CIAO DATE: 7/99

A System for Post-War South-East Europe
(Plan for Reconstruction, Openness, Development and Integration) ₁

Michael Emerson
with Daniel Gros, Wolfgang Hager,
Peter Ludlow and Nicholas Whyte

Working Document No. 131
May 3, 1999
(Revision 4)

Centre for European Policy Studies

 

Working Document of the Centre for European Policy Studies by Michael Emerson, with Daniel Gros, Wolfgang Hager, Peter Ludlow and Nicholas Whyte, prepared within the framework of its Working Party on “The Future of South-East Europe” (Co-Chairmen Erhard Busek and Panagiotis Roumeliotis).

The present paper is a substantial revision of an earlier draft, profiting from reactions from numerous readers, including participants in a meeting with Ambassadors of the region at CEPS on 17 April, and in a brainstorming session in CEPS led by Romano Prodi on 28 April (see Annex A), none of whom however are responsible for views expressed in the paper.

CEPS expresses its appreciation to the following for precious start-up support for the projects’s budget: Delta Dairies (Athens), Erste Bank (Vienna), German Marshall Fund of the United States, Open Society Institute, and the Ministries of Foreign Affairs of Austria and Greece.

 

 

Summary

The war in Kosovo may become the final dreadful catharsis of the Balkan tragedy. The end of the second world war led to reconciliation and the institutions of the new European order (from Council of Europe to the EEC etc.). So now, after the latest Balkan war, definitive foundations for the inclusion of the region into the European civil order have to be conceived and negotiated. The design of these foundations should build on the fact that several states of the Balkan region or the former Yugoslavia are already on the road towards accession to the European Union. While many of the policies of the EU are or can be extended to neighbouring countries, the EU cannot simply open all its political institutions immediately to numerous more small states, especially those without tested experience in meeting European political norms.

Therefore a new political solution needs to be devised, to motivate the countries of the former Yugoslavia and Albania to converge on modern European norms, and to perceive, in relation to the EU, their own inclusion rather than exclusion. For this purpose new categories of EU membership are advocated, to which all states or regions of South-East Europe could aspire quite soon. The progressive inclusion of these states or regions in the policies and institutions of the EU is sketched out. The present EU enlargement negotiations would in no way be retarded, but elements of the “pre-accession” strategies would be extended to the former Yugoslavia and Albania so as to reduce the differentiation between them and the present accession candidates. The cost of a strategic initiative for these “5” states (Albania, Bosnia, Croatia, FYR Macedonia and FR Yugoslavia), on a similar scale to the cost of policies envisaged in Agenda 2000 for the accession candidates, would in normal circumstances be moderate (about 5 billion euro per annum), even supposing that all countries including FR Yugoslavia became eligible, since the region is small in economic terms. This would be well within the margin of available budgetary resources of the EU, following the European Council’s Berlin agreement of Agenda 2000. However exceptional post-war reconstruction costs will raise the total bill substantially, calling for the combined resources of the international financial institutions as well as the EU.

NATO has been performing an indispensable task, deploying military force to try to stop the crimes against humanity. But as the military action ends the civilian order will have to be built up, and here the European Union must assume its responsibilities. Indeed the European Council adopted guidelines in this sense at its meeting on 14th April. The present paper offers a fresh set of ideas for a comprehensive strategic initiative by the EU, putting together economic, monetary, political, security and institutional components of a long-term system for post-war South-East Europe, which should see the region become fully integrated into the modern European order.

 

Key points

A. Premise

Needed: realistic European solution for integrating whole region into modern Europe (i.e.EU) once and for all, including post-Milosevic Yugoslavia. “Realistic” means something strong enough to have real chance of achieving political objective.

