yugoslavia. In fact, during the 1990s, the economicdisparity between Southeast Europe and the rest of Europe increasedsubstantially. None of the transition countries in Southeast Europe hasbeen able to embark on a path of sustained economic growth since then.

The four wars in the western Balkans since 1991 affected not only thebattling countries and provinces but also neighbouring countries, due tolost markets for supply as well as demand. International trade links weredisrupted when Serbia, through which the region's main transportationand communication links cross, became a totally blocked outlaw. Inflowsof foreign direct investments that had begun hesitantly in the early 1990swere diverted to other regions or postponed, and tourism, an importantsource of income for countries like Croatia, Romania and Bulgaria,suffered considerable setbacks throughout the region.

This heritage of locational disadvantages, lack of tradition ininstitutional development and unfavorable initial conditions, togetherwith the ethnically rooted eruptions of tribal animosity that Westernobservers cannot understand, might lead to opinions suggesting that theregion is so plagued by ancient hatreds, all the rest of the world can do

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ECONOMIC RECONSTRUCTION IN SOUTHEAST EUROPE 115

is isolate it and leave it to its own devices. Even among specialists, whohave been closer to the region in the past decade, one finds statementsthat Serbia is beyond hope, and most of the rest of the western Balkansno better off. Such disillusionment can only end in the hopeless requestfor containment, for building a wall around the region and disbandingall projects and institutions that deal with it.

Fortunately, this remains the vision of only a few people. SoutheastEurope, and Yugoslavia in particular, is Central Europe's nearestneighbourhood. No wall can protect European Union states from theimpact of destructive developments in Southeast Europe. The region alsoprovides important land links to Turkey and the Middle East, as well asto Greece. Furthermore, in the long run, it would be much costlier to actas a fire brigade than to support the development of sustainable socialand economic stability in the region. Unless the international communitytakes timely, comprehensive measures supported by adequate financialresources, there is considerable risk that some Southeast Europeaneconomies will soon face another round of severe economic and socialcrises, which may lead to new outbursts of violence.

THE BASICS OF THE WESTERN APPROACH

Taking into account the arguments against a containment policy for theregion, the present Western approach manifested in the Stability Pact forSoutheastern Europe rightly centres on economic development aid as thekey instrument for diverting people's energies from conflicting intereststo reconstruction and social stability in the individual countries as wellas throughout the region. Patrick Moore of the Balkan Report1 has calledthis 'removing the environment in which nationalists and demagoguescan thrive'. Beside the reconstruction of war-torn areas, two major issuesmust be part of a medium- and long-term approach: regional integrationand co-operation and the provision of a long-term EU-perspective.

Regional co-operation seems imaginable not only in the crescentencircling the western Balkans but also among those centrally locatedBalkan regions themselves. History has taught us that the first steps ofreconciliation have always been undertaken by the business community.Weak signs of co-operation can be detected in some border regions, evenin the western Balkans. However, the case of Bosnia-Herzegovina, whichoccupies a central geopolitical location, raises severe doubts about thewillingness of local elites and the broader public to develop the politicalmaturity and sophistication needed to establish democratic institutionsand seek co-operation schemes. Almost five years after the DaytonAccord, there is substantial lack of progress in key economic areas;

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116 BALKAN RECONSTRUCTION

instead, a culture of dependency has been established. Whether Bosnianofficials will continue their good behaviour once the last foreignadministrator and Stabilization Force (SFOR) soldier leave is thequestion posed by Wolfgang Petritsch in Vienna's Die Presse on 4December 1999. One could ask the same question about the willingnessof local elites in the case of Kosovo. It seems the only way is to encouragecrescent countries around the western Balkans to increase substantiallytheir economic co-operation, while demonstrating the Westerncommunity's readiness to support such endeavours.

