THE BEAR'S LAIR Europe's missing pieces
By Martin Hutchinson
Croatia's accession to the European Union on July 1 was met with far fewer welcoming noises than had been apparent for the new entrants in 2004 or even Bulgaria and Romania in 2007. It's fairly clear that the more ambitious fantasies of an EU extending to Turkey and into the wilds of Central Asia are not going to occur anytime soon.
However, the question remains: what of the remaining Balkan countries, which culturally, economically and geographically form a logical part of an EU that already includes their neighbors to the east, north and south?
There are now six countries in the Balkans that are not members
of the EU but logically form part of an overall European bloc: they are Serbia, Montenegro, Macedonia, Kosovo, Bosnia-Herzegovina and Albania. All six of them logically form part of an expanded EU; all six of them have major obstacles in the way of joining it.
Of the six, Serbia looks the easiest fit with the EU. Its 2012 gross domestic product (GDP) per capita (on a purchasing power parity basis) is US$10,500, at least in reasonable reach of Bulgaria's $14,200 and Romania's $12,800, the EU's two poorest current members.
Except where otherwise stated, the figures in this piece will be taken from the CIA World Factbook and will refer to 2012. The world of global economic statistics is bedeviled by the use of different definitions by different agencies; the CIA's presentation is at least more user-friendly than the World Bank's Development Indicators.
Neither major source however gives us the vital statistic of government spending as a percentage of GDP - presumably because both, being state agencies, don't want to draw attention to this statistic, which would enable their ideological opponents to calculate too easily the huge adverse effect on economic growth of high government spending and rapid increases in spending.
So for this statistic I will have to use the Heritage Foundation's figures - and get sneered at by the left for using "biased" statistics. No matter, my conscience is clear!
To return to Serbia, its main economic problems are a 2012 growth rate of negative 2%, public spending of more than 50% of GDP and 22% unemployment - the first and last statistics being heavily correlated with the second, and apparently caused by it. Nevertheless, we're not assessing Serbia for membership of some Platonic ideal club of efficient economies but for membership of the EU, with which it fits all too well!
Politically, Serbia also fits with the EU; its quite strong socialist inclination is to the taste of much EU opinion, while it is strongly favored by Greece, currently out of favor with its EU colleagues but sure to be basking in the sunlight of Brussels popularity in a year or two.
If it joined the EU, Serbia would participate enthusiastically in the various slush funds, but give no euro-skeptic trouble (unlike Hungary and now Croatia, which outrage Brussels every time they elect a right-of-center government.) Serbia's only problem is that its ruling nationalists are gamy and corrupt even by Balkan standards, so "good government" types dislike them - but good government, while an EU ideal, is not an EU practice.
Montenegro, next, is slightly richer than Serbia, at $11,700 per capita and is also growing slightly faster, at 0.5%, with a smaller government sector at 44% of output. With a population of only 650,000, it should present few problems, although for geographic reasons its entry may be delayed until the roadblocks facing Serbia have been overcome.
Like Serbia, once in the EU it is likely to vote primarily with the dominant center-left bloc, in the hope of handouts that while minor to the EU budget will represent huge boosts to the Montenegrin economy.
Of all the potential entrants to the EU, Kosovo represents the greatest economic problem. With a GDP per capita of only $7,400, it is barely half as rich as Bulgaria and heavily dependent on international aid. On the other hand, since its government was established after the 1991 break-up of Yugoslavia, it has less bloat than other applicants, representing only around a third of GDP.
The country's main problem is that it is still an aid junkie, receiving about 7.5% of GDP in foreign assistance. Running as it does a major current account deficit, it must be doubtful whether the Kosovan economy will be competitive within the EU for a generation, while the gigantic costs imposed by the cumbersome EU accession and governance process will cause government's drag on the economy to shoot up (this is also a big problem for Montenegro if it remains fully independent from Serbia because it is so small).
