Accession at what price? : the social cost of Serbia’s EU integration

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Accession at what price?

The social cost of Serbia’s EU integration

Jaume Soler Lacruz

Master’s in Political Science

European Politics and External Relations

Student ID: 11772514

Supervisor: Dr. Dimitris Bouris

Second reader: Dr. Rosa Sánchez Salgado

Amsterdam, August 2018

Belgrade, 2017. Alejandro Martínez Vélez.

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Abbreviations

AA CEE COWEB CSRs CVM DG EAs EAR EC ECHR ECSC EEAS EIB ESF EMS EMU ESM EU EUSR FDI FYROM FRY ICTY IFIs IPA ISPA MEP NATO PHARE Association Agreement Central and Eastern Europe

Council Working Group on the Western Balkans Country-Specific Recommendations

Cooperation and Verification Mechanisms Directorate-General

Europe Agreements

European Agency for Reconstruction European Commission

European Court of Human Rights European Coal and Steel Community European Union External Action Service European Investment Bank

European Social Fund European Monetary System Economic and Monetary Union European Social Model

European Union

European Union Special Representative Foreign Direct Investment

Former Yugoslav Republic of Macedonia Federal Republic of Yugoslavia

International Criminal Tribunal for the Former Yugoslavia International Financial Institutions

Instrument for Pre-Accession Assistance

Instrument for Structural Policies for Pre-Accession Member of the European Parliament

North Atlantic Treaty Organization

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SAA SAP SAPARD SEE TEU TNCs UNMIK WBIF WTO

Stabilisation and Association Agreement Stabilisation and Association Process

Special Accession Programme for Agriculture and Rural Development Southeast Europe

Treaty on European Union Transnational Companies

UN Interim Administration Mission in Kosovo Western Balkans Investment Fund

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1. Introduction: EU accession and dreams of a better life

“Joining the EU means improving living conditions, welfare standards, and this is what counts and what every citizen deserves”

EU Commissioner Johannes Hahn (2017)

For decades, European integration has been the symbol of progress and

prosperity for candidate states. However, the current crisis has put this ideal into question. In a context of rising Euroscepticism, the departure of the United Kingdom and rising instability in capitals like Athens and Rome, this thesis takes the pulse of the integration process in the Western Balkans, taking the Serbian case as example. While there is little euphoria for continued enlargement amongst EU citizens, the Commission just released an enlargement strategy claiming that ‘advanced’ candidates like Serbia and Montenegro could be joining the Union by 2025 (European Commission, 2018). In a context of deep crisis in the EU and extremely vulnerable socioeconomic conditions in the Western Balkans, this thesis examines whether the enlargement process is bringing improved social and living standards to candidate countries.

To seek an answer, this thesis will draw from the most recent critical theories of European integration, which have taken into account the growing asymmetries and inequalities in the Union, especially in the current crisis (van Apeldoorn, 2009; Ryner & Cafruny, 2017; Jäger & Springler, 2015). Then, it will examine the dramatic social consequences of the transitions in Eastern Europe and its integration into the EU in what was known as the ‘big bang’ enlargement (Dale, 2011; Bohle, 2006), and the particularly powerful role that the EU developed in the process (Gateva, 2015; Schimmelfennig, 2012). Finally, it will move on to the Western Balkan region to provide the context of the integration process and identify the main five socioeconomic challenges the region is facing.

The majority of EU-Serbia accession literature has focused on institutional aspects, reflecting the ‘disciplinary split’ in EU integration theory which has separated it

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from social and economic issues (Ryner, 2015). The situation of disputed Kosovo (Economides & Ker-Lindsay, 2015), the separation of Montenegro and

collaboration with the International Criminal Tribunal for the former Yugoslavia (ICTY) have been widely discussed topics. However, the daunting social challenges that the country is facing are often downplayed in the literature.

This research attempts to address this literature gap by analysing the EU accession polices in Serbia and its potential to improve the social conditions in candidate states. It connects with the broader debate on the social potential of European integration and the possibility of a European Social Model and convergence in the EU. In times of crisis, will the promise of EU membership bring a better life to the Serbian people?

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2. Methodology

2.1. Research question, literature and evidence

This thesis uses the theoretical insights and ideas of both EU critical integration theory and Eastern enlargement literature to analyse the social impact of the Serbian accession process. The research question will be the following: how is the EU integration process dealing with the social challenges that Serbia is facing? In order to seek an answer, this thesis will start by drawing some theoretical insights from the latest critical European integration literature. Chapter 3 will engage with scholars that have criticised the ‘disciplinary split’ in EU scholarship (Ryner, 2015), which has neglected and understudied the socioeconomic

consequences of the European integration process, its tendency to crises,

contradictions and inequalities. This will be the theoretic base to understand the inherent social dynamics in the integration project and the relevance of this aspect of the enlargement process. It will develop the concept of ‘negative integration’, a model of integration which facilitated market liberalization while neglecting social policies, and address the issues of ‘uneven development’ and ‘core-periphery’ dynamics in the Union (van Apeldoorn, et al., 2009; Nousios, et al., 2012; Jäger & Springler, 2015).

With this critical theoretical approach, Chapter 4 will discuss the experiences of Central and Eastern Europe (CEE) enlargements, which set the precedents to the current enlargement rounds. CEE and Western Balkans integration processes have to be understood in the framework of the so-called ‘transition’ from the socialist experience. This chapter will present critical analyses of the CEE ‘transition’ which have paid attention to its dramatic socioeconomic consequences (Dale, 2011; Bohle, 2006). Academic literature agrees that the EU had a significant power of transformation in the candidate states in the region, which are willing to go through the wide-ranging necessary reforms and demands because of the perceived long-term benefits of accession. The chapter will explain the policy framework through which the EU could ‘transform’ and ‘Europeanize’ candidate states (Schimmelfenning & Sedelmeier, 2005; Gateva, 2015). This power is

exercised through explicit and implicit conditionality which the candidate needs to follow. The CEE experience is necessary to understand the current process taking

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place in the Western Balkans – expected to be the next enlargement round. The chapter will introduce the latest studies on the specific difficulties in the post-Yugoslav space (Štiks & Horvat, 2014), in which the EU has had an even more substantive role in a context of violent conflicts and weak sovereignty (Chandler, 2010). Due to their particularly vulnerable situation in terms of state capacity and economic development, the Western Balkans have been described as the

‘periphery of the periphery’ (Bechev, 2012) or the ‘super-periphery’ (Bartlett & Prica, 2013) of the EU.

Drawing from this literature, the thesis will operationalise the research question identifying the five major socioeconomic challenges the Western Balkans are currently facing, that will be researched in detail in the case study. The challenges are the following:

1. Peripheralization and dependency on the EU. 2. Industrial collapse and problematic privatization. 3. Welfare state, taxation and debt.

4. Social inequality and exclusion.

5. Working conditions, unemployment and migration.

These five challenges will provide the framework to do empiric research for the case study of the Republic of Serbia, the focus of the next section.

2.2. Case study and data collection

Drawing from the previous theoretical and conceptual tools on EU integration and the enlargement, the case study will seek to analyse the five main socioeconomic challenges identified in the previous section for the case of Serbia. The example is relevant because it is one of the most important countries in the Western Balkans, being the largest and most populated EU candidate country after Turkey.

