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Selective Amnesia on Debt Relief in today’s EU

Emanuel L. Paparella, Ph.D.

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In the ongoing Euro Zone drama, the sovereign debt held by Greece is the crux of the issue occupying centre stage. The economy of Greece has seen its debt-to-GDP ratio increase from around 120 per cent in 2010 to nearly 180 per cent today.

Greece, as is well known, belongs to a polity which calls itself the European Union and in theory conceived of itself as a community based on democratic ideals and political solidarity in the spirit of shared responsibility and distributive justice.

All that in theory or on paper. The practice however, is a different story. Germany, the main creditor of Greece, is still insisting, as we speak, that Athens must agree to more painful austerity measures and reforms, and be made to pay for past profligacy before any sort of debt relief can be put on the table. There seems to be a sort of selective amnesia at work here, given that Germany benefited not so long ago from more lenient terms from its Western allies (which included Greece) than it is now prepared to offer. The photo below is revealing: it was taken in 1953, some eight years after the end of World War II, a destructive unnecessary war provoked by Germany itself.

It is an undeniable historical fact that Germany has been the major beneficiary of debt write-off in the 20th century, not excluding Greece as a creditor, and not to speak of the Marshall Plan which helped the whole continent get back on its economic feet. This is a fact often overlooked by Greek bashers of all stripes and conveniently forgotten today.

It is also a fact that Greece’s present financial situation is the result not only of profligacy but also of a toxic combination of austerity policies that have caused its GDP to fall by more than a quarter and continuous increases in debt. These do not reflect new resources coming into the economy, but loans extended to enable Greece pay on the interest on previously incurred debt, which then get piled on to the earlier principal amount and further compounded. Almost everyone but the Germans now recognises that this level of debt is simply unsustainable and some of it must be written off.

It bear mentioning that this was a common practice in the ancient world till the Romans at the height of their imperial power put an end to it. But the German leadership and most of the people protest that this is unacceptable use of taxpayers’ money (ignoring the fact that most of the debt has gone to repay banks in their own and other “core” European countries) and will create moral hazard problems, leading other debtor countries in Europe to try and do the same. In reality is concern is more political than economic; a misguided fear that left-leaning groups may resurface in a Europe; in reality what has resurfaced are fascist leaning parties (usually anti EU) who promise law and order devoid of social justice.

But beyond serving as a reminder of German hypocrisy, the photo above offers a more important lesson: These sorts of things have actually been dealt with successfully before. “I’ve seen this movie so many times before, it is very easy to get hung up on the idiosyncrasies of each individual situation and miss the recurring pattern.” said Carmen M. Reinhart, a professor at the Kennedy School of Government at Harvard who is perhaps the world’s foremost expert on sovereign debt crises. She is convinced that it is a general lesson about the nature of debt that crises end and economies improve only after the debt is cut.

And what is “the recurring, historical pattern?” This: major debt overhangs are only solved after deep write-downs of the debt’s face value. The longer it takes for the debt to be cut, the bigger the necessary write-down will turn out to be. Nobody should understand this better than the Germans. It’s not just that they benefited from the deal in 1953, which underpinned Germany’s postwar economic miracle. Twenty years earlier, Germany had defaulted on its debts from World War I, after undergoing a bout of hyperinflation and economic depression that helped usher Hitler to power. Indeed, nations in economic depression will often look for a savior who usually turns up to be a tyrant. This is a lesson that one would have hoped the Germans had not forgotten so fast.

The next two charts are instructive here:

cdb1

cdb2

The 20th century offers a rich road map of policy failure and success addressing sovereign debt crises. The good news is that by now economists generally understand the contours of a successful approach. The bad news is that too many policy makers still take too long to heed their advice — insisting on repeating failed political policies first that end up harming economic solutions.

I would preface this piece by mentioning that not being an economist myself, I have culled the economic facts from various public documents and statistics as mentioned throughout. In any case, let us consider two crucial 20th century economic events: one in the 1930s, in which Germany unilaterally defaulted on its external debt; and another in the 1950s when, as the above photo illustrates, Germany was granted substantial debt relief on very generous terms that enabled it to recover and grow into the powerful economy that it now is.