B. Hard core of solution: nine EU innovations of policy or system:

1. “New Associate Members”: new category of EU membership, open for the “5” (Albania, Bosnia, Croatia, FYR Macedonia, FR Yugoslavia) on normal conditions of democracy, human & minority rights, and with suspension clause (analogous to Amsterdam Treaty article). Negotiations to open from 1.1.2000, for states meeting these conditions.
2. Market regime: multilateral, pan-European, zero-tariff free trade; budget compensation for loss of customs revenues for New Associate Members. Scrap all tariffs on industrial goods completely on 1.1.2000, with subsequent transition into EU Customs Union and Single Market.
3. Money: exploit new potential for wider euro, both for economic value and symbol for inclusion in modern Europe. Euro-based currency board regimes already possible. Full euro-isation from 1.1.2003 with budget compensation for loss of seigniorage for New Associate Members.
4. Reconstruction and investment: initiate on 1.1.2000 a new South-east European Agency for Reconstruction and Development (SEARD), as subsidiary of European Investment Bank. SEARD to have property rights in infrastructures. [NB above elements of economic and monetary integration offer strategic support for anti-mafia and anti-crony capitalist economic policies].
5. Civil society: initiate on 1.1.2000 South-east European Foundation for Democracy (SEFDEM) and South-east European Foundation for Education (SEFED).
6. Security (civilian): deployment, where necessary, of EU customs services and policing powers to control all port and frontier crossings, as condition of New Associate Membership.
7. Security (military): implement ESDI doctrine, as from NATO Washington Summit of April 1999, thus organise progressive EU leadership of peace-keeping operations.
8. Institutional integration: new model for progressive insertion of New Associate Members into EU institutions.
9. Management capacity: strengthening of management, command and control capacity in Commission and Council for their respective competencies, using new agencies and foundations for decongestion and debureaucratisation.

C. Game plan by country

• Croatia: Signal for change of government in December 1999 and political normalisation (Slovakia model). On this condition open negotiations for New Associate Member on 1.1.2000.
• Albania: open negotiations for New Associate Member on 1.1.2000.
• FYR Macedonia : open negotiations for New Associate Member on 1.1.2000.
• Bosnia: open negotiations on economic and monetary agenda on 1.1.2000. Establish concept that Dayton regime will later be reshaped for EU integration with New Associate Member. EU leadership of SFOR from 1.1.2002.
• FR Yugoslavia : first best, Milosevic replaced by enlightened leader. Immediately thereafter, open negotiations for New Associate Member. Whole Federation brought into EU integration process, with special EU responsibilities for governance of Kosovo. Much less satisfactory outcome: special protection for Kosovo and maybe Montenegro without political renewal in Belgrade.

D. Wider Europe

Any real solution in South-East Europe is certain to affect EU’s enlargement and wider Europe foreign policy strategies in very important, but potentially positive ways for pan-European stability.

• Relationship with existing enlargement process. General acceleration, keep competitive incentives, but no leap-frogging of opportunities. The EU to set by 1.1.2000 a target date of 1.1.2003 for accession of next full Member States. Accession negotiations to be opened on 1.1. 2000 for second group of candidates, (i.e. at same time as opening of negotiations for New Associate Members). Target date for entry into force of Treaties of New Associate Membership also 1.1.2003.
• Turkey : a new situation, potential and need for new constructive initiative.
• Russia: immediate priority, contribution to getting a successful resolution of conflict over Kosovo. This would put EU strategy for Russia in new, highly positive context.
• Ukraine : also a new situation in prospect, with events in South-East Europe as well as forthcoming Ukrainian presidential elections.

E. Stability Pact

• immediate consensus over broad idea.
• first one of 1994-5 useful, because linked to strong structure of full EU accession process.
• this one for South-East Europe, tougher proposition. Would only work if also supported by hard core actions (e.g. as above), otherwise risks being ineffective.

 

 

Contents

1.	The starting point
2.	Potential of the EU
2.1	European Economic Area (Mark II)
2.2	European Monetary Area
2.3	Reconstruction and investment
2.4	Economic and Monetary Union
2.5	European Civil Society
2.6	European Area of Freedom, Justice and Security
2.7	European Area of Military Security
2.8	New membership categories
2.9	Financial resources and costs
2.10	General aspects of EU strategy
3.	Needs of South-East Europe
3.1	Croatia
3.2	FYR Macedonia
3.3	Albania
3.4	Bosnia Herzegovina
3.5	FR Yugoslavia
3.6	Existing accession candidates
3.7	South-East Europe Conference and Stability Pact
3.8	Wider European dimensions
4.	Conclusions
List of tables
1.	Macroeconomic performance in South-East Europe
2.	Transition indicators in South-East Europe
3.	Legal transition indicators
4.	Regional patterns of reform
5.	Indicators of political, civil and economic liberty
6.	Number of refugees from the Kosovo crisis
7.	Additional external financing needs in 1999 arising from the Kosovo crisis
References
Annexes
A.	Participants in CEPS Brainstorming Session, Brussels, 28 April 1999
B.	“Plea for a ‘New Enlargement Strategy’ for the EU”, H-G Poettering, 2 July 1997.