Moreover, the EU recently praised its pace of reform and claimed that it could join the EU by 2025 together with Montenegro (European Commission, 2018). The chapter will first provide a brief introduction to the particularities of the Serbian case, including the state of play of EU accession negotiations and the issues that dominated the Serbian accession literature. Then, it will proceed to analyse the five socioeconomic challenges in the context of the European integration process, using both primary and secondary sources.

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The chapter will draw from five policy documents to analyse the EU’s response to the socioeconomic challenges in Serbia:

- 2018 European Commission Serbia Report

- 2018 Economic and Financial Dialogue between the EU and Serbia - 2018 Western Balkans Strategy

- 2014-2010 Instrument of Pre-Accession Strategy - 2014 First Accession Negotiation Document

The policy documents will be analysed to shed light on how the EU is taking stock and facing the socioeconomic challenges Serbia is facing. It will identify the EU priorities and the importance of social policy in the integration process. The official documents cover the most recent developments in Serbia’s accession process (three of them from 2018), and have been selected based on their relevance to provide a comprehensive overview of the accession process. First, the 2018 Serbia Report provides the latest analysis on the overall accession process, including Commission recommendations and progress on every negotiating chapter. Second, the Economic and Financial Dialogue provides policy

recommendations to candidate states. Third, the latest Western Balkans strategy is meant to provide a renewed momentum to the enlargement process, with a

‘reinforced social dimension’. Fourth, the Instrument for Pre-accession Assistance (IPA) Strategy for Serbia provides information on the development projects the EU is financing in the country. Finally, the first Accession Conference EU position Paper, which market the EU priorities in the framework of the negotiation. The thesis will also draw from academic literature describing the current socioeconomic situation in Serbia, which will be studied in the critical EU

integration framework described in chapters 3 and 4. The arguments will also be supported by data and statistics from official sources like the IMF, Eurostat and the Central Bank of Serbia.

The author conducted four interviews to four EU officials from different institutions to get a broader perspective of the accession process. The interviews were semi-structured and allowed for an open discussion with the selected officials. The interviews are not the base of the empirical material but rather an additional source of complementary information. Two interviews were conducted in Brussels and two via personal communication. First, an interview in DG Enlargement was

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used to get information on the role of EU financial accession assistance in Serbia, mainly the IPA programme. Second, an EEAS official from the Western Balkans unit was interviewed about the general social and economic developments in the region. Third, a DG Research and Innovation official was asked about the development model pursued in the CEE and Balkan accession process and its social and economic consequences. Finally, a fourth official from DG International Cooperation and Development was asked about the transformation potential of EU development policies in the region.

The thesis concludes with a summary of the relevant theoretical and empirical findings and a policy recommendations.

2.3. Relevance of the study and limitations

This thesis tries to bridge the gap between the latest critical theories of European integration and the Western Balkans enlargement process. It will bring attention to the understudied socioeconomic effects of the enlargement process and analyse the latest EU policy documents and strategies, which have not been discussed yet in the academic debate. The social consequences of the European integration in the ‘periphery of the periphery’ (Bechev, 2012) will be relevant to understand more about the contradictions, limits and core-periphery dynamics European integration. The research question has substantial social relevance in Serbia, since increased living standards is the main reason for support of EU integration among the population (Economides & Ker-Lindsay, 2015).

While Serbia is thought to be the most representative country in the Western Balkans region, every candidate presents its own particularities and therefore broader generalisations and conclusions can be limited. Also, interviews with EU officials were intended to obtain their personal views rather than the official EU position on the matter. Therefore, the interviews are not meant to provide a representative view of the EU staff and are therefore presented as complementary information to the document analysis and other relevant data.

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3. European integration and the ‘convergence dream’

3.1. European integration theories in times of crisis

The present thesis will draw from recent European integration literature, which has criticised the lack of attention to socioeconomic issues in traditional integration theories (Ryner & Cafruny, 2017; Nousios, et al., 2012; van Apeldoorn, et al., 2009; Jäger & Springler, 2015). Rather than focusing on the institutional form of the EU, critical authors have paid attention to the fundamental power asymmetries and inequalities behind the integration project and especially on its socioeconomic content or purpose (van Apeldoorn, 2002). Traditional European integration theory has suffered from a ‘disciplinary split’ which has separated the political study of the integration process from the social and economic context (Ryner, 2015, p. 19), and has understated the ‘limitations, contradictions and crisis tendencies’ of the EU integration process (Ryner & Cafruny, 2017, p. 3).

The narrative of the European integration was built around the idea of bringing greater prosperity, social progress and cohesion in the continent. Article 174 of the TFEU states that ‘the Union shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions’. Critical theory emphasizes that the nature of socioeconomic development has been uneven (Becker, et al., 2015) and that asymmetries are accelerating especially after the recent economic crisis. This is not an accidental development but rather the product of ‘chronic uneven development’ in the EU (Cafruny, 2015, p. 65), which reveals the deep structural imbalances of the current integration project (Aglietta, 2012), which has exacerbated the divergences among European countries.

Critical EU integration theories draw from the so-called ‘Paris Regulation School’ (Lipietz, 1987), which understands the social and economic realm as inherently unstable and dependent on power relations and institutions. Both realms are necessary intertwined and therefore cannot be ‘split’. Post-war European integration should then be understood in the global historic and institutional context, which allowed a compromise to establish welfare states with a mixed market economies based on a ‘Fordist model’ in the original founding states. The 1960s saw the exhaustion of the Fordist model, and then the development of the

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Single Market and the Economic and Monetary Union (EMU) transformed the integration model into ‘neoliberal post-Fordism’ (Ryner, 2015, p. 28).

Since the 1980s the political content of the European integration project was marked by a form of ‘neoliberal governance’ or ‘restructuring’, defined in the Maastricht criteria and continued through the Lisbon initiative until the current crisis. The current ‘neoliberal’ model is marked by its contradictions and the tensions between the promotion of ‘competitiveness’ and ‘social cohesion’, which have led to growing increased contestation and a legitimacy crisis of the project (van Apeldoorn, 2009, pp. 22-23; Ryner & Cafruny, 2017) . That political project cannot be understood at the national level alone, since it is the result of the influence of ‘transnational social and political forces’, which have generated a ‘system of asymmetric socio-economic governance’ (Drakhoupil, et al., 2009, pp. 12-13). That model was reinforced by the Lisbon agenda and the Eastern

enlargement, which further ‘subordinated the objective of social cohesion’ (ibid. p.33).

The ‘neoliberal project’ dominated over the ‘social democratic project’ that had been promoted by leaders like Commission President Jacques Delors which sought to consolidate the so-called ‘European social model’. In the1970s French

President François Mitterrand proposed the establishment of an ‘espace social’ through which social benefits could be granted all over Europe. However, attempts to introduce a charter of social rights in the 1992 Treaty of Maastricht were

blocked. While there were broad mentions to social policies, there were no instruments or budget to implement them (Copeland, 2014, pp. 11-13). To date, social competences remain almost exclusively in the hands of national governments, subordinated to supranational economic and monetary priorities. The ‘European Social Model’ is deliberately an ambiguous concept: EU documents leave its specifics ‘explicitly undefined, reflecting the wide variety of welfare practices among the member states, and open to manipulation and interpretation by competing social forces’ (Preece, 2009, p. 2). The main driver of EU integration has been the market, while social policy has been considered an 'add-on' or an 'after-thought', mainly comprised of non-binding agreements with limited impact (Copeland, 2014, p. 7).