The first story has its origins in the peace conference after the First World War, leading to the Treaty of Versailles, which imposed 132 billion gold marks ($33 billion), of reparation payments on Germany. This was the “transfer system” famously excoriated by economist John Maynard Keynes in his Economic Consequences of the Peace, who presciently warned that this would create economic and social devastation in Germany and fuel the rise of a dictatorship bent on revenge.

The US provided credit to Germany and also reduced the amount of these debt through the Dawes Plan over 1924-29, which enabled Germany to make these reparation payments by borrowing from abroad. However, when Wall Street crashed in 1929, the US demanded full repayment of its loans, which rapidly became impossible and generated the forces leading to the fall of the Weimar Republic. In 1931, as the external public debt to GDP ratio reached 100 per cent, fiscal austerity to make transfer payments and service the debt pushed the country into Depression. Reparation payments were cancelled in August 1932, but the creditor payments remained in the form of short term debt that was continuously rolled over.

In 1933, the Nazi government in Germany declared unilateral default on all its sovereign debts and instituted capital controls. Interestingly, this default paved the way for a major debt write-off by the US and UK, cancelling a significant proportion of debts of 19 of their World War I allies in 1934 (see Chart 1 above). Of these countries only Finland repaid its debts in full. A recent study by Reinhart and Trebesch (Sovereign debt reduction and its aftermath, Harvard Kennedy School Working Paper, June 2015) has shown that this led to significant improvement in the economic landscape of these countries. They also note that debt write-offs are much more effective in generating economic growth and higher credit ratings than softer options like maturity extensions and interest rate reductions.

The second episode, initially mentioned in this piece, is even more relevant to the present times: I refer to the London Debt Agreement of 1953 that saw the abolition of all of Germany’s sovereign external debt. This was the outcome of negotiations of Germany with 20 of its creditors (including Greece and Italy, and even Pakistan). The conference was the outcome of lessons learned by the US and other creditors in the interwar period, particularly the economic and political dangers of forcing countries into depression through austerity generated by the need to repay debts.

Germany at that time held a significant amount of pre-war debt (mostly incurred for reparation payments and taken on by the Nazi government) as well as slightly more than half of the total debt that was the result of US Marshall Plan soft loans to revive the economy, which had already contributed to infrastructure reconstruction. As Chart 2 above indicates, there was significant write-off of both kinds of debt: the pre-war debt was reduced by 46 per cent and the post war debt by 52 per cent. The remaining debt was converted into very easy terms: DM 2.5 billion carrying no interest; DM 5.5 billion at 2.5 per cent annual interest; and DM 6.3 million at 4.5-5 per cent annual interest. No compound interest was charged for the long period when debt had not been services (since the default of 1933, and a five year grace period was provided until 1957, during which only DM 567.2 million would have to be paid each year.

As one German economist has noted, “The result of this debt-trade-link was a substantial contribution to Germany reaching full employment very quickly, thanks to a strong export performance”. (Jurgen Kaiser, One made it out of the debt trap: Lessons from the London Debt Agreement of 1953 for the current debt crisis, FES International Policy Analysis Paper June 2013)

Greeks are now justifiably shocked that the country that they had treated so generously when they were its creditors is now choosing to take such a hard and punishing line with them. It is true that the London Agreement took place in a Cold War context in which it was politically important to strengthen West Germany as an alternative to the Communist East. Nevertheless, the recognition of shared responsibility that was originally the underlying philosophy of the agreement was crucial in making it so effective and its outcomes so satisfactory.

Obviously the spirit of shared responsibility does not exist any longer even if the group continues to consider itself a community and a union that cares for the common good. Perhaps even more than German selective amnesia, this lack of genuine solidarity is the present real problem of the EU. The urgent question “what kind of political community are we?” remains to be answered, and not only on paper but in practice.

 

Note: this article, slightly modified has already appeared in Ovi Magazine

Professor Paparella has earned a Ph.D. in Italian Humanism, with a dissertation on the philosopher of history Giambattista Vico, from Yale University. He is a scholar interested in current relevant philosophical, political and cultural issues; the author of numerous essays and books on the EU cultural identity among which A New Europe in search of its Soul, and Europa: An Idea and a Journey. Presently he teaches philosophy and humanities at Barry University, Miami, Florida. He is a prolific writer and has written hundreds of essays for both traditional academic and on-line magazines among which Metanexus and Ovi. One of his current works in progress is a book dealing with the issue of cultural identity within the phenomenon of “the neo-immigrant” exhibited by an international global economy strong on positivism and utilitarianism and weak on humanism and ideals.

