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Are Western Balkan States Growing Fast Enough for the EU?

 6 min read / 

2018 will be an important year for the six Western Balkan states currently working towards EU membership. The region has seen strong economic growth in recent years, so much so that the European Commission recently praised Montenegro, Serbia, Macedonia, Albania, Bosnia and Herzegovina and Kosovo for their reform efforts they have enacted on the path to EU accession. However, the Balkan countries are still a long way off from meeting the economic standards required by the EU.

According to the World Bank’s Western Balkans Regular Economic Report, the Western Balkans’ GDP has grown by a compounded 2.6% in 2017. While this was 0.6% lower than initially projected and 0.3% lower than 2016, the World Bank expects growth to pick up in 2018 and 2019 thanks to recovering domestic consumption, rising private investment and higher exports. Another contributing factor is the EU’s intensified financial engagement with the region. Despite the fact that FDI and bank loans to the region began to flow a few years later than in the new EU member states, economic integration with the Balkans’ Western neighbours took off faster than expected.

Moving Slow

Nonetheless, these developments cannot hide the fact that the region is still lagging far behind EU economies, at a GDP per capita more than two times lower than the EU average in December 2017. This is a problem if convergence with the EU is to be achieved anytime soon. Even if the growth rate registered in the Western Balkans between 1995 and 2015 is maintained, it will take 60 years for local income levels to match those of the EU. And although while the six countries increased their per capita income from 17% of Germany’s (1995) to 27% (2015), they still remain among the poorest countries in Europe.

However, the region’s recent delays and reversals in economic, legal and democratic reforms, coupled with high political volatility, will affect vital sources of capital such as FDI. Lack of accountability, corruption and inconsistent adherence to the rule of law, have not only slowed recovery from the 2008 financial crisis, and are preventing Western Balkan markets from performing at their full potential – they are also a driving factor behind the rising internal fragility. In turn, this will hinder EU membership talks and lock the Balkans into a consumption-, rather than private investment-driven, economy vital for attaining higher growth rates, lower unemployment, and increased productivity.

Beneath the Surface

The need to revitalise reforms is especially important for Montenegro and Serbia. Both have received the most attention since their notable progress was regularly praised by the EU. In the annual dialogue held in 2017 between EU officials and Western Balkan countries, the European Commission commended Serbia’s past economic growth and strong fiscal consolidation, as well as its growing financial stability. Montenegro has also received praise for being a high performer relative to the EU acquis

Yet, is has become abundantly clear that all that glitters is not gold: while on the surface economic conditions look favourable, a closer look reveals several major structural obstacles standing in the way of the two states’ long-term prospects, let alone EU membership.

For starters, ongoing Montenegrin corruption has sent investor confidence plummeting. Vested interests in the public and private sector continue to absorb public investments – a major driving factor behind the growing public debt (63.7% of GDP in 2016) and the persistently high unemployment (37%). As a result, FDI has declined from €573.4m to €312.7m throughout 2016, a significant decrease compared to star-year 2015. Even though the new Law on Prevention of Corruption was adopted in January 2016, little has been done to protect whistleblowers.


Furthermore, the country remains a hotbed for narcotics and organised crime. As of August 2017, there are 700 documented organised criminals active in the country, and gang violence has racked up a murder rate of 35.62 people per million in a country of under 680,000, including 12 gang murder cases in 2016. This not only throws the stability of the country into question, but also shifts focus on its former Prime Minister, Milo Djukanovic, who has seen his share of controversy.

Worse, the country’s gang violence is spilling over into Serbia, as the recent slaying of a Montenegrin mafia boss in Belgrade demonstrates. The fact that many of Montenegro’s crime figures often also possess Serbian citizenship suggests that they are receiving help from Serbian authorities in perpetuating their activities.

This adds to the high number of unresolved corruption scandals relating to gang crimes and public official abuse. In 2017, thousands of Serbians took to the streets to protest against corruption and clampdown on press freedom, after Aleksandar Vučić, Slobodan Milosevic’s former information minister, was elected President with 55% of the votes. The demonstrations are a stark reminder of the omnipresent threat of political instability, one that is exacerbated by the risk of state bankruptcy as a result of growing public debt.