 

 

1. The starting point

The end of the military confrontation in Yugoslavia is hardly in sight, but it is already time to be preparing for a post-war order for the region. The war, when ended, will at least have created a new situation, in which more radical solutions for integrating the region into modern Europe should become possible politically.

A widely accepted view is that the populations and elites of the whole region look to ultimate EU membership for a positive future. On the other hand there is little understanding in the region of what this means, which is not surprising when one has in mind the complex structure and evolution of the EU system. The EU itself will have to play a pro-active role in opening up the debate on what the possibilities might be in operational terms. But the process should then become inter-active, since only the representatives of the region itself can legitimately decide how their aspirations might be met.

The EU has so far no clear or credible strategy for meeting these aspirations. Its so-called “regional approach” has been insufficient [Commission of the EU, 1998]. Its instruments of conditionality are too finely graduated to have real leverage on the profound trends in the region. These instruments only deploy trade and aid incentives, without new or emerging competences in the monetary and security domains. Moreover the political destination is not clear for any politically relevant time-horizon, with the use only of loose expressions such as “having a European vocation”.

Supposing that the war results in a political will to go for decisive solutions for a new general system and civil order for South-East Europe, a starting point could be to look at both sides of the question in the following sense:

• the potential of the EU for offering inclusive policies, institutional participation and financial resources.
• the needs of the different states and communities in the region;

2.1 European Economic Area (Mark II)

The original European Economic Area (EEA Mark I) has been an interesting innovation. It was a deal between some small states which wanted to be wholly in the single market of the EU, without having to accept all the supra-national features of the EU. The small EEA states did not need the EU as an anchor for their political values, while the EU was not keen to have increasingly numerous small member states for institutional reasons (in the event three of the countries concerned decided later that they preferred full membership, but three went ahead with the EEA).

The model is of interest, with important modifications, for South-East Europe. The general idea is to secure complete inclusion in selected EU policy domains, even when full EU membership is considered inappropriate (by one side or the other, or both).

EEA Mark II would start with an initiative to create a multilateral pan-European free trade area (zero tariffs on industrial goods) between the EU, EFTA, EEA (i.e. the 3 present members), CEFTA, the EU’s customs union partners (Cyprus, Turkey) as well as the “5”. Apart from zero tariffs, the rules of origin regime would be aligned on the existing multilateral, pan-European agreement of 1997 between the EU, EFTA, EEA and CEFTA. This highly technical subject is in fact of great importance for the integration of industrial structures, to allow production processes for given goods to cascade value-added through a number of countries. The advantages of “full cumulation” are described elsewhere [Komuro, 1997], and their introduction for South-East Europe as a whole is an obviously desirable policy initiative waiting to gain political priority.

While the existing EEA (Mark I) would continue to function without change, EEA Mark II would also include an evolutionary clause for the “5” through three stages:

• Free Trade,
• Customs Union, i.e. joining the EU and Turkey,
• Single Market, through adopting all relevant EU rules and legislation, and so join EEA Mark I.

The first stage, zero-tariff free trade, should be implemented very fast, preferably in a “big bang” on 1.1.2000, so as to have a major action concretely at the outset. There should be no political conditionality, except if overridden by trade sanctions or blockades as in a state of war (i.e. as at present for FR Yugoslavia, until the end of hostilities). Exceptional agreement from the World Trade Organisation should be requested to implement this tariff dismantlement before accession of all the states concerned to the WTO, in view of the special political circumstances and small economic importance for the rest of the world. To allow a longer period for harmonisation of customs policies, formal accession to Customs Union with the EU and Turkey would be targeted for 1.1.2003, coinciding with the next enlargement.