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In the current integration model, while market and monetary regulation is made at the supranational level, policies relating to the equality and social protection are relegated to the national level. Fritz Scharpf claims that within that framework the ‘only national options which remain freely available’ are ‘lowering tax burdens, further deregulation and flexibilization of employment conditions, increasing wage differentiation and welfare cut-backs’ (Scharpf, 2002, p. 649). In the same

direction, Otto Holman claims that ‘economic and monetary regulation at the supranational level and social deregulation at the national level are two sides of the same coin’ (Holman, 2004, p. 714). Measures imposed to ‘improve

competitiveness’ have not brought increased living standards and social solidarity. In that respect, the European Social Model ‘remains an ideal type rather than a reality’ (Dannreuther, 2014, p. 329).

The EU launched several social policy agendas, focused almost exclusively on employment (Grahl, 2009, p. 125). The underlying assumption was that raising the employment would increase social protection and social inclusion. While EU documents associate employment with social inclusion, such approach is limited and neglects the fact that there are millions of poor workers in Europe, exposed to wages below the poverty line. The rise of ‘flexible’ working conditions in Europe is causing an increased feeling of insecurity in terms of work and income among the population, especially in the European periphery (Burgoon & Dekker, 2010). The current integration dynamics have allowed ‘the retrenchment of worker protection and redistribution’, increasing work and income insecurity for most European citizens (Parker, 2012, p. 77).

Optimistic authors have argued that there has been an increased attention to social objectives in the EU’s governance since 2011 as a response to rising social and political dissatisfaction (Zeitlin & Vanhercke, 2018). However, such

assumptions are based on non-binding Country-Specific Recommendations (CSRs) which in the end are subordinated to budget discipline and austerity. The social aspect of EU integration remains mainly ‘soft aquis’ recommendations, while other economic and financial regulations take absolute preference (Copeland, 2014, p. 18). An example of such failed social targets is the Europe 2020 strategy. The document contained a target to reduce the number of poor people in Europe by

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20 million. Sadly, the number of poor people has actually augmented since the strategy was published.

3.2. Negative integration and the hope for a ‘social Europe’

The EU has been described as a process of ‘negative integration’, a situation in which competition among member states leads to the reduction of social policies and taxes (social dumping) (Ryner & Cafruny, 2017, p. 122). The economic and social sides of European integration have been ‘decoupled’ (Scharpf, 2002, p. 646), and social policies have taken a subordinate role to the main priority: ‘perfecting the common market’ (Preece, 2009, p. 11). The Union ‘does not directly pursue social convergence’ of its member states (Wiersma, 2014, p. 28). In that sense, the EU’s role in targeting unemployment, poverty and social

exclusion is very limited. Engelbert Stockhammer and Karsten Köhler have identified the six predominant characteristics that determine the current integration (2015, p. 38):

1. Fiscal policy is relegated to the national level. EU-wide fiscal policies are too small to have a substantial macroeconomic effect.

2. National fiscal policies are constrained by a maximum budget deficit of 3% of GDP. This severely limits government capacity to spend especially in times of economic hardship.

3. Monetary policy is carried at a supranational level by the European Central Bank (ECB), which is considered ‘independent’.

4. Financial markets are liberalized. There are no restrictions in financial flows within the single market.

5. The European Central Bank (ECB) cannot provide financial support to countries in distress (‘no-bailout clause’). Therefore it is not allowed to ‘rescue’ governments as other central banks regularly do.

6. Labour market flexibility.

This integration model inevitably constrains Europe-wide social policies. Nation states face increasing pressure to ‘compete’ for lower taxes and welfare provisions (social dumping) while the EMU policy framework reduces even more its fiscal capacity (Leibfried, 2015). One of the obvious limits of a common European social policy is the limited size of the EU budget. Back in 1977, an EC report concluded that ensuring cohesion in a European monetary union would require a common

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budget between 7.5-10% of the European GDP, but the current EU budget is a minuscule 1% of the EU’s GDP (Ryner & Cafruny, 2017, pp. 137-138). This lack of EU budgetary makes virtually impossible any major EU-funded social policy and is probably the biggest obstacle for establishing a true ESM.

Within this restricted capacity, some common social programmes have been implemented by the Union. The main has been the Cohesion policy, aimed at reducing economic and social inequalities in Europe. These funds are mainly intended to help regions suffering from deindustrialization and unemployment (Copeland, 2014, p. 11). The Cohesion budget was established in 1992 and initially targeted Greece, Ireland, Portugal and Spain, and then extended to the new member states of the enlarged Union (Bache, 2015, p. 247). Nevertheless, cohesion funds did not produce miraculous results. Even in Italy -a founding member of the European communities- EU programmes have not managed to overcome the enormous economic gap between the north and the south of the country (Flores, 2014, p. 135). Moreover, Cohesion funds have had a significantly lower impact in the Eastern enlargement, as will be discussed in the next chapter. EU integration resembles increasingly the ‘Anglo-Saxon model of labour flexibility and capital market liberalization’. Even though the impact has been unequal, the ‘overall effect has been economic stagnation and intra-European mercantilism’ (Cafruny & Ryner, 2009, p. 233). The preferred mechanism to deal with the crisis has been ‘internal devaluation’, which is the lowering of wages (Stockhammer & Köhler, 2015, p. 34). Monetary policy has also been an important factor in the social and economic asymmetries in the Union, since the current dominant

monetary form has ‘increased spatial and social differences’ (Becker, et al., 2015, p. 85).

In the process of EU integration and especially after the crisis, ‘budgetary austerity and macroeconomic reforms’ have been the protagonists at the expense of social cohesion. New policy instruments like the Fiscal Compact and the European Semester, are meant to implement budget discipline mainly through higher taxes and spending cuts, taking the ‘Washington Consensus’ as a starting point

(Wiersma, 2014, pp. 28, 36). The latest developments seem to confirm the trend towards reduced social spending. In May 2018 the EU proposed the new budget for the period 2021-2017, which reduced the social spending in cohesion

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programmes. MEP Liadh Ní Riada complained that while the Commssion intend to cut ‘socially beneficial programmes, such as cohesion and rural development’, it is increasing spending in military operations (GUE/NGL, 2018). Therefore, the lack of substantial EU-wide social policies is constrained not only by the EU’s marginal budget but by the prioritisation of other spending targets.

Under this framework, the EU has been unable to generate a transfer mechanism that could balance the growing inequalities and asymmetries between its core and periphery. The current EU policy paradigm is also characterised by increasing popular contestation and the replacement of elected leaders by representatives of the financial sector, as was the case in Italy and Greece (Streeck, 2014).