As EU accession talks with Serbia and Montenegro, and the Western Balkans more generally, are moving forward, it becomes ever clearer that the path set for the region by the EU cannot produce change by itself. To this day, structural problems remain so debilitating to both Montenegro and Serbia’s that their GDPs are still behind their 1989 levels and at a third of EU member state average GDP.

Convergence could be sped up by structural reforms meant to encourage economic competitiveness in the region, particularly by attracting foreign investors to offset the predominance of state companies, as well as the unemployment legacy left by Yugoslavia.

Such policies could also help the Balkans return to their stellar economic growth from before the economic crisis. Between 2000 and 2008, WB6 were growing at a 5.6% average per year, faster than the world average. In fact, an annual growth rate of 5% would enable Western Balkans’ convergence with the EU forty years sooner. But in the absence of sweeping socio-economic reforms, however, the Western Balkans will only further their unfortunate legacy of violence and poverty for decades to come.

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2018: A Bullish Year for Greece?

 4 min read / 

Greece Economy 2018

Two things of importance have recently occurred. The yield on Greek bonds has reached a new low (though, just in time to participate in a potential bear market) and the Syriza led government has enacted measures likely to secure the next tranche of euros. With the Greek economy heading towards achieving 2.5% growth YoY in 2018 and hopefully ending its Sisyphean 10-year cycle of bailouts this summer, the economy is starting to look ripe for foreign investment.

As Q4 2017 approached, things were starting to look up. Either because, as some have thought, after almost 10 years of crisis we’ve reached Greece-fatigue with comparatively lesser news coverage or because, as some notable commentators (such as Deutsche CEO John Cryan or American ambassador to Greece Geoffrey Pyatt) have argued, conditions are genuinely ameliorating.

With return linked to risk, the lowering of the Greek bond yield (which has fallen from more than 7% at the start of the year to 3.92% at the time of writing) is the market’s way of telling us that the outlook is improving.

Equity markets in Greece aren’t doing too shabbily either: Athens Composite Index (ASE: ATH) is up 32.24% at the time of writing, compared to last year. On one hand, it’s tempting to ignore the performance of the index. After all, since the shares have started trading again following the 2015 debacle, most of the companies included in the index – Greek banks, largely – had nowhere to go but up. On the other, reports on Greek industry are surprisingly positive, with the latest IHS PMI report on the region conveying high confidence in the sector and the ‘most marked growth in over nine and a half years’.

The reportage of the past few weeks has been centred on the possibility of Greece exiting its bailout successfully this August, on what it would take to do that and even what success might look like. This past Monday, amongst a furore of protests, the Syriza government moved to enact several fiscal and industrial reforms aimed at hopefully bringing Greece more in line with the criteria of its debtors (more here) in hopes of securing its next tranche of monies.

The vehemence of the protests (with some claiming new quorum rules on strikes are akin to slavery) seems to be inversely correlated with efficacy: Prime minister Tsipras and Finance minister Tsakalotos must surely be looking ahead to Monday the 22nd and up towards mitteleuropa in hope of approval. Whether this is a democratic stance to take is irrelevant, and with the party having a mandate to rule until 2019, they are surely gambling on a return to borrowing at European market levels and financial normalcy without too many stringent conditions. It’s a gamble, yes, but a politically expedient – and perhaps even an astute – one.

Greece offers a tempting arena for investment, but it will take more than access to the European purse to improve things, especially if SMEs and startups – surely an indicator of health in any economy – are to get off the ground. Gone are the days described in Michael Lewis’ Boomerang with its tableau of incognito meetings in hotels with tax collectors who were reprimanded for being too good at their jobs: taxation in Greece has become stringent enough to seriously affect entrepreneurs:

‘For an employee to receive over 2,000 euros net per month, their employer must pay more to the state – in taxes and contributions – than to the worker. When an employee collects 3,000 euros, their final cost to their employer each month is 7,127 euros, of which 4,134 euros goes to the state (58 percent of the total).’ Source

Even maritime activity, traditionally a staple of the Greek economy, is being affected by these strict taxation measures. Despite stirrings amongst Greece’s nascent venture capital community, Syriza-led Greece is hardly shaping up to be entrepreneur friendly and it may well be that we’re looking at an environment better suited to quick-witted, short-term speculators than investors hoping for long-term growth.