Conventional thinking might suggest gradualism in the dismantlement of tariff protection. There are good reasons to do otherwise in this case. The EU on its side has nothing significant to lose and all to gain by bringing the “5” into a free trade relationship as soon as possible. The “5” for their part need to exploit the shock of the present conflict in positive ways, thus to make a clean break from the present use of customs posts as instruments of state corruption and the protection of crony capitalism, which today means disastrous disincentives for the expansion of trade and investment [see survey of Federation of Industries of Northern Greece, 1998]. Wage costs are sufficiently low in the “5” to afford adequate opportunities for cost competitiveness. Moreover the destruction through war of the Bosnian and Serbian economies means that industry has to start again. This should be done under conditions requiring international competitivity from the outset, rather than recreate again an inefficient, protected and corrupted economy.

Bosnia and Herzegovina introduced a new customs tariff law on 23 April 1999, unifying the internal market of the two Entities, and stopping their preferential regimes with Croatia and FR Yugoslavia respectively [OHR Press Release]. While it is understandable that the trade barriers and distortions within Bosnia should be eliminated, it is by far preferable not to recreate tariff barriers within the region but to jump instead to free trade.

The only legitimate concern in scrapping customs tariffs is over tariff revenues for the budget. To overcome this problem it is proposed that the EU compensate all the “5” (which become New Associate Members - see below) by transfers from the EU budget. According to preliminary estimates such compensation could amount to between 1 and 1.5 billion euro for all the “5” [for detail, see Gros, 1999]. This would be conditional on accepting any necessary degree of EU monitoring and actual control (with EU police or para-military support) at port and frontier posts, so as to cut out frontier corruption decisively once and for all. Morover the New Associate Members would not be expected to contribute to the EU budget.

EEA Mark II countries would be included in a wide range of EU policies, particularly economic programmes in a manner analogous to the present pre-accession process. The model here follows the example of the PHARE programme, which is being progressively transformed into something closer to the EU’s (internal) Structural Funds, with participation also in the EU’s (internal) educational programmes (Socrates, Leonardo). A similar process should be extended to the whole of South-East Europe.

In summary, EEA Mark II would consist of:

• zero-tariff free trade, multilaterally with the EU, EFTA, EEA, CEFTA countries,
• join the existing pan-European rules of origin agreement,
• budgetary compensation for abolition of tariffs,
• evolutionary clause for full inclusion in the EU single market, with progressive adoption of EU legislation,
• inclusion in educational programmes and structural fund type operations in a manner analogous to the existing pre-accession programmes.

2.2 European Monetary Area

Two events have created new perspectives for monetary cooperation between the EU and South-East Europe. The first was obviously the introduction of the euro. The second was the Russian financial crisis, which has created a new situation for economies with dubious or weak monetary stabilisation policies. The costs of monetary independence for such countries are now much higher than before. This is because risk premia for borrowing from international capital markets have risen to levels inconsistent with a strong flow of investment. This means that the prospects for economic growth in such circumstances are seriously damaged.

Already for some time much of South-East Europe has become accustomed to using the DM as an important parallel currency. Two countries of the region are currently operating currency board systems, initially fixed on the DM, and now effectively on the euro. The menu of monetary regimes with links to the euro has several options (see Table 5 for a schematic presentation of their costs and benefits in present circumstances):

• managed float regimes, with the euro as a reference for exchange rate policies. In the most advanced economies on the edge of the region, such as Slovenia, there are already scenarios for joining the euro area fully a few years after accession.
• currency board regimes, where the national currency is pegged on the DM/eulro and monetary expansion is constrained by the need for full backing by hard currency in the central bank. This operates currently operates in Bulgaria with success, and in Bosnia a similar system makes headway. However such systems are not perfect, and should normally graduate to one of the other regimes here mentioned.
• total euro-isation. Total dollarisation already sees a certain experience world-wide, as already mentioned, with success for example in the case of Panama [Moreno-Villalaz, 1998], and new consideration of this option by Argentina [Hanke and Schuler, 1999]. From an economic standpoint this is a superior regime to the currency board, to the extent that it confers more complete access to money and capital markets and a higher (nearly total) credibility of stabilisation policy. It has the disadvantage that there is a loss of seigniorage revenues compared to the currency board, but this could be compensated through a cooperation agreement with the EU and European Central Bank.