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Balkans splitting EU apart

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The European Union is going through a serious internal crisis over the prospects of its further expansion, with the main line of confrontation running between Paris and Berlin. On October 15, France, backed by Denmark and the Netherlands, blocked the EU’s decision to start negotiations concerning the admission of Albania and Northern Macedonia. Germany and other EU members opposed the move as unfounded, citing previous decisions by the European Commission. This split at the very top of the 28-member bloc could seriously undermine its status in the eyes of the Balkan states, and force them to shift their foreign policy priorities and possibly turn towards Russia and its integration mechanisms.

The news of the decision by France, the Netherlands and Denmark to block the previous EU decision to start admission talks with the two Balkan states, citing the slow pace of their reforms followed the EU foreign ministers’ meeting in Luxembourg. The three countries opposed the start of negotiations with Albania, and France’s position concerning similar talks with Northern Macedonia was equally negative. Paris also insisted on a fundamental reform of the EU’s accession process. Germany and other EU members disagreed, arguing that in late May, the European Commission had found Albania and Northern Macedonia fully in line with EU conditions and ready to engage in EU accession talks with Brussels. Moreover, Brussel’s promise to start such negotiations is clearly mentioned in the list of official decisions made by the European Union.

At the same time, Brussels uses a differentiated approach to Balkan countries’ applications for membership, with the EU Commissioner for European Neighborhood Policy and Enlargement, Johannes Hahn, speaking against inviting Serbia and Montenegro to start negotiations, arguing that they should make “more efforts to protect the rule of law.”

Naturally enough, the Balkan counties were disappointed by this decision. Just a few days before the Luxembourg meeting, the leaders of Albania, Northern Macedonia and Serbia gathered in the Serbian city of Novi Pazar, accusing Brussels of ignoring their interests.

Briefing reporters after the meeting, Albanian Prime Minister Edi Rama called on his colleagues from Northern Macedonia and Albania to work out a foreign policy agenda without waiting for tips from Brussels.

“There has been no change in the agenda of our international partners, but the format of relations that we are building has changed, as we are not waiting for the EU to find time to pay attention. Let’s be honest, we are not a priority for the EU, because they prioritize their own reforms. We cannot expect to become a priority for the EU, but we are still able to promote more active and organized cooperation,” Edi Rama said.

Northern Macedonia’s Prime Minister Zoran Zaev and Serbian President Aleksandar Vucic see the creation of a visa-free zone in the Balkans – “a small Schengen” – as one example of such cooperation. This is sending a clear message to Brussels to consider a situation where even such EU members as Bulgaria, Romania and Croatia, still remain outside the pan-European visa-free space.

Poland, which is the Balkan candidate states’ most active ally in the EU, has fairly tense relations with the big shots in Brussels. During a recent meeting of the leaders of the Vicegrad Group (Hungary, Poland, Slovakia and the Czech Republic) held in the Czech city of Lany, attended also by the Slovenian and Serbian leaders, the Polish President Andrzej Duda described the start of EU accession talks with Northern Macedonia and Albania as “a litmus test that will show how open the EU really is.” He said that both these Baltic nations had already met all the necessary criteria for admission to the European Union and emphasized that Warsaw, for its part, favored Europe with “open doors,” which is the only way to ensure the EU’s peaceful and peaceful development.

This position is fully shared by Germany, with Michael Roth, Minister of State for Europe at the Federal Foreign Office, telling the newspaper Die Welt that “Albania and Northern Macedonia have done their homework. In recent years, they have been outstandingly successful all across the board fulfilling all the prerequisites for starting negotiations. They need to be rewarded for this, and this is exactly what the Bundestag did in an unambiguous vote. I am sure that the terms proposed by the Bundestag will convince others in the EU to greenlight the start of the EU accession talks,” Roth emphasized. He added that “the EU’s decision is being watched very closely not only by those in Albania and Northern Macedonia, but in the whole region as well. The EU must show that reform efforts are encouraged. Any further postponement would seriously undermine confidence in the EU with negative consequences for peace and stability in the region.” He also voiced fears that a political vacuum would result in Russia, China, Turkey, the countries of the Near and Middle East coming to the region.