3.3. Core-periphery dynamics in European integration

This conceptual framework is connected with the broader International Relations literature on core-periphery dynamics. Immanuel Wallerstein (2004) developed his pioneer ‘world-systems theory’. Wallerstein draws from dependency theory to define a world divided between ‘core’ and ‘periphery’ regions. ‘Peripheral’ regions are dependent on the ‘core’, where economic power is concentrated. Centre regions have an advanced economy and technology. They can export these advanced products to the other areas. Semi-peripheral areas combine some industrial capacity with large under-developed regions (for example Brazil). The periphery is the most vulnerable area, which provides raw materials and cheap labour to the rest and suffers from dependency on the core. This dependency is manifested in technological inferiority and trade balance and it is often subject to economic exploitation and possibly other types of domination like military

intervention.

These dynamics are reflected in the process of European integration. The start of European integration was characterised by a ‘Franco-German partnership’ which could be understood as the ‘core’ of the continent. However, the role of France has been diluted by increasing domestic problems like rising debt and

unemployment. Especially since the eurozone crisis, German authority has been ‘unchallenged’ (Cafruny, 2015, p. 61). German leadership is important to

understand the enlargement dynamics. Berlin has been of the biggest supporters of the expansion of the EU. German export companies have been able to relocate parts of their production processes to CEE countries, which provided lower costs

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and improved their global competitivity. The current European leadership, especially German chancellor Angela Merkel, is convinced that Europe’s social model is unsustainable and must be radically reduced in order to win the ‘global economic race’ (The Economist, 2013). While EU documents claim that improving social standards is an important priority, the Union ‘has so far not taken any steps to translate this ambition into comprehensive legislation and concrete targets as it has done elsewhere’ (Wiersma, 2014, p. 32).

The current integration model has led to two divergent but complementary economic models. The ‘core’ of the Union is based on exports (‘export-driven growth’), while the ‘periphery’ is based on debt (‘debt-driven growth’)

(Stockhammer & Köhler, 2015, p. 34). The recent eurozone crisis has accentuated the core-periphery dynamics in the EU, making that ‘long-standing tendency’ even more visible (Ryner & Cafruny, 2017, p. 144). The crisis has deepened the division between core and periphery in the EU and provoked increasing polarization in the absence of a redistributive fiscal union has ‘reinforced the control of the core’ within the EU and reduced the power of the ‘periphery’ (Ryner & Cafruny, 2017, p. 138). Moreover, the currency union has reinforced the imbalances between

exporters and importers in the EU (Copeland, 2014, p. 18). The results of the crisis have been unequal due the existing intra-EU divisions: ‘a fragile recovery in the north and a depression in the south’ (Stockhammer & Köhler, 2015, p. 43). Financial liberalization led to the increase of lending from banks in the core to the periphery. Countries like Spain received massive credit which fuelled a ‘gigantic’ bubble while its industry ‘atrophied’ (Aglietta, 2012, p. 21). In this context, the burden of the adjustment has been shifted entirely to the deficit countries (Aglietta, 2012, p. 33). The dominant solution to the current asymmetries has been one of ‘internal devaluation’ in the deficit countries, which in practice means the lowering of wages and welfare state benefits (Stockhammer & Köhler, 2015). The crisis revealed the structural weaknesses of the current EU construction, which allowed credit-fuelled growth at low interest rates in the European periphery leading to the 2008 collapse. The eurozone crisis has led to a sharp decrease in social policies like pensions and unemployment benefits. Such conditions have often been imposed through bailouts in which the European Commission participated together with the IMF and ECB (the so-called ‘Troika’).

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The EU’s symbolic role as a ‘one-way path to prosperity’ has been severely

questioned (Panagiotou, 2013, p. 90). As some put it, the EU has ‘lost much of its sex appeal throughout the crisis’ (Zielonka, 2016, p. 53). Even though CEE

countries were growing faster before the 2008 crises, the global recession revealed the weaknesses of the transition and enlargement process. Greece was supposed to be a model for southeastern Europe: it went 'from rags to riches, from underdevelopment and marginality to prosperity, under the star-studded EU flag’ (Bechev, 2012, p. 6). But its collapse may prove that association a mere illusion. A third of the population lives below the poverty line and the country’s income collapsed by a quarter. Former Greek Finance minister George

Papaconstantinou described it as “a total disaster for the entire country"

(Drozdiak, 2017, p. 206). Many countries followed the same path, showing that the EU’s solution to the crisis was internal devaluation, lower wages, social security and labour standards (Wiersma, 2014, p. 31). Elected leaders were

replaced by technocrats while harsh reforms were imposed on the population. The irrelevance of national politics under this conditions led to a ‘secular implosion of the social contract’ (Streeck, 2014, p. 117).

The described dynamics of the European integration process (negative integration, uneven development and core-periphery relations) will be key to understand the policy developments and social consequences of the Eastern Enlargement in the following chapter.

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4. The EU and the ‘transformation’ of Eastern Europe

“And even today, more than twenty years later, we hear that the transition is incomplete. The wandering in the desert seems to be endless” Štiks & Horvat (2014, p. 6)

4.1. An ‘endless’ transition

Just as the early years of the European integration project, the eastern

enlargement process cannot be decupled from its historical context. Since the collapse of the Soviet Union, European countries under its former sphere of influence have been experiencing what has been generally called the ‘transition’. Such ‘transition’ has been characterised by the dismantling of the previous socialist political and economic model and the path towards EU and NATO integration. For Christian Giordano, the ‘transition’ is better understood as a

transformation of the region from a periphery of the Soviet Union to a periphery of the EU (Giordano, 2005).

The transition was characterised by the decline of Russia’s geopolitical influence in the region in favour of the Atlanticism. Access to Western credit and capital

(mainly through the IMF) was conditional to austerity and privatisation, limited fiscal policies causing a ‘profound fiscal crisis’, reduced public spending and low wages. Individual CEE countries present divergent models, but they all have in common a trend of ‘liberal dependency’ on Western capital (Bohle & Greskovits, 2012). The ideology of the transition has been characterised by economic liberalisation, opening to trade and the privatisation of state companies and assets. They went through a phase of ‘shock therapy’ including austerity and a reduction of the welfare state (Ryner & Cafruny, 2017, p. 146). While reforms have actually taken place, for many in the region living standards have declined since 1989 (Kaser, 2010, p. 91).

That model was criticised for its devastating consequences and reformulated with a more ‘gradualist’ approach, which nonetheless had the same fundamental

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principles (Sörensen, 2009, pp. 10-11). The transition process (in which the EU has been a main player) has had deep and problematic consequences:

‘Up until recently, only rarely did we hear about the devastating consequences of the transition […] impoverishment, huge public and private indebtedness facilitated by a flow of foreign credit, widespread deindustrialisation, social degradation, depopulation through diminished life expectancy and emigration, and general unemployment’ (Štiks & Horvat, 2014).

The extreme market liberalization did not bring improved prosperity bur rather exacerbated the transition problems (Cafruny & Ryner, 2009, p. 236; Štiks & Horvat, 2014). For that reason the 1990-2010 period in the CEE can be

considered a ‘regional Great Depression’, experiencing catastrophic socioeconomic decline (Dale, 2011, pp. 9-12). The next section will analyse the role and influence of the EU in such ‘transition’ and how it affected the inherent dynamics of the integration process.