The crucial difference between the currency board and total euro-isation is that only the latter allows complete integration into the payments system, money and capital markets of the euro area. Complete monetary integration in particular requires participation into the Target system, which requires that the commercial banks accept common prudential and regulatory rules. For these standards to be met there would almost certainly have to be a large presence of EU commercial banks, such as is already the case in Latvia (70% foreign control), or Hungary (60%) [EBRD, 1998]). But all these constraints would in fact mean accumulating very important economic advantages. States presently unprepared politically for loss of national control over their commercial banks should study the examples of Latvia and Hungary, which are greatly benefiting in terms of lower interest rates and less problems of having to recapitalise weak banks. In fact Greek and other EU banks are already building up an important presence in Bulgaria, Romania, FYR Macedonia and Albania.

Moroever regimes of partial dollarisation (or euro-isation) are far from offering the same advantages, and present considerable complications for the conduct of monetary policy by the central bank, as recently analysed thoroughly [IMF, 1999a].

Scenarios for full euro-isation are temporarily complicated by the fact that euro bank notes will not be in circulation until 1.1.2002. This is not a problem in priciple, since any existing euro area bank notes could be used, notably the DM in view of its customary use in South-East Europe. A temporary scheme is sketched in another paper [Gros, 1999]. However this would still be somewhat confusing for the population, whereas clarity and credibility are so important for monetary regimes. The more plausible scenario would therefore be:

• from now on, if not already, euro-denominated currency board regimes, with use of DM as parallel cash money;
• as of 1.1.2003, introduction of full euro-isation, including euro bank notes. This would allow a full year for euro bank notes to become established as the exclusive cash money in the EU Member States using the euro, before taking on the extension New Associate Members.

Full euro-isation would mean the loss of seigniorage, i.e. the profits which the central bank derives from its monopoly over issue of the currency. Normally such profits are transfered, at least in part to the state budget. (More precisely seigniorage is defined as the interest income earned by the central bank on its holding of securities acquired as counterpart the bank notes issued, plus interest earned on obligatory and non-remunerated reserve deposits at the central bank by commercial banks. However the latter nowadays often do not exist).

In the European System of Central Banks there will be a distribution of such profits between national central banks, which in turn will have to account to their national governments. In the event of New Associate Members opting for full euro-isation it would be both fair and budgetarily highly desirable for the countries concerned to negotiate an agreement with the EU for reasonable compensation for the loss of seigniorage. In fact the amounts involved would limited to about 250 million euro per year [Gros, 1999]. Other aspects of the transition to full euro-isation are discussed also in this source [Gros,1999].

There is thus wide scope for opening up the domain of monetary cooperation between the euro monetary area and South-East Europe. Beyond narrowly economic effects, the currency is the most potent symbol of standards and of affiliation. The euro therefore could play an important role in South-East Europe in communicating a sense of inclusion in the EU.

2.3 Reconstruction and investment

Infrastructure. The Pan-European Transport Networks and Corridors are well advanced in their design and planning for the needs of South-East Europe. Some of the region’s transport axes are subject to steady investment, but mainly those which link the accession candidate countries, and here the European Investment Bank is a major player.

The new post-war situation will have two key issues:

• inclusion or not of Serbia in the integration process, with Belgrade being geographically a natural strategic point on the road, rail and river axes.
• if Serbia joins the integration process there will also be reconstruction financing, especially for fundamental infrastructure and investments (bridges, power stations).

The importance of Yugoslavia as a transit country has been illustrated by the extent of disruption of trade and economic activity in affected countries, ranging from Austria and Hungary through to Bulgaria and Romania. A reconstruction effort which excluded or even avoided Yugoslavia would be very expensive indeed, and hold back productive economic expansion for many years.