All this is seriously undermining the European Union’s role in the Balkans and is strengthening the position of the other key players, above all of Russia, China and the United States. Therefore, Moscow needs to develop a more clear-cut concept of its own interests and goals in the region and ways of its implementation, always mindful of the local geopolitical situation and the time-tested traditions of Russian-Balkan cooperation.

From our partner International Affairs

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The return of a “political wunderkind”: Results of parliamentary elections in Austria

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At the end of September, the Austrian People’s Party (ÖVP), led by the former Chancellor – the 33-year-old “political prodigy” Sebastian Kurz – once again came out on top in snap parliamentary elections. According to a preliminary count, to be finalized on October 16, the ÖVP secured 37.5 percent of the vote, and will take 71 of the 183 seats in the National Council (lower house of parliament).

Political commentators still predict serious problems Sebastian Kurz may face in putting together his new Cabinet. What consequences will the outcome of the September 29 vote have for Austria and for Europe as a whole?

The snap general election in Austria followed the publication of secret recordings in May, which led to the collapse of the ruling coalition of the conservative, center-right Austrian People’s Party and the “far right” “nationalist” Freedom Party (FPÖ). In the July 2017 video, published by the German newsmagazine Der Spiegel, the leaders of the Freedom Party are heard promising government contracts and commercial preferences to a woman, posing as the niece of a Russian oligarch on Ibiza, Spain. As transpired later, the hidden camera recording had been arranged by journalists dissatisfied with political gains, made by the FPÖ.

The results of the September 29 vote showed that while the “Ibiza scandal” had seriously undermined the Austrian voters’ support for the “ultra-right,” it simultaneously bolstered the positions of the ÖVP, which won nine more parliamentary seats than it did in the 2017 election. The center-left Social Democrats (SPÖ), who have dominated much of the country’s postwar politics, fell to their worst ever result with 40 seats – 12 short of their 2017 result. The Freedom Party suffered massive losses ending up in third place, losing 10 percent of the vote and winning just 31 parliamentary seats – 20 less than in 2017. The Greens (Die Grüne Alternative), previously not represented on the National Council, won 26 seats, and the liberal NEOS/New Austria party won 15 mandates, thus adding five seats to their previous number.

The People’s Party thus confirms its status as the country’s leading political force, winning a second back-to-back election for the first time since the 1960s. Most observers believe that the conservatives owe much of their electoral success to Sebastian Kurz, a young politician who, already as a former foreign minister, led the ÖVP in the spring of 2017, amid the growing popular discontent with the “triumph of political centrism.”

According to Fyodor Lukyanov, the chairman of the Council on Foreign and Defense Policy, just as the traditional parties kept promising their supporters “even more stability and predictability of the whole system,” the people were getting increasingly worried about the watering down of “the very essence of politics as a clash of views and mindsets.” Meanwhile, Europe has been grappling with crises, ranging “from debt to migration.” Voters were losing faith in the ability by the traditional parties, with their predilection for reaching consensus even at the cost of emasculating the proposed solutions, to find adequate answers to the new domestic and external challenges facing the EU. This is what the People’s Party, one of Austria’s two “systemic” parties, looked like when Sebastian Kurz took over as its chairman, as it tried to move even further away from ideological certainty and advocate “all things good against everything that is bad.” As a result, it was only losing the confidence of its onetime supporters.

According to the London-based weekly magazine The Economist, two factors were critical in Sebastian Kurz’s rapid political ascent. First, Kurz filled an empty “niche” among the center-right supporters of tough refugee policies. In 2015-2016, Austria found itself at the heart of the European migration crisis – in per capita terms, the small Alpine republic had taken in more migrants than any other EU country, except Sweden. Kurz, then foreign minister, gave up his previous, quite liberal view of migration issues, embracing a hard line that envisaged closing borders and limiting asylum opportunities. Together with the governments of a several Balkan countries, Kurz has done a lot to cut off routes of illegal migration.

Secondly, many Austrians now saw Sebastian Kurz as the answer to their request for “fresh blood” and new ideas in politics. Before very long, the young leader managed to reshuffle the party leadership, including on the ground, and implement new approaches and methods of working with voters. His arrival breathed new vigor in the conservative party which, although respectable, had lost political initiative and the ability to generate fresh ideas. To the frustrated electorate, he projected an image of an energetic politician with a fresh look on the problems of Austria and Europe. During his first term as chancellor, Sebastian Kurz managed to convince a large segment of the Austrian population in his ability to successfully combine in the government the bureaucratic skills of the establishment with the ambitious and uncompromising, at times even exceedingly so, agenda of the “populists.” Kurz himself lists moves to reduce taxes and public debt among the achievements of his first government.