More than money is needed for the kind of recovery and environment beloved by investors.

The minotaur is still in the labyrinth, but perhaps 2018 may just turn bullish.

Keep reading |  4 min read


Brexit Phase Two: EU-UK Trade Talks

 4 min read / 

What unites European political parties across the political spectrum is a demand that while Britain discusses its future with the EU, it adheres to the principle of freedom of movement throughout the phase two transitional period. This is together with all the other rules of EU membership, including compliance with decisions of the European Court of Justice (ECJ).

EU Solidarity

While Brussels conducts day to day negotiations, it will fall to rotating EU presidents to secure cohesion and solidarity among EU27 member states holding diverse agendas for the conduct of Brexit talks. For the next six months, this leadership task falls to Bulgaria. Romania – the EU’s fastest growing economy (in 2017) – takes on the role in January 2019 at what will be a critical time when Britain (finally) leaves the European Union.

On the 29th March next year, Britain will become a ‘third country’ putting its relationship with the EU on a par with Turkey subject to any refinements on single market entry or a ‘bespoke’ customs union granting limited rights for its financial services sector. Business confidence continues to focus on going concerns that without regulatory alignment with the EU, few benefits will be provided from Brexit. It lobbies for ‘frictionless’ trade, which effectively must keep it in line with single market rules for both goods and services.

Car manufacturers have constantly reminded government ministers of potential damage to supply lines by the imposition of trade barriers. They would assert that decades of foreign investment (FDI) in the UK car industry was made in good faith in the knowledge that Britain, with its flexible and liberalized economy, provided the best entry point for the more lucrative EU market. In fairness, other factors also played a part – not least that UK employment laws were less restrictive than in mainland Europe as a result of the Thatcher government’s reforms in the 1980s.

No Deal?

There is still a question whether Britain leaves next year without a deal. Although this looks unlikely, Michel Barnier’s team at the EU Commission prepares for this scenario – taking repeated threats from the hard Brexit camp at face value. Tracking progress for the shape of an eventual deal is not easy, but clues are already appearing. French President Macron’s visit to London on Thursday 18th January helped to re-invigorate the ‘Entent Cordiale’ which historically focused on European military defence cooperation. A renewed Calais Agreement to maintain a tight border on migration would also help to improve Franco-Anglo relations.

But on a post- Brexit trade agreement Macron stands firm in stating:

“If you want access to the single market – including financial services be – my guest. But you need to contribute to the budget and acknowledge European Jurisdiction. There will be no hypocrisy in this respect otherwise it would not work. It would destroy the single market.”

It is hard to see from this statement that the EU27 will weaken from this stance, or that France can be persuaded of a more pragmatic approach by other EU members.

However, this did not stop PM Theresa May from re-iterating her desire for a deep and special partnership with the EU: “I believe it should cover goods and services.” She went on to say “I think the city of London will continue to be a major global financial centre… That is an advantage not just for the UK, it’s actually good for Europe and good for the global financial system.”


In the coming months, understandably, Britain will seek to pick off different EU states to push forward its vision of future trade relations. It is unlikely this “divide-and-rule” strategy will ultimately succeed, and it may well delay the satisfactory outcome of negotiations within the agreed timeline. It is in the interest of both sides to hammer out a deal for the stability of the EU and UK economies.

Keep reading |  4 min read


May Meets Macron

May Macron

The UK prime minister agreed to pay £44.5m towards tighter border security at Calais.

Editor’s Remarks: The French president arrived in the UK for the Anglo-French summit amid widespread complaints from the Tory party about just why Britain is paying another £44.5m for tighter security in France. One Tory MP pointed out that this addition brings the total figure the UK has paid to France in recent years up to £170m. France, meanwhile, says that the amount is necessary because the migrants in Calais are trying to get to the UK, who must, therefore, contribute towards their costs. The talks were also consumed by the imminent task of reaching consensus over the UK’s trade deal with the UK after Brexit goes through.

Read more on Europe:

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