Important decisions on the location of new oil and gas pipelines from CIS countries, which would pass through the region, can only be taken in the post-war context of increasing integration with the EU. Financing would be obtained from the EIB and IFIs. Safe and cheap supplies of hydrocarbons would in turn facilitate investment in new and efficient non-nuclear power stations.

As regards total investment in public infrastructure - transport and environment - a target figure of 8% of pre-war GNP (3 billion euro for the “5”) would not be unreasonable, given a decade of neglect in many countries, and now war damage in some of them. This figure must be seen in the context of a desirable level of investment of 25% of GNP in any realistic catch-up scenario.

The region as a whole may be assessed in three categories. First are the countries for which pre-accession financing is already available and post-accession aid can be planned: Bulgaria, Romania and Slovenia. The cost of upgrading the road system of these three countries (major corridors) has been estimated at 12 billion euro; with expenditure for rail of about 7 billion euro. Two thirds of these amount are for the Pan-European Corridors. But clearly, in a new post-war situation with Serbia joining European integration, the alignment of present corridors would need to be considered, especially Corridor No 4 which avoids Serbia. A tentative Corridor No 4a, the historical route through Belgrade, has already been pencilled into the Pan-European Corridors.

A second group consists of Croatia, Bosnia, FYR Macedonia and Albania. Bosnia apart, their only source of infrastruture funding has been through the IFIs and on a modest scale. Substantial aid flows to FYR Macedonia and Albania are now indicated politically. Economically, Croatia has considerable absorption capacity, including a coastal highway serving the tourism sector and port upgrading to ease the integation of the region into the European economy. A total of 5 billion euro over a ten year period would have a major impact on the economy of this group.

Thirdly are the three parts of FR Yugoslavia, Kosovo, Montenegro and Serbia. The first two have suffered loss of relatively minor bridges (unit price about 10 million euro). The Montenegran port of Bar will gain strategic importance in a EU-integrated Balkans, with branches to Kosovo from the present Bar-Belgrade corridor clearly a priority. More generally, an immediate upgrading of road and rail infrastruture in Kosovo will be needed to support the civil reconstruction programme with its heavy transport demands.

Finally, in Serbia major bridges across the Danube will have to be renewed (30 million euro unit price), as well as a great deal of other basic infrastructures. An immediate allocation of about 1 billion euro would need to be made for the transition back to normality.

Management issues . The scale of the task of reconstruction and development in the regions raises issues of management capacity. The EU has two executive functions with demonstrated capacity to disburse enormous investment funds in an apparently acceptable manner with quite lean staff structures: the European investment bank, which disburses 25 billion euro of loans per year, and the Directorate-General XVI of the Commission, which disburses about 30 billion euro per year of grants on account of the Structural and Cohesion Funds. On the other hand the Directorate-General IA for external relations has had difficulty in building up its executive capacity to disburse the PHARE and TACIS programmes, partly because it has not been granted adequate staff resources promptly enough, partly because of extremely burdensome financial and management procedures.

For reconstruction and investment in the “5” there would need to be innovations in management structures. The model of the Structural Funds, while itself functioning satisfactorily, is not appropriate because it depends upon reliable partnerships with the national and regional administrations of EU Member States. The present Director-General, Eneko Landaburu, may be quoted as saying: “the system works reasonably, but in the case of Greece it took ten years of experience of joint programming and project management before our partners were meeting EU standards”. This example suffices to say that a completely different model is needed for the “5”.

One proposal is that a new South-east European Agency for Reconstruction and Development (SEARD) be created, as subsidiary of the European Investment Bank. A new agency is warrranted by the intensity of the reconstruction and investment effort needed in an area with particular conditions. Basically there has to be a double solution in one package: finance and sound governance (i.e. cutting out corruption). The latter will call for much hands-on management with good local knowledge, but also by way of control and ownership of projects. For economic infrastructure projects the idea would be for SEARD to have property rights in bridges and other suitable assets, and would thus be able to secure its own investments and better able to attract third party private finance. The link with the European Investment Bank is also highly desirable, in view of the enormous size of the EIB’s financial reserves and borrowing capacity. As soon as SEARD demonstrated a capacity for effective operations, its funding could be built up rapidly.