The long-term EU perspective, the visionary decision to include theregion in the European integration process, goes deep into the psyche ofthe Balkan peoples, since they are greatly concerned they will beforgotten or forever marginalized in the future world. Politicians and thepeople in Southeast Europe most likely see a chance to come to gripswith their economic and ethnic-psychological problems only throughmassive outside support, which they define as becoming part of theenlargement process that will impose on them distinct regulations,limitations and even constitutional basics. On the one hand, this worriesmany, since it entails surrendering elements of their sovereignty whileadmitting an inability to resolve their own issues. On the other hand,there is overwhelming fear that a historic opportunity to join Europeanintegration may pass them by, never to appear again.

What most Southeast European politicians and citizens do not realizeis that strong scepticism also exists in the EU countries aboutenlargement towards Southeast Europe. The region is considered poorand relatively underdeveloped. Many people have raised the issue ofadditional costs for EU countries stemming from such an enlargement.There are also questions about the future shape and framework of anexpanded EU. It is true that Southeast European countries will not beable to comply immediately with all the regulations in force in the EUand that it will be extremely difficult for the region to withstand opencompetition in the single market. This brings up the first piece of advicefor the region: it will need time to prepare and adapt to the muchadvanced integration process. The former German Democratic Republic(GDR) might serve as an example of integration happening too quickly,resulting in the immense problems that still plague industry, althoughWest Germany has contributed more than DM 150 billion annually inthe last decade.

If Balkan aspirants should not hasten towards full EU membership,then the EU itself should provide in the meantime a sophisticated patternof different forms of inclusion and/or participation for the respectivecountries. The concept of concentric circles with varying speeds,

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ECONOMIC RECONSTRUCTION IN SOUTHEAST EUROPE 117

therefore, should be revived in order not to block the advanced countriesin their integrational attempts and to provide new applicants with thesecure feeling that they already belong to Europe.

CONSIDERATIONS FOR ECONOMIC RECONSTRUCTION UNDER THESTABILITY PACT

During the first meetings of the Stability Pact's three Working Tables,many issues were formulated and many project proposals presented tothe Co-ordinator's office. Some basic considerations should be reiteratedto avoid misunderstandings.

• First, enormous effort is needed by the countries involved, includingreforms in politics, democratic institutions and economictransformation. If the Western countries do not see such efforts toreform, including willingness to co-operate with neighbours, then thegood will of donors will soon vanish.

• The Stability Pact will only produce results if all participating partiesplace more emphasis on the success of the joint project than onparticular interests.

• Southeast European states should not obtain further large credits,since they will be unable to repay the interest or even the principal.Non-repayable grants are therefore needed most.

• Local suppliers of the materials and services required should beconsidered whenever possible so as to provide local small andmedium-sized enterprises with an initial boost.

• The region's ability to absorb the assistance of the Stability Pact is aprerequisite for reconstruction. The framework conditions in thelegal field, as well as in the banking sector and general administration,must be in place, otherwise corruption and mismanagement willquickly prevail, with all the ensuing negative consequences for thereputation of the Stability Pact and the very idea of reconstruction.Support should be allocated not only according to need but alsoaccording to opportunity to make use of such assistance.

• Finally, flexibility is absolutely necessary. One example might be theutilization of financial funds provided for specific states or projects.Donors could pay regularly on an annual or half-yearly basis, butthese funds need not be spent in the same budget year; they could beaccumulated for future use. If they are controlled by joint bodiesconsisting of members from both sides, donors and receivers, then

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this control, if combined with proper conditions that take intoaccount not only technical performance but also social and politicalprogress, might create incentives for recipient countries to providethe appropriate framework conditions.3

N O T E S

1. Economic Commission for Europe of the United Nations (ECEAJN), Economic Surveyof Europe, 1999 2 (New York and Geneva, 1999): 1-5.

2. Radio Free Europe/Radio Liberty (RFE/RL), Balkan Report 3.54 (14 December 1999).3. See also Deutsches Institut für Entwicklungspolitik, Analysen und Stellungnahmen

(5/1999).

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