4.2. The EU’s role in ‘transforming’ the candidates

4.2.1. Policy framework of the Eastern Enlargement

Article 49 of the Treaty on European Union (TEU): “Any European State which respects the values referred to in Article 2 and is committed to promoting them may apply to become a member of the Union […] The conditions of eligibility agreed upon by the European Council shall be taken into account.” The article sets that accessions require the unanimity of all member states plus the approval of the European Parliament. The accession process has been constantly in action since the ECSC was established in 1951. The number of member states raised from 6 to 28 in 2013, changing dramatically the range and scope of the Union. This

unprecedented expansion allowed the institutions to develop an extensive set of policies, affecting new and old member states alike. Because of the wide range and scope of the accession process, it has been considered ‘the EU’s most successful foreign policy’ (Gateva, 2015, p. 1).

The collapse of the communist regimes in Central and Eastern Europe (CEE) posed a big challenge to the enlargement process. European institutions had to

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formulate a process to accept post-communist countries that were transitioning towards liberal democracy and capitalism. The EU contributed to influence government coalitions in CEE in favour of pro-market and pro-European parties (Bohle & Greskovits, 2012, p. 85). After the collapse of the Soviet Union, the EU created the Europe Agreements (EAs) meant for Hungary, Poland and

Czechoslovakia. The agreements provided for a gradual free trade of industrial products and financial assistance (Sedelmeier, 2015, p. 416) but they also excluded key markets and sensitive industries (Ryner & Cafruny, 2017, p. 139). The conditions for accession were developed in the 1993 EU Council in

Copenhagen. The ‘Copenhaguen Criteria’ established political and institutional criteria: democracy and the rule of law, human rights and respect for minorities. The economic criteria consists of a functioning market economy, capacity to resist the single market competition and aiming for the monetary union. Candidates should also have the capacity to observe the obligations of membership (Sedelmeier, 2015, p. 426).

Even though the accession process is described as a ‘negotiation’, the reality is that there is little to negotiate. The candidate has no choice but to implement the acquis communautaire (full body of EU law). The acquis communautaire contains some 20,000 laws and regulations that candidate states. In that respect, the accession negotiation ‘allows little room for democratic consideration as the policy process becomes an external one’ (Chandler, 2010, p. 78).

All in all, there is wide academic agreement that the EU has substantive influence in the candidate states during the accession process, and that will be the

assumption along this thesis. Foreign actors were ‘strongly involved in the economic and political transformation’ of the region, of which the most relevant was the EU, which gave Brussels ‘unprecedented influence’ (Schimmelfennig & Sedelmeier, 2005, p. 1). Reforms in the CEE countries were in line with the Washington consensus of the World Bank and the International Monetary Fund. The EU ‘accepted the leadership of the IFIs in their specific fields’ and supported their reforms (Noutcheva, 2012, p. 43). The integration discourse can somehow be connected to old European imperial narratives. The EU portrays itself as an ‘engine of modernity, security and welfare in the periphery’ (Zielonka, 2016, p. 52), a force for good in a ‘backward’ region. This sort of discourse creates a de facto

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‘civilizer–civilizee’ relationship, in which candidates have to be upgraded to a somehow superior order (Stivachtis, 2016, p. 80).

Because of the vast extension and power of the EU, some scholars have claimed the EU conditionality policy can be described as ‘imperial’, not in a sense of direct military conquest but that of a ‘hegemonic empire of indirect control’ (Stivachtis, 2016, p. 77). To fully understand the accession dynamics, it is important to consider that candidate countries are in a situation of ‘strong dependence’ to the EU due to the obvious power asymmetries (Schimmelfennig, 2012, p. 662). There are clear power asymmetries between the candidate state and the EU. Conditions are ‘massive, non-negotiable, uniformly applied, and closely enforced’ (Moravcsik & Vachudova, 2003, p. 46) and candidates have no voice in the accession process rules (Elbasani, 2013).

Table 1: Eastern Enlargement timeline Accession / Status Countries

2004 Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia

2007 Bulgaria, Romania

2013 Croatia

Nagotiating Serbia, Montenegro, Turkey* Candidates Albania, FYROM

Potential candidates Bosnia and Herzegovina, Kosovo** *Accession talks with Turkey have effectively stopped

**Kosovo is not recognised as an independent state by five EU countries

However, the accession conditions are not only related to the Copenhagen criteria. As the accession process has been expanded and developed, Heather Grabbe has identified five ‘levers’ of conditionality. Apart from negotiations and the accession process (1), there are also legislative and institutional templates (2), aid and technical assistance (3), policy advice and twinning projects (4) and monitoring, demarches and public criticism (5) (Grabbe, 2006, p. 261). All these have an impact in the reform process towards EU membership. In a similar line, Eli Gateva (2015) sets out three defining features of the EU enlargement conditionality: (1) a

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set of conditions to be met by the candidate country, (2) an incentive structure and (3) a monitoring system.

All these elements are not fixed and have changed substantially over time. Gateva (2015) makes a comparative analysis of the most recent enlargement rounds, describing how enlargement conditionality has evolved and expanded over time. Over subsequent enlargement rounds, the EU acquis expanded and the process became more complex and intrusive. Also, the current Western Balkan accessions have seen the addition of country-specific conditions. This is especially relevant in our case study: the EU added a special chapter on relations with disputed Kosovo, and also conditioned the process to the extradition of those prosecuted by the International Criminal Tribunal for the Former Yugoslavia (ICTFY) (Gateva, 2015). Candidate countries have to follow a process of ‘Europeanization’, an important adaptation to European governance that as a significant domestic impact in candidate countries (Schimmelfennig, 2012, p. 656). What are the reasons to undertake this process? By following the EU’s conditionality, candidate states seek to obtain the ‘social, political, and economic benefits that are associated with being a member state’ (Stivachtis, 2016, p. 85). Liberal intergovernmentalists claim that the enlargement process is dominated by national interests and the result depends on the relative power of the actors involved. Since the candidate states are relatively weak, they have little choice but to accept the conditions imposed by the EU. Despite the potentially high cost of the accession process, candidates believe they will obtain higher long-term benefits (Moravcsik & Vachudova, 2003).

Importantly, constructivist authors have added that the enlargement is not only determined by material interests. EU membership also involves

‘sociopsychological’ incentives, such as recognition and praise by the EU (Schimmelfennig, 2005). Here the sense of belonging and perceived European identity play an important role. They can also try to avoid international isolation and gain security.

When joining the EU is a top political priority, ‘national governments are obliged to adhere to the EU conditions even if this means loss of popularity’ (Stivachtis, 2016, p. 86). This assumption is important for our case study, and it can be used to explain why Serbia may be ready to accept the social costs of the EU accession

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reform process. Frank Schimmelfennig has studied the different mechanisms through which this process takes place. The main dynamic behind the process is the “logic of consequences”. The obvious and most important mechanism is conditionality. In order to open negotiations and eventually become an EU member state, countries have to fulfil the established conditions. It involves the use of incentives but also deterrents. Therefore, it is a rational process based on cost-benefit calculations. The second logic is that of ‘appropriateness’. Apart from ‘rational’ or material purposes, candidates may also be willing to accept EU

reforms because of their perceived ‘legitimacy’. This process is called

‘socialization’. The same logic applies indirectly if external countries decide to ‘imitate’ EU governance because they consider it the best way to tackle their problems (Schimmelfennig, 2012, p. 660).