By comparison the EBRD still has only limited financial capacity, and has to absorb for the time being extremely difficult operating conditions in CIS countries, following the Russian financial crisis. However the EBRD could be extremely valuable in building up its role as active shareholder in private enterprises of the region, including new ones which replace those destroyed in the present conflict. EBRD would here be a leading actor for improving corporate governance in the region, adding a further instrument for a comprehensive anti-corruption and anti- crony capitalism strategy.

2.4 Economic and Monetary Union

Putting together the EEA and EMA with a special initial boost from reconstruction and investment finance gives de facto membership of EMU. It is thus possible to envisage economic participation in the EMU without full EU membership (we return to the institutional questions below). This is not such an unusual formula. It applies already to several European micro-states including Monaco and Andorra, and as a closer model from the Americas with the case of Puerto Rico (4 million population).

For South-East Europe inclusion in both the EEA and euro area would transform economic standards and incentives. The newly independent states of the region have in several cases fallen immediately into bad habits, exploiting the customs and monetary regimes for state corruption. In these conditions to join a European free trade and monetary area has far bigger benefits than is suggested in conventional economic analysis. The switch to a regime that allows no possibilities for state protection and corruption becomes the most vital of reforms to secure the region’s future prosperity, as well as its ethical order.

2.5 European Civil Society

Modern Europe’s fundamental political values are:

• democracy, which is not legally codified at the European level, but is monitored by the Council of Europe, and is recognised where it exists or is abused;
• human rights, as codified by the Convention of the Council of Europe and enforced by the Strasbourg Court of Human Rights;
• rights of minorities, as codified by the Council of Europe and the OSCE, who also monitor.

Beyond these elements of formal democracy and human rights, the wider “civil society” is supported by extensive networks of non-commercial and non-government associations.

The EU has already in the Treaty of Amsterdam become more explicit in its insistance on these values, adopting a new “suspension clause”, such that a Member State which abused the vital principles may be subject to a decision by the Council and Parliament to suspend its voting rights in the Council. The present enlargement negotiations are also clearly giving to these political criteria real importance (viz. the cases of Slovakia and Latvia in the Agenda 2000 assessments).

These same principles and mechanisms would be applied to the “5” as condition of agreement for them to become New Associate Members (see below), although the level of achievement of the ideal standards would be less demanding. Since the sub-structures of civil society are still very thin in the region, the main criterion should be whether the political institutions are sincerely and seriously working in the direction of modern European norms.

The EU has not yet allocated significant budgetary resources to vital pan-Balkan programmes of cooperation in education and training in “civil society” domains. In principle 5 million euro has been allocated for such purposes to the “Royaumont Process for Good Neighbourliness in South-East Europe”. But this is not yet activated [it is expected that the EU institutions will soon resolve the question of how to give this budgetary provision a proper legal basis]. Until now the EU has given priority in practise to bilateral programmes of cooperation between it and individual countries of the region, with very limited possibilities for actions integrating the people of accession candidates with other countries of the region. In a new post-war political environment this policy should change. Such programmes, for example for promoting civil society and educational objectives, are of very minor cost compared to the financial resources available to the EU. The issues are therefore ones of policy choice and management, rather than lack of money. By way of illustration, the Balkan Schools Foundation of Sofia, dedicated to multi-cultural and multi-lingual schooling for all South-East European countries with text books written to exclude the customary aggressive nationalism of the region, has not been eligible for PHARE financing, precisely because it would be aimed at young people from both accession candidate and other countries. Such a project finds itself therefore ineligible, although it has now won support from bilateral sources (Austrian, British, Greek).

To give a new impetus to the development of civil society in the whole of South-East Europe, and to avoid administrative congestion with too many projects at the Commission Brussels, greater resources and reliance could be attributed to specialised foundations (i.e. separate legal entities, subject to EU policy directives, receiving PHARE funding from the EU budget). Two principle initiatives would thus be a South-East European Foundation for Democracy (SEFDEM) - there is already a proposal of this type, whose scope may be reconsidered in the post-war context; and a South-East European Foundation for Education (SEFED). A new South-east European campus of the College of Europe should be established for post-graduate courses in contemporary European studies, following the extension of the Bruges college already to a campus at Natalin near Warsaw.