The outcome of the September 29 vote underscored the support the People’s Party enjoys among all sectors of the Austrian society, save, of course, for the Vienna liberals. The young politician, “who was widely viewed as a defender of the interests of the wealthy elite, can now be considered the choice of the entire people.” His electoral base continues to swell – Kurz remains the country’s most popular party leader. For his supporters, he epitomizes the political will for change, which they believe the majority of former ÖVP functionaries and the Social Democrats have lost a long time ago. And still, the traditional Austrian and European political establishment remains wary of Kurz, primarily because of his desire to team up with the ultra-right when forming his first government in late 2017. The collapse of the ruling coalition last May in the wake of the “Ibizagate” scandal with the SPÖ leaders seemed to have only confirmed these fears. However, many experts state that as Chancellor, Sebastian Kurz has proved himself as an able administrator who has “effectively deprived” the “right-wingers” of their ability to make many key policy decisions, including in the field of foreign policy.

Voters now expect him to respond to “changing expectations,” which many observers describe as historical and geopolitical pessimism. Many in Europe are worried by the weakening of the EU’s positions against the backdrop of an ongoing competition between the global powerhouses. Meanwhile, most observers believe that putting together a new Cabinet won’t be easy as there are three options for forming a majority (at least 92 mandates): a grand coalition, a renewed coalition with the FPÖ, and the so-called “dirndl government” (“turquoise-green-pink” – the colors of traditional Alpine clothing) with “greens” and liberals from NEOS. The first option could dishearten Kurz’s backers, who supported him precisely because they were fed up with a decades-long succession of governments made up of either one of the two leading parties, or both. Moreover, Kurz has “fundamental differences” with the Social Democrats on many social and economic issues. As for the new attempt to rejoin forces with the FPÖ, it is fraught with scandal that could undermine Kurz’s reputation in Europe. Finally, an alliance with the Greens and Liberals will most certainly lead to serious differences on migration, environmental and social policy.

There is an intense debate currently going on in Europe about the institutional arrangements the EU needs to resolve internal contradictions and meet external challenges. The participants in this fundamental dispute are pulling no blows, and the “Ibizagate” scandal that resulted in the collapse of Kurz’s previous government is a graphic example of that.  Meanwhile, the young and ambitious politician wants to secure a bigger role for his country in European affairs. Throughout his term as chancellor, he demonstrated a strong commitment to the political values of the “European mainstream.” He watched very closely the political processes going on in Europe, and provided maximum support for the reforms being put forward by French President Emmanuel Macron, even though he didn’t share many of Macron’s proposals for Eurozone reform, leaning more toward Germany’s more cautious stance. During his first term as Chancellor, Sebastian Kurz convinced his FPÖ coalition partners to reject the idea of Austria’s withdrawal from the EU. Now that “populists” have been on the retreat in a number of European countries – in Italy, perhaps Hungary, as well as France, where the “Yellow Jackets” movement is on the wane, few expect Kurz to brand himself as a “populist in a centrist’s skin.” The young Austrian, who has reached political heights thanks largely to his clear and unwavering stance on migration could inspire new hope in Europeans, reeling from half-hearted decisions so characteristic of the Brussels bureaucracy.

One should also keep in mind the fact that Kurz owes the notable increase in popular support to those who used to vote for the Freedom Party. And, according to the more realistically-minded people, the two political organizations still have much more in common than Kurz is willing to admit in public. Well, Kurz may have managed to solve the problem of opposing the “populists” by embracing, albeit in a softer form, some of the ideas espoused by Eurosceptics and “sovereignists.” The result, however, has been a Conservative shift “to the right.” And no matter how much Kurz and his associates insist on their firm commitment to “centrism,” it is a very different “center” – that is, a dangerous trend of the entire political spectrum of Austria and Europe gravitating “to the right.”

“Populists” may have “retreated” somewhere in the European Union. However, the third place won by the Freedom party in parliament, which still gives it an “arithmetic” chance of participating in the government, is a clear sign of the party’s potential for political survival.