Albania offers somewhat better prospects than Kosovo, largely because at $8,000 per capita GDP and three million population it is both larger and somewhat richer. What's more, government expenditure is only 29% of GDP, a remarkably low figure for a formerly centrally planned economy, while the country ranks a surprisingly high 58th on the Heritage Foundation's Index of Economic Freedom, above no fewer than eight current members of the EU, including France and Italy.
Its main problem is that after eight years of mainly pro-market but corrupt rule by prime minister Sali Berisha (the country is ranked 113th on Transparency International's Corruption Perceptions Index, below even Greece) the country has just elected the Socialists. This will improve relations with Brussels, but possibly at the cost of loss of economic freedom and bloating of government. Nevertheless if the Socialists prove moderate, or are ejected quickly, Albania could join the EU within a decade.
The delicate issue of the country's Moslem majority, and those in Kosovo and Bosnia-Herzegovina, is fortunately not a major problem for their EU membership because of all three countries' relatively small populations, individually less than the Moslem minorities in several Western countries, such as France's estimated 4.1 million. (Turkey's potential EU membership is an altogether more difficult question.)
The third Moslem applicant, Bosnia-Herzegovina, is more difficult than the other two. Cursed with a civil war in the early 1990s, it was then cursed with endless intervention by incompetent Western aid agencies.
As an example, private sector savings, which had been stolen by Serbia at independence in 1991, were never restored as in other ex-Yugoslav republics (in Macedonia with an assist from me) because the International Monetary Fund and the US Treasury didn't think private savings were a priority. As a result, Bosnia-Herzegovina's GDP per capita is only $8,300, the lowest figure in ex-Yugoslavia other than Kosovo, while growth in 2012 was zero and government expenditure is over 50% of GDP, with heavy aid dependency and perpetual budget deficits.
No better example can be found to show that official aid and advice, far from assisting development, are often the greatest block to it, siphoning resources through a corrupt and bloated public sector and starving small business of the venture funding (mostly private savings) it needs to survive and grow.
As well as an economic basket-case, Bosnia-Herzegovina is a political disaster, split as it is between three squabbling governments. The best solution would be to split it up - its three component states would all be larger than Montenegro. However the combination of economic and political obstacles suggests it will be a generation before Bosnia-Herzegovina is truly ready to join the EU. Because of inept Western meddling it represents the most difficult Balkan problem.
Finally, Macedonia is economically the most advanced Balkan country outside the EU. Its GDP per capita is $10,700, slightly higher than Serbia's, a major advance on its former position as the poorest of the Yugoslav republics, while its growth has averaged a respectable 2% over the last three years and its public spending is only 30% of GDP.
It ranks 44th on the Heritage Foundation's Index of Economic Freedom, above the European average, 69th on Transparency International and an astounding 23rd (above all but seven EU countries) on the World Bank's Ease of Doing Business Index.
The problem is that there is little reason for Macedonia to join the EU as it is currently set up. As the above statistics indicate, under Nikola Gruevski, prime minister since 2006, it is considerably more free market oriented than the EU average - it is effectively a Balkan Estonia.
As such, its ideal relationship with the EU would be not membership but association in an Economic Area, the relationship enjoyed by Norway and Switzerland. In that way it would avoid the worst of EU regulations and would not be compelled to subsidize the EU's more feckless members, in particular Greece, with which Macedonia has a frosty relationship (mostly Greece's fault).
Of course, the EU would object to a Balkan pipsqueak enjoying the same stand-offish relationship with it as the two richest countries in Europe, but under Gruevski it is a very possible destiny. The one possible reason for Macedonia's people to prefer full EU membership is that Gruevski cannot remain in power forever, though at only 42 his departure is not actuarially imminent.
Geographically, Balkan countries' membership of the EU would complete the geographical union of Europe. Economically their integration is problematic, either because of their own problems or, in Macedonia's case, because of the EU's unattractive economic policies. Integration will thus be the work of a couple of decades, and both the Balkans and the EU will look very different by the time it is completed.
Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.
(Republished with permission from PrudentBear.com. Copyright 2005-13 David W Tice & Associates.)