Table 2: Mechanisms of ‘Europeanization’

Direct Indirect

Logic of consequences Conditionality Externalization Logic of appropriateness Socialization Imitation Source: (Schimmelfennig, 2012, p. 659)

Jan Zielonka provocatively claims that the objective of the EU enlargement is ‘asserting the EU’s political and economic control over the unstable and impoverished eastern part of the continent’ (2016, p. 49). The EU is able to

establish its model in the periphery ‘through a mixture of power and conditionality and the promise of membership’ (Bohle, 2006, p. 70). Even though liberal

intergovernmentalists and constructivists provide relevant insights, they still fail to tackle ‘the substantive socio-economic power relations’ behind the enlargement process (Cafruny & Ryner, 2009, p. 235).

The monitoring of accession conditionality has allowed the Commission to play a very important role and has ‘often successfully set the agenda for candidates’ (Sedelmeier, 2015, p. 434). The EU elaborates annual reports evaluating the compliance with the EU conditionality. Monitoring has gained an ever bigger role over the subsequent enlargement rounds, becoming more exhaustive and

instrusive. A senior official stated the EU has ‘imposed a very strict discipline’ in the Western Balkans, ‘even closer monitoring than with Bulgaria and Romania and at a much earlier stage of the process’ (quoted in Gateva, 2015, p.137).

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So, do countries really comply with the EU conditions? Gergana Noutcheva claims that the degree of compliance of EU conditionality in the Balkans depends on three main factors: (1) the perceived legitimacy of EU conditions, (2) the costs of compliance and (3) the EU’s ability and willingness to impose compliance.

Noutcheva’s model measures the legitimacy of EU conditionality measures through the presence or absence of political mobilization against it (2012, p. 10). She claims that compliance with EU conditionality ‘has sometimes risked political crisis or met with severe public opposition’ (p. 3), which of course implies a direct threat to the reform process.

Of course, the decision to comply with the conditionality will depend on the credibility of the accession process. If there is an assumption that accession will never happen (as many would argue in the Turkish case for example- then what’s the point of implementing thousands of pages of acquis communautaire and being subject to the rather humiliating review process of the Commission? The

Commission can keep the process credible by opening accession negotiations (Schimmelfenning & Sedelmeier, 2005). Arguably, the latest 2018 EU strategy for the Western Balkans is a way to reinforce the credibility of the accession process (European Commission, 2018), even though officials admit the 2025 accession target set is not very realistic (Author’s interview with European Commission official, 19 April, 2018).

It is important to remember that while the monitoring process is conducted by the European Commission, the decision to accept a new member can only be taken by the Member States. Therefore, EU countries can decide to accept a candidate that does not fully comply with the Copenhagen criteria because of geopolitical or other reasons – what has been called a ‘strategic accession’ (Stahl, 2013).

4.2.3. No ‘Marshall plan’ for Eastern Europe

The accession process is dominated by issues mostly related to the economy and the Single Market, while social issues are relegated to a secondary position. According to Pierre Mirel, Honorary Director General of DG Enlargement, ‘many areas, such as social dialogue, employment policy, social inclusion and social protection, only include instruments of soft acquis’ and therefore depends on the country’s willingness to reform (Mirel, 2014, p. 19). The divergences between the old and accession countries has been constant through the enlargement process:

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“all enlargements ... were characterized by new member states whose level of economic development was below that of the core” (Laffan, 2017, p. 131).

Because of their ‘semi-peripheral’ position, new EU members need to ‘attract’ such investments through low wages and tax regimes (Bohle, 2009, p. 163). The logic outcome of that downward spiral is increased competitive pressure in the EU. The weakness of EU social policy is particularly relevant when it is connected to the inherent dynamics of the enlargement process. Because of the lack of EU-wide social policies, the successive enlargements have increased the social disparities in the Union. Candidate states are ‘significantly lagging behind in terms of economic development and social standards’. That can raise concerns about such countries ‘spurring a race to the bottom of wages, social standards and corporate taxes’ (Bohle, 2009, p. 184). The evolution of such disparities will be briefly analysed for the main enlargement rounds to provide a context for the current, Western

Balkans accession process. The welfare system of CEE countries is substantially weaker than in the rest of EU countries. Labour unions and social dialogue are also weak (Copeland, 2014, p. 25). Empirical evidence shows that there has been ‘no convergence from the East’, and welfare spending in CEE has remained

relatively low in the years after EU accession (Draxler & Van Vliet, 2010).

The collapse of communist regimes was seen as an opportunity for west Europe capital to get new market and investment opportunities (Bache, et al., 2015, p. 151). The transition in CEE countries allowed Western firms to subcontract parts of their production to the region, taking advantage of low salaries and taxes. Germany in particular took the opportunity to move part of its industrial process to CEE countries (Becker, et al., 2015, p. 86).

In 1991 Poland, Hungary and the former Czechoslovakia joined the Central European Free Trade Agreement (CEFTA). Competition with the Single Market led to substantial deindustrialization in many CEE countries. ‘We have no industry left’, regretted that Commission official. We were ‘even producing tablets in the 1990s’, but that has disappeared today (Author’s interview with European Commission official, 28 May, 2018). Europe’s industry has increasingly concentrated in the ‘north-western core’ while the south of Europe is being progressively

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While EU integration brought a large flow of foreign investment, this was channelled in a ‘speculative consumer bubble’, which led to high growth in the 2000s, a ‘boom’ which later brought a well-known ‘crash’ (Dale, 2011). The same experience can be found in the Western Balkans, which will be analysed later. The 2004 ‘Big Bang’ Enlargement supposed a ‘doubling of socioeconomic disparities’ in the EU (Bache, 2015, p. 249). Despite the huge social disparities and challenges of the recent enlargements, the EU only applied modest measures of cohesion and regional policy, which were not accompanied by relevant

development policies nor fiscal federalism between regions. The EU provided some pre-accession assistance through its PHARE programme for the former Soviet republics. Nevertheless, a senior EU official admitted that pre-accession aid is ‘peanuts’ (quoted in Gateva, 2015, p.32).

However, cohesion and structural funds in CEE did not have the impact expected. As Maria Ivanova claims, EU aid to CEE countries ‘has largely been of a symbolic nature and was never meant to play a significant economic role’. Because the transition strategy was ‘maximizing profit opportunities for foreign investors and Western credit’, and therefore significant foreign aid coupled or debt relief would have been inconsistent (Ivanova, 2007, p. 363). While they had a certain impact, they were far from sufficient to generate substantial cohesion in the Union. A Commission official from the region admitted that ‘CEE countries get much less subsidy while they are expected to compete on the same market’. For example, CEE countries altogether only get 5% of Horizon 2020 funds (Author’s interview with European Commission official, 28 May, 2018). In the current 2014-2020 period, €63.4 billion have been spent in Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Slovenia. The European Social Fund (ESF), which targets Europe’s most disadvantaged people, has a budget of €80 billion for the same period. This amount, which covers the 28 member states for 7 years is clearly insufficient considering the current social crisis facing many EU states.