The Austrian elections seem to confirm the trend that made itself so clear during the May elections to the European Parliament: fortune usually favors the political forces that do not quibble – firm supporters of “strengthening sovereignty.”

Future will show whether Sebastian Kurz’s return to power leads the way to the renaissance of “new-look” European centrists amid the gradual retreat of “nationalists” and “populists.” And also if it is a sign of the gradual adaptation of the European political establishment to the voters’ request for  a more balanced course, combining protection of the sovereign rights and national interests of EU member states and the EU’s objective need for greater federalization and centralization of common political institutions.

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EU to mount decisive summit on Kosovo

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The European Union is planning to hold an important summit on Kosovo in October this year with a view to get Belgrade and Pristina to normalize bilateral relations. French President Emmanuel Macron and German Chancellor Angela Merkel will pose as guarantors of the deal. Reports say a senior US official may take part in the Paris summit as well. The participation of the American side was strongly advocated by the authorities in Kosovo, headed by President Hashim Thachi.

If this scenario goes ahead, Serbia may face pressure from both the USA and the EU. The West plans to require Belgrade to not only de facto recognize Kosovo but to confirm the course for European integration – which, according to Brussels, means departure from a comprehensive partnership with Russia and from the signing of a free trade agreement with the Eurasian Economic Union (EAEU) scheduled for the end of October.

Given the situation, Serbian leaders are set on consolidating Belgrade’s position in the forthcoming talks by reducing international support for Pristina. To this end, Belgrade is trying to persuade countries that previously recognized Kosovo’s self-proclaimed independence to reconsider their positions and withdraw their statements. Serbian Foreign Minister Ivica Dacic has already announced in wake of consultations on the sidelines of the UN General Assembly that the number of countries that recognize Kosovo’s independence will dwindle by the end of this year. According to Dacic, such countries will make up less than half of the world community.

According to the Serbian Foreign Minister, the Serbian delegation led by President Aleksandar Vucic succeeded in holding talks in New York with representatives of about a hundred states on withdrawing recognition of Kosovo’s independence. “The President spoke with representatives of some states about strategic issues, about a dialogue with Pristina, but there were also many meetings dedicated specifically to the status of Kosovo and Metohija. As the president announced, our citizens can be sure that in the near future the number of countries that will withdraw or “freeze” their recognition of Kosovo will increase,”- Ivica Dacic said.

In recent years, the number of countries that recognize Kosovo’s independence has decreased, though so far mainly due to small American and African states. Among them are the Comoros, Dominica, Suriname, Liberia, Sao Tome and Principe, Guinea-Bissau, Burundi, Papua New Guinea, Lesotho, Grenada.

The persistency with which the US and the EU is trying to “press” for the normalization of relations between Belgrade and Pristina and force Serbia to cut down on its active cooperation with Russia has yet again pushed the Serbs into streamlining their national foreign policy priorities. According to available data, Brussels is ready to slap more conditions on Belgrade, including the most painful of the Balkan issues, not only on Kosovo, but also on Bosnia and Herzegovina. For one, as Serbian Minister of Technological Development and Innovation Nenad Popovic said,  one of the conditions for Serbia becoming a member of the EU could be recognition of the “genocide” in Srebrenica.

This is confirmed by Zoran Milosevic, an expert at the Institute for Political Studies in Belgrade, who sees the new condition as nothing unexpected, since some EU member states, and also Switzerland, have passed a law that envisages criminal liability for the denial of the so-called “genocide in Srebrenica.” Some  European countries are already following suit having drafted the relevant bills to be submitted to parliament. “Something of this kind was proposed by the High Representative of the international community in Bosnia and Herzegovina, Valentin Inzko. What is the point of adopting laws in defense of this counterfeit on the genocide in Srebrenica if they do not make a condition for Serbia’s membership in the EU?” – Zoran Milosevic points out. The mere word “condition”, he says, signifies that Serbia “is treated as a minor who needs to grow to perfection and fight tooth and claw to enter the EU”. Serbia “accepted this burden of its own free will” the day its parliament passed a resolution according to which the country’s strategic goal is European integration, ” – said the Serbian expert.

