The new trends in the development of the former Yugoslavia countries: the fast development with EU or the Greek scenario

Arzhaev Fedor Igorevich PhD in Economics Senior Researcher ; Institute for International Economic Relations Research; Financial University under the Government of the Russian Federation 49 Leningradsky Ave., Moscow, 125993, Russia fedor.arzhaev@bk.ru Other publications by this author

Introduction

The European Union is one of the most famous examples of regional integration. By uniting 28 countries with different levels of development and different institutions of the economy and social environment, the EU has managed to create a single base for their development and successfully contribute to the expansion of their economic potential over a long period. Nevertheless, the European debt crisis of 2012 showed that even in such a large and powerful economic and monetary union, there are a number of unresolved contradictions between the countries of the "old Europe", which are the most economically developed countries of the EU, and the new members; the economic development of these members depends on subsidies from the countries that make up the core of the European Union. These contradictions and the accession to the EU of a number of countries of the former Yugoslavia (Slovenia in 2004 and Croatia in 2013), as well as the status of candidates for membership of other countries ^[1] raise many questions: how can the EU effectively stimulate the development of its member countries that are not powerful economies, and can the EU help their development?

A very important issue that has not yet been resolved: the countries that were united by Yugoslavia, after its collapse, did not find a way to live peacefully and conflict-free; there are both territorial claims and social tensions between them. The accession of these countries to the EU does not occur simultaneously, but with a long time interval, starting with the most pro-European states ^[2] and may contribute to the deterioration of the situation in the region and the weakening of the EU as a whole.

The article aims to reveal the economic and political consequences of the accession of the countries of the former Yugoslavia to the EU for both them and the EU.

Literature review

The countries of the former Yugoslavia, also known as the Balkan countries, are facing a difficult decision. Some of them are EU members, while the rest have chosen to develop their economies outside the pan-European course. The choice they all have to make is whether the EU is effective for their economy. The literature on this topic is extensive, but in general it addresses issues without analyzing the EU context. The second approach is to select the Balkan countries, both within and outside the EU, and compare their economies ^[3]. Another approach is based on macroeconomic analysis and recommendations on macroeconomic policy ^[4]. All the presented approaches are valuable and adequate, but this article raises another question – what the EU brings to the Balkans and how the Balkans can strengthen the EU ^[5] – this is a very important problem that calls into question the effectiveness of the EU's economic development mechanisms for the countries of the former Yugoslavia. A more specific work analyzing the functioning of small and medium–sized businesses in the Balkan countries ^[6] proves the same thesis - the economies of the Balkan countries do not function in the same way as the economies of the EU, therefore there is no synergy from their accession to the Union. At the same time, other experts ^[7] consider the EU to be the main factor contributing to the achievement of sustainable growth in the economy of the former Yugoslavia.

Methodology

The article is based on a comparative analysis characterizing the dynamics of economic growth of the studied countries and the EU as a whole. This analysis reveals the relative pace of development of the country under study in comparison with the EU. Obviously, if the relative rate of development of the studied country is higher than 1 (according to formula 1), its economic institutions work more efficiently than pan-European ones. The converse is also true.

,

(1)

where DTc is the country's GDP growth rate, and DTEU is the GDP growth rate of the EU as a whole.

This conclusion is valid regardless of the country's membership in the EU, therefore, the judgment on the effectiveness of a country's economy in comparison with the EU is not derived from its accession to the EU. A graphical method was used to determine the coefficient of the relative rate of development of the country. The relationship between the described indicator and EU membership is expressed in the temporary determination of when countries began using European institutions, which is true only for regional EU members such as Croatia and Slovenia (for the first it is 2013, for the second it is 2004).

Based on the proposed analysis, a classification of the countries of the former Yugoslavia is proposed and a possible way to smooth out regional contradictions is highlighted. Nevertheless, this path is theoretical in nature and is highly likely possible only as a result of a repeat crisis in the region caused by the EU.