A 2012 European Parliament resolution regrets that “the social dimension has been largely neglected in the enlargement process.” It also states that “due attention should be paid to the social implications for the candidate and potential candidate countries” and claims that the EU should have the “financial resources

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to support economic and social cohesion” (European Parliament, 2012). As mentioned before, those resources are clearly insufficient considering the scale of the challenges. In this context, the social gap in between Western and Eastern Europe is still huge. Social expenditure in North West Europe is more than 30% of GDP, while in the new Member States is often below 20% of GDP (Wiersma, 2014, p. 30). CEE countries also reduced taxes and moved towards a ‘flax tax’ system in the 2000s, which goes against the basic social principle of progressive taxation (Tevdovski, 2014, p. 49).

Dorothee Bohle has extensively analysed the Eastern enlargement process and its negative integration tendencies. She identifies four main trends: (1) tax

competition, (2) generous incentives to foreign investors, (3) deregulation of the labour market and (4) welfare state retrenchment (Bohle, 2009, p. 180). These elements clearly confirm the inherent tendencies in European integration described in Chapter 3 and will be also present in our later analysis of the Western Balkans. Such pressure severely limits the public spending and investment capacity

necessary to guarantee social policies. The social policies embedded in the Eastern enlargement were mostly in the form non-binding recommendations and the sharing 'best practices’. While some of them tried to reinforce social democratic ideals, they were unable to do so in practice (Preece, 2009, p. 11). Even the Commission admitted that ‘since the creation of the European Communities, social policy has always been lagging behind economic policy’ (Grahl, 2009, p. 124). In that respect, the EU displayed ‘very little interest in promoting the social market model in transition countries’ (Tevdovski, 2014, p. 49). That led to an increased social gap between new and old member states. Statistics show that North West European states invest more than 30% of their GDP on social expenditure, while the newer member states spend less than 20% (Wiersma, 2014, p. 30). In a study of several social policy negotiations after the 2004 and 2007 enlargement, Paul Copeland finds that most CEE countries supported a ‘liberal coalition’ in the EU, which makes social cohesion ‘increasingly unlikely’ and brings the process of integration close to a ‘mere market-making process’ (2014, p. 119).

4.4. The Western Balkans: the ‘periphery of the periphery’

‘After the disappearance of the state socialist regimes, in all of these states, most dramatically across the former Yugoslavia, a period of violence,

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conflict or general instability and economic misery has been followed by a seemingly endless transition to liberal democracy and neoliberal economy.’ (Štiks & Horvat, 2014)

4.4.1 Policy framework

At the moment, all countries in the region are in the ‘waiting list’ to join the EU: Albania, FYROM, Montenegro and Serbia are considered candidate states, while Bosnia and Herzegovina and the disputed territory of Kosovo (not recognized by all EU countries) have also been promised the prospect of admission. Even though the new candidate countries are subject to even more conditionality, ‘its credibility is declining given the EU’s enlargement fatigue and the enormous changes many of the Western Balkans still have to undergo’ (Borzel & Risse, 2012, p. 195). As mentioned earlier, the main EU instrument towards the Western Balkans is the Stabilization and Association Process (SAP) launched in 1999, similar to those signed in CEE before its EU accession. The SAP involves the signature of bilateral Stabilisation and Association Agreements (SAAs) which included institutional reforms, trade agreements and other measures such as enforced collaboration with the International Tribunal for the Former Yugoslavia (ICTY) (Gateva, 2015, p. 127). Apart from financial aid, the EU offered visa liberalisation as an incentive during the accession process, which is available to all Western Balkan citizens except those from disputed Kosovo. To impose such measures, the EU has used mostly ‘implicit threats’ in the Western Balkans. What is ‘implicit’ is basically the stopping of the accession process (Gateva, 2015).

The accession process is incentivised with financial assistance through the

Instrument for Pre-accession Assistance (IPA), which had a budget of €11.5 billion for the period 2007-2013 (IPA I) and €11.7 billion for the current 2014-2020 period (IPA II). The impact of these funds is very relative, considering it is for all countries in the region plus Turkey for a period of 7 years (European Commission, 2014). Another incentive is visa liberalisation. the EU has granted all Western Balkan candidate countries (except disputed Kosovo) visa-free travel in the Schengen Area.

While the negotiation process is slow, economic integration is already highly advanced. The so-called Berlin process focused in the installation of a ‘single

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Balkan market’ (Matković, 2017). Today, the Western Balkans are highly integrated in the single market. In the latest Western Balkans strategy, the focus on economy and finance is evident: it asks for the expansion of a ‘Western Balkans Investment Framework’ and the support for greater financing and trade (European

Commission, 2018). Because of their high exposure, the Western Balkans are experiencing a ‘crisis of European integration’ before formal European integration (Živković, 2015, p. 46). Therefore, the main incentive of accession is not access to that market, but rather ‘decision-making and resources’ (Bechev, 2012, p. 4).

4.4.2 Weak sovereignty in the ‘periphery of the periphery’

‘States that are not designed to be independent political subjects in anything but name are a façade without content’ (Chandler, 2010, p. 81)

The EU’s capacity of influence has a very particular dimension in the Western Balkans because of the very particular nature and weaknesses of their regimes. The EU is trying to shape countries that are ‘de facto semi-protectorates’

(Zielonka, 2016, p. 49). The case of Bosnia is paradigmatic: the EU can “set the agenda, impose it and punish with sanctions those who refuse to implement it” through its powerful Special Representative, who can even pass legislation and dismiss democratically elected officials. Some have even described it as ‘the European Raj’ (Knaus & Martin, 2003, p. 61).

David Chandler claims that many Balkan states have practically lost autonomy over what international players perceive as ‘good governance’ (Chandler, 2007, p. 71). International institutions such (including the EU) have enormous power to

implement reforms, often presented as ‘technical or administrative necessity’ but which actually have very deep political consequences. While EU documents may claim to promote local ‘ownership’, they do not guarantee that the candidates will have a meaningful participation in the process. In the end the ‘real ownership’ will be on the European Commission (p. 75) .

The case of disputed Kosovo is also problematic. The EU has enormous influence over through the UN Interim Administration Mission in Kosovo (UNMIK), including its judiciary. The region has also witnessed several EU-led military operations: EU

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troops were also deployed in Albania in 1997 (in Italian-led Operation Alba) and in the Former Yugoslav Republic of Macedonia (FYROM) in 2003 (EUFOR

Concordia). Moreover, EU countries also participated in several US-led campaigns, such as the 1995 NATO bombing of Bosnia (Operation Deliberate Force).

As Gergana Noutcheva puts it:

‘The weak sovereignty of some Western Balkan countries, as well as the power asymmetry between the EU and these protectorates and semi-protectorates have both contributed to a situation where the EU is directly in charge of key governing functions’ (2012, p. 18)

The Western Balkans is an example of the ‘radical change in relationship between centre and periphery’ that occurred in the 1990s (Sörensen, 2009, p. 4). During these years, regions that were relatively developed and even considered ‘role models’, as was the case of Yugoslavia, ended up being the receivers of foreign aid and intervention. Sörensen argues that the international political and economic context and especially the rise of neoliberal ideology has been central in the ‘push to the periphery’ and ‘marginalisation’ of areas like the former Yugoslavia, and that ‘external structures and agents have had an important role in creating the problems with which the region is confronted today’ (ibid. p. 6-8). In this context the Western Balkans has been described as the ‘periphery of the periphery’ of the EU (Bechev, 2012).