He also made it clear that it was by no means accidental that Brussels never announced the full list of conditions for Serbia’s membership in the European Union: “If they did, it would tie the hands of pro-Western Serbian politicians. So they release more and more conditions gradually, one after another. First, it was about recognizing Kosovo – whether this is a condition for EU membership or not. It turned out that it is. Now it is about the recognition of “genocide” in Srebrenica. It is said that Serbia’s entry into NATO will also be a condition for joining the European Union. And, as in the previous cases, we are wondering if such a condition exists or not. As a result, it will turn out that there is. ”

Where Brussels’ pressure on Belgrade is particularly noticeable at present is Serbia’s intention to sign a free trade agreement with the EAEU at the end of October. According to the Minister of Trade of Eurasian Economic Commission (EEC) Veronika Nikishina, negotiations between the EAEU and Serbia on the creation of a free trade zone are over with the parties involved preparing to sign the agreement on October 25. Nikishina says the document will be signed in Moscow by the prime ministers of the five member states of the EAEU, the Prime Minister of Serbia Ana Brnabic and the Chairman of the EEC Board Tigran Sargsyan. Even though Serbia has agreements on a free trade zone with three of the five EAEU members – Russia, Belarus and Kazakhstan, the transition to a common free trade regime has several advantages, emphasizes Veronika Nikishina: “Three bilateral deals that were signed earlier and were not fully identical are being harmonized, giving Armenia and Kyrgyzstan the opportunity of preferences in preferential trade. ”

Also, a trade agreement provides access of the EAEU members to the Serbian market: “For example, it concerns certain kinds of cheeses, some strong alcoholic drinks, and cigarettes from Armenia, Belarus, Kazakhstan and Kyrgyzstan, which could not enter the Serbian market under the free trade regime. And it also spreads on various types of engineering products that have also been removed from bilateral agreements.” “In other words, we give a fully-fledged free trade status to Kyrgyzstan and Armenia and improve the existing bilateral free trade arrangements for Belarus, Kazakhstan and Russia,”  – the Minister for Trade of the EEC emphasizes.

According to Serbian Deputy Prime Minister and Minister of Trade, Tourism and Telecommunications Rasim Lyayic, an agreement with the EAEU may allow the country to increase its export volumes by nearly 1.5 times. According to the minister, in 2018 Serbia’s trade turnover with the EAEU countries amounted to about 3.4 billion dollars, of which 1.1 billion accounted for exports, mainly to Russia. Exports into the EAEU will increase to $ 1.5 billion within a few years after the agreement comes into force, the Serbian Deputy Prime Minister predicts.

According to the Bruegel International Analytical Center, in 2016, 62% of all Serbian imports came from EU countries, 8.3% from China, 7.9% from Russia. 64% of the republic’s exports go to the EU, 17.8% to other Balkan countries, 5.3% to Russia.

Naturally, the EU is more than concerned about Serbia’s trade and economic policy following a different direction. Brussels has already warned the Serbian government that a free trade agreement with the EAEU could harm integration with the EU. “You can’t follow several directions at once,” – said Slovakian Foreign Minister Miroslav Lajcak, thereby warning Belgrade and expressing the position of his counterparts in the European Union: “If you are serious about Europe, you must make decisions that bring you closer to it, but this move is totally out of line. ”  

Meanwhile, Serbia maintains composure and has no intention of giving up on the plans. Explaining his country’s decision to conclude an agreement with the EAEU, Rasim Lyayic said that it follows economic agenda alone: “It is not about politics, but about trade.”

According to the minister, a refusal to sign an agreement with the EAEU would call into question a free trade agreement with Russia.

The EAEU is calm about warnings addressed to Serbia, – Veronika Nikishina says: “Until Serbia becomes a full-fledged member of the European Union, it has full autonomy in its trade policy. “In our agreement there are no obligations on the formation of a trade regime between Serbia and the European Union, which is absolutely impossible to imagine.” Nikishina made it clear that until Serbia joins the EU, “we are trading with it in a regime we consider appropriate, and we will upgrade this regime.” As for Serbia entering the EU (which is a matter of remote future), in this case “all agreements of this kind, including our agreement, naturally, will have to be terminated,” – Veronika Nikishina says.

Nevertheless, there is no doubt that pressure on Belgrade, both in terms of recognizing Kosovo and in connection with relations with Russia and the EAEU, will boost considerably in the coming weeks. In these conditions, the Serbian authorities will obviously have to assume a more determined position with regard to the country’s list of national priorities. 

From our partner International Affairs

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