Results

The basis for the analysis of the effectiveness of the development of the EU countries is the analysis of the GDP of the EU countries in dynamics. Obviously, if a country leaves or joins the EU, its GDP becomes part of the total GDP of the EU. Using the example of Figure 1, we illustrate the influence of the United Kingdom on the development of the EU and prove that the United Kingdom was one of the key players in the Union.

Figure 1. The growth rate of EU GDP as a whole ^[8].

The growth rate of the EU28 as a whole exceeds the growth rate of the EU27, from which it can be concluded that for Britain the EU was a deterrent to the economy. At the same time, the EU's institutional capabilities gave British goods significant advantages: for example, when Britain leaves the EU, it loses a number of advantages, in particular in the economic sphere. The candidate countries for EU membership do not have the advantages that the British economy is losing: there are no restraining factors for them. Let's consider the situation with the countries of the Balkan Peninsula that are not members of the EU (Albania and Serbia, since there is no data on Montenegro in the long term, and consideration of Kosovo is impractical due to the uncertain status of the country) (Fig. 2).

Figure 2. GDP dynamics of the studied countries ^[8].

The pace of development of Serbia and Albania has been higher than the pace of development of the EU as a whole since 2010, while in Albania, which is less connected to the EU than Serbia, growth has been significantly higher than Serbia's growth rate. Thus, comparing these indicators, we can say that for the selected countries, joining the EU may bring significant structural changes in the economy that will not contribute to the development of the economies of these countries (despite the opinion expressed in ^[9]). Let us also mention the case of Greece. As can be seen from Figure 2 and the events that triggered the European debt crisis, Greece was unable to adapt to the system of institutions established in the EU. As a result, Greece's economic growth slowed after the 2008 crisis, and 2012 was a turning point in the country's history.

It must be said that the economies of the countries of the former Yugoslavia, in particular Croatia, Slovenia and Bosnia and Herzegovina, largely coincide in structure with the Greek economy (a significant share of the service sector and small businesses in the economy, few competitive enterprises, a high share of the production of exclusive goods) ^[10],[11] therefore, their accession to the EU It has opened up opportunities for a wide influx of investments into these countries from the EU. Taking into account that control over these investment flows is not a strong point of European law ^[12], and the free movement of capital is at the heart of the EU economic model, Croatia and Slovenia risk becoming heavily dependent on foreign capital, but unlike Greece they will depend on corporate rather than state capital, debt according to which it can be restructured for political purposes. This danger seems to be important for the economies of the selected countries, since it determines tax revenues in the GDP of Croatia and Slovenia: the higher the share of residents in the economy, the more effective the budget multiplier; the opposite is also true. In the case of small economies such as the countries under consideration, where tourism is the basis of economic development, a decrease in the share of residents in the tourism business negatively affects economic development.

As can be seen from Figure 3, EU accession gave the Slovenian economy a short-term growth driver (for 5 years the country's economy grew rapidly, although there was a positive growth trend before joining), after which the Slovenian economy grew slightly below the pan-European level. Croatia has not had a growth driver since joining the EU, although the gap between the country's growth rate and the EU as a whole is narrowing (not counting the coronacrisis).

Figure 3. Growth rates of individual countries ^[8]

As the data in Figures 1-3 show, the EU is not a panacea for the countries of the former Yugoslavia from economic problems, moreover, it has a significant reducing effect on their economic growth (however, regional policy measures seem to form a different public opinion ^[13]). This is due to the fact that the EU economies are closely integrated, and the EU economic institutions function to stimulate the development of the most developed economies of the Union ^[14],[15] and this development will affect the growth of other economies. Geo-economic conditions are close to crisis, the growth of the EU integration core is significantly slowing down, and less developed economies are losing opportunities and tools to stimulate growth due to the commitments made upon joining the EU.