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Figure 1: GDP per capita in Western Balkans (EU28=100)

Source: Eurostat, 2017.

The remarks by French President Emmanuel Macron in the last EU-Western Balkans summit reveal the hegemonic logic behind the EU’s Western Balkan policies. In order to defend the continuation of the enlargement process, he claimed that the Western Balkans were in danger of ‘turning towards Russia or Turkey’, and that would be ‘bad for the European Union’ (Macron, 2018). This kind of geopolitical rivalry narrative has clear imperial reminiscences: Macron presents the Balkans as a sort of competition among great powers in which the EU has to win over other players. There is no little irony considering that Turkey is actually involved in the same EU accession process.

4.5. Socioeconomic challenges in the Western Balkans

The socialist regime collapsed, and a new regime emerged characterised by the following trends: privatization and deindustrialization, market informality and corruption, high labour migration, brain drain, peripheralization and high

unemployment (Kaser, 2010). The Western Balkans are submerged in what Dragan Tevdovski has called a ‘triangle’ of inequality, neoliberalism and patronage

(Tevdovski, 2014). This is due to lowering of labour standards, the reduction of trade union power, reduced taxation and a ‘glorification’ of FDI. The overall

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situation in the region is one of widespread poverty, unemployment and low living standards. The effects crisis has been more devastating in the Balkans than in the EU itself. The region is ‘highly vulnerable to the effects of the Eurozone crisis’ (Bartlett & Prica, 2013, p. 367), because even if it is not of the EU their economies are significantly integrated. Some claim that EU policies were ‘fundamental for economic recovery of the SEE countries’ (Uvalic, 2008, p. 86) thanks to the increase of FDI and donor assistance. However, it is worth noting that rapid economic growth rates in the years before the 2009 crisis ‘were not accompanied by new jobs and little has been achieved in the fight against social exclusion’ (Mirel, 2014, p. 21). The global financial crisis exacerbated the negative trends while financial support schemes that were available for eurozone countries like Greece and Spain were not accessible for Western Balkans states, which could only ask for IMF support (Bartlett & Prica, 2013, p. 368).

4.5.1. Peripheralization and dependency

As this chapter has elaborated, the peripheral situation of the Western Balkans is clear and has significant consequences for its social and economic fabric. The EU and the Western Balkans have full trade and financial liberalisation and the EU dominates trade in the region with almost two thirds of the total exchanges. The core-periphery relationship is clearly visible, and interestingly the four dominant member states are Germany, Italy Austria and Greece. The financial subordination is clear: ‘Balkan countries are the spokes in a financial system whose hubs are in Vienna, Milan and Athens’ (Bechev, 2012, p. 4). That means that in practice the Western Balkans are highly integrated into the European single market, and therefore highly vulnerable to the turbulences of the European economy. Financial openness brings substantial risks, as the negative effects of the crisis were felt strongly in countries where the banking sector was more internationalised (Qerimi & Sergi, 2014).

Due to the low level of domestic capital, countries in the Western Balkans are highly dependent on Foreign Direct investment (FDI). That means that

transnational companies (TNCs) have a major role in the economic transformation of those countries. The EU has ‘glorified’ FDI, which was supposed to bring jobs and technology (Tevdovski, 2014, p. 50). The EU insists that candidates have to be ‘business-friendly’. That means countries have to create the conditions

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necessary to ‘attract’ European companies and investment, which in practice means deregulating the labour market. The region has become a source of cheap labour where there is no need to transfer significant capital, managerial and engineering capacity (Kaser, 2010, p. 100). The constant need of foreign

investment forces the state to create ‘favourable conditions’, which are basically low taxes, salaries and ‘flexible’ working conditions to the benefit of the employer (Copeland, 2014, p. 122).

The region is ‘extremely vulnerable’ to the economic problems in Europe (Bechev, 2012, p. 2). However, they trade very little among themselves. An EEAS official admitted that trade within the region is ‘surprisingly small’ (Author’s interview with EEAS official, 20 April, 2018). That is, while Western Balkans nations have

significant trade relations with the EU, they do not have them among themselves. In this respect, trade integration with Europe also involves internal isolation.

4.5.2. Deindustrialisation, privatisation

The Western Balkans experienced rapid economic collapse during the post-socialist transition and the violent fragmentation of the former Yugoslavia. The region was a relative economic success during the second half of the twentieth century and it was considered a regional model (Sörensen, 2009). Nevertheless, the collapse of the Soviet bloc and subsequent liberalization meant the practical disposition of the industry. As mentioned in the previous section, the policies of FDI attraction have not been accompanied by a substantial industrial improvement but rather the implementation of a ‘low-cost’ peripheral economic role. The

privatisation of state companies produced a massive concentration of wealth which did not result in improved competitiveness, but rather had contrary effects, a very similar experience to that of CEE (Dale, 2011).

4.5.3. Welfare state and taxation

The post-socialist transition in the Western Balkans led to a collapse of the welfare state and social services provided in the former system (Štiks & Horvat, 2014; Stambolieva, 2016). The transition led to the privatisation of major public services and benefits like pensions. Western Balkan states have implemented a flat-tax system, which clearly reduces the possibility of income redistribution in the region. Indirect taxes based on consumption (such as VAT) are the majority of the

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essentially beneficial to the richest segment of society (Tevdovski, 2014). This unequal and insufficient taxation is then coupled with reduced government spending, which further limits the state capacity to provide for welfare and social services (Uvalić, 2013).

4.5.4. Social inequality and exclusion

The transition in Western Balkans have led to an increased accumulation of wealth by the elites. Income inequality, a general trend in Europe, has increased steadily in the Western Balkans. Tevdovski shows how in the case of FYROM, half of the lower middle class has been pushed to poverty in the 1998-2010 period (2014, p. 55). The Western Balkans witnessed the emergence of a new class, a ‘narrow stratum of the very rich’, dominating society and ‘intimately related’ to organised crime (Štiks & Horvat, 2014, p. 16). These ‘new’ elites are often indistinguishable from the old ones (Koppa, 2014, p. 44) and do not vary significantly through elections - little more than a ‘reshuffling of the same political oligarchy’ (Štiks & Horvat, 2014, p. 4).

4.5.5. Work, unemployment and population loss

Economic collapse and the loss of the region’s industrial and economic base led to mass unemployment in the Western Balkans. Unemployment was already high in the region and has further increased in the aftermath of the global economic crisis, reaching higher rates than in the countries of the European periphery (Bartlett & Prica, 2013). The lack of economic opportunities has led to massive emigration and population loss. Yugoslavia has been for decades ‘exporter of unskilled labour’ to Western Europe (Živković, 2015, p. 46). The trend is sadly spread all over the region. At least 400,000 people from the former Yugoslav countries left the region since the transitions begun, mainly due to the poor economic situation. It is estimated that 10% of them were highly educated. In Croatia, even after EU accession 42% of its citizens are considering emigration (Kmezić, 2015). A striking regional example is Albania, one of Europe’s poorest nations which has one of the world’s highest emigration rates. In the Former Yugoslav Republic of Macedonia (FYROM), 85% of students plan to leave the country once they graduate. None of these countries has developed a coherent political strategy to manage the loss of high-skilled population (Horvat, 2004, p. 80).

Accession at what price? : the social cost of Serbia’s EU integration