South-East Europe needs zero-priced capital to boost growth

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

A Bosnian elderly woman looks a stand with groceries on a street in Sarajevo, during the International Women's Day, in Sarajevo, Bosnia and Herzegovina, 08 March 2018. [Fehim Demr/EPA/EFE]

The region of former Yugoslavia and Albania has long ago been swallowed up by the EU. Yet, it is doomed to permanent marginalisation unless the EU does not open its structural and cohesion funds, or provide other source of zero-priced capital, writes Dušan Reljić.  

Dušan Reljić heads the Brussels office of the German Institute for International and Security Affairs (SWP). The article is republished from the first issue of anew Vienna publication, Business link magazine.

More than 70.000 citizens of the so-called Western Balkans have left their homelands since 2015 and settled, legally, in Germany alone. The migrant track from the region has also reached other EU countries, mostly in the central parts of the continent.

This exodus has significantly contributed to the on-going sharp depopulation of the territory. By 2050, Serbia and Croatia will have, according to UN projections, 15% less inhabitants than now and the rest of the regions will also experience significant drops.

About one quarter of the residents has already left this part of southeast Europe in the past three decades. Arguably, the most important reason for the mass departure is the absence of increase of presently poor middle class incomes, rising inequality and the concentration of political and economic power in the hands of the few privileged.

Most of the employed in the region earn monthly €300 or so. Nationalistic populism is rampant again, recycled by the powers-to-be to conceal their governance failures and blatant democracy deficits. Consequently: Why would anyone with education and skills accept earning forever ten of fifteen times less than in Austria or Germany and being politically sidelined at home?

In the future, fewer tax-payers in the region will have to shoulder significant foreign debts which the government incurred after the end of the wars for Yugoslavia´s succession and in the initial phase of the transition to capitalism. The external debt of the six Western Balkans economies in this year amounts, according to the World Bank, to 81.2% of their GDP.

Currently, after many miserable years, GDP growth in the region has accelerated to 4.3%. However, even if the rise of the national output would reach six percent, the region would need about thirty years to converge with the EU average.

As the International Monetary Fund recently warned, the region continues to depend heavily on financial incentives and low wages to attract external investors. Nevertheless, the domestic value-added content did not increase much over time reflecting the largely assembly role of foreign subsidiaries and the concentration in labour-intensive phases of production.

A glance at the map of the continent reveals that the EU geographically surrounds this region with a population which constitutes 3.5% of the number of EU citizens. Measured in trade, investments, market dominance of banks from the EU and the human networks through migrants, the region of former Yugoslavia and Albania has long ago been swallowed up by the EU.

Yet, it is doomed to permanent marginalisation unless the EU does not open its structural and cohesion funds, or provide other source of zero-priced capital, for the development of infrastructure, re-industrialisation and improvement of public goods such as education and the health system.

Everything else, especially the incessant praise in Brussels and in the member states of the “European perspective” of the region, which will open up once the reforms are implemented, amounts to ludicrous spin.

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