It is necessary to analyze the socio-political consequences of joining the EU for the countries of the former Yugoslavia. It is known that the Yugoslav crisis has revealed many deep interethnic problems, the solution of which has not yet been found ^[16], in this context it is especially interesting to compare the disintegration processes in Yugoslavia and in the EU ^[17]. The countries of the former Yugoslavia can be divided into 3 groups: pro-European countries such as Croatia and Slovenia; pro-Turkic countries such as Bosnia and Herzegovina, Albania due to the separation of Orthodox churches from Serbia, as well as the unrecognized Republic of Kosovo; the third group includes countries promoting a policy of independence from Europe, such as Serbia, first of all, Albania and Montenegro to a much lesser extent. The entry of representatives of these three groups into the EU will inevitably lead to a further increase in contradictions between them, but already within the EU and its institutions. This process is dangerous for the EU both because the authority of its institutions will decrease, and because of the involvement of third forces in a new conflict on the Balkan Peninsula, which could split the EU into warring camps and destroy the EU's integration achievements.^[13]

Discussion

The results obtained indicate that the European Union does not have effective tools for the development of the economies of the countries of the former Yugoslavia; moreover, this situation is highly likely to disrupt the fragile balance created in the region ^[23]. The political impact of the decision to join the EU is ambiguous for all parties, moreover, as the practice of Croatia, which is a less mono-ethnic country than Slovenia, shows, the accession of other countries of the former Yugoslavia to the EU will lead to increased social tension, which is clearly indicated ^[18].

There is no solution within the EU to the problem of the development of the countries located on the Balkan Peninsula; moreover, in the face of an imminent crisis, the EU will be burdened with economies that need financial support and which, if refused, are capable of provoking discontent on the Balkan Peninsula as a whole. If the countries of the former Yugoslavia join the EU, then during the first economic crisis, when the resources of the countries of the European integration core will not be enough to support all EU members, the countries of the Balkan Peninsula will become the next countries of the PIIGS group; this situation will lead to ethnic conflict in the region with the use of armed forces. This thesis, however, is not understood by supporters of Euro-Atlanticism ^[24],[25].

A partial solution to the problem lies in the conditional division of the region into spheres of influence: it is obvious that Croatia and Slovenia strongly gravitate towards Austria and Germany, Serbia gravitates towards Russia. the influence of the West and the role of Russia), more precisely to the EAEU, Albania and Bosnia and Herzegovina gravitate towards Turkey. The use of these historical ties can help reduce tensions in the region of the former Yugoslavia; and these measures, in the long term, will help to stabilize the countries' policies regarding relations with the EU and other players. However, this scenario is unlikely, since the EU pursues an anti-Russian policy and the EU is skeptical of Turkish influence on its southern borders, so there is no reason to expect a rational attitude to the problem. It is the thesis of the lack of rationality of EU policy towards countries that is of political interest that is promoted by eurosceptics ^[19].

It is also necessary to note the great influence of the euro on the economies of the EU member states. Today Montenegro and Kosovo use the euro, although they are not members of the EU, and Croatia still uses the national currency ^[20]. Thus, the question of how European integration has a positive impact on the economies of the eurozone member states also plays an important role in predicting the future of the countries of the former Yugoslavia in the EU. As practice shows, the use of the euro by countries outside the European integration core allows them to receive large amounts of assistance from the most developed EU countries, but in crisis situations deprives them of the opportunity to manage their economies, which is not taken into account. when developing the EU's monetary policy (as the events of 2012-2014 showed: the quantitative easing policy used by the EU had an extremely negative impact on the Baltic States). The so-called "positive concession" failed to provide positive effects, as proved, for example, in ^[21],[22].

Conclusion

The analysis allows us to answer the question posed: the accession of the countries of the former Yugoslavia to the EU will inevitably lead to a repeat of the Greek scenario, but in other countries in the context of the first major crisis that will affect the EU.

The author does not see an effective solution through EU instruments to the contradictions between the countries of the region that arose during the Yugoslav crisis; moreover, the threat to the EU is emphasized and aggravated if all or most of the countries of the former Yugoslavia are admitted to its membership. At the same time, it should be noted that the situation in the region is fragile and the support of one of the parties (we are talking about one of the groups of countries of the former Yugoslavia) by such an economically powerful association as the EU will lead to a deterioration of the situation.

The effectiveness of the EU's instruments for the countries of the former Yugoslavia that joined it is also not high enough: to date, neither Croatia nor Slovenia have received the expected high results from joining the EU.