Administrative bottlenecks in Brussels can also be eased by granting decentralised responsibilities to the Commission Delegations in the region. Experience acquired in Central and Eastern Europe shows that substantial capacities can be built up quite rapidly, as long as there is flexibility in recruitment rules and then real decentralisation of responsibilities, especially for managing micro-projects. For example the Moscow Delegation initiated a successful so-called “Bistro” facility for projects costing under 100 000 euro, for which responsibility was virtually wholly decentralised. This is especially valuable for people-related projects in the broad civil society area, where the essence often consists of spotting the individuals whose personal projects are worth backing, and then intervening fast to sustain motivation.

2.6 European Area of Freedom, Security and Justice

This is the language of the Treaty of Amsterdam. The EU’s own work in this domain is now developing extremely fast. Proliferating activities are regrouped under three thematic headings:

• immigration and asylum,
• police, customs and security, and
• judicial cooperation.

With respect to South-East Europe the EU faces the policy dilemma of wanting to protect itself against importing floods of refugees, illegal migrants and (from some countries of the region) large-scale criminal activities, while not wanting to create a new iron curtain between itself and countries which should be integrating with it. For this reason the EU will have to develop pro-active policies within the countries of South-East Europe, to limit the problems at their origin. Moreover these policies have to be comprehensive and multi-dimensioned (from peace-keeping, to law and order actions, to the economic etc.) in order to have any chance to answer the amplitude of the problems.

For actions to go to the root of the problems of criminality, corruption and weak law and order institutions there is no sense in dividing South-East Europe into multiple categories of countries. Fortunately there are examples of initiatives embracing the accession candidates and other countries of the South-East Europe, notably the Octopus II programme, which also includes Albania, Croatia and FYR Macedonia. This programme seeks already to prepare all these countries in the context of “Third Pillar” policies of the EU. The scale of this project, which is a cooperative venture between the EU and Council of Europe, is none the less modest (2.5 million euro). Europol, which is now becoming an operational EU instrument with a doubling of its staff to over 400 in the next five years, will no doubt need to establish serious links with the “5”, for example over drug trafficking (especially Albania).

Judicial cooperation is also required in the human rights area. The Convention of the Council of Europe and the Strasbourg Court of Human Rights will have jurisdiction throughout the region, but the capacity of the judicial systems to implement these laws locally has to be greatly strengthened.

In the field of visa and immigration policies the prospect of new iron curtains is most obvious. The EU has adopted a list of countries for which visas are required by EU Member States, and this is part of rules that the accession candidate countries will need to adopt. This list divides South-East Europe as follows:

• first group accession candidates, Slovenia and Hungary, together with Croatia (not on obligatory visa list);
• second group accession candidates, Romania and Bulgaria, together with FYR Macedonia, Bosnia, Albania and FR Yugoslavia (all on the obligatory visa list).

Under present policies it could be that the EU accession process would require Hungary to impose visa requirements on its neighbour Romania.

Bosnia has provided an example of a situation in which there has been relatively successful peace-making and keeping, with heavy military resources. Albania has provided the example in 1997 of utter anarchy being stopped with the aid of an Italian led military presence. But as the war or anarchy ended, the peace saw emergence or re-emergence of deeply criminalised and corrupt societies. This emphasises the need for the EU to organise substantial capabilities for para-military and police support to take over where the military leaves off. (The European Council conclusions of 14 April point towards the EU supplying operational support for local police forces in Kosovo as well as assuring civilian adminstration).

In general the EU faces the need now for a wide spectrum of operational capacities in the security domain in the case of South-East Europe, ranging from “soft” cooperation through to “hard” military intervention. Such operations will warrant development of different models of “security agreements” between the EU and countries and territories of the region.

2.7 European Area of Military Security

The conflict of Kosovo becomes a defining event. The present NATO action relies upon the unique US military capabilities, especially its unmanned delivery systems. But at the same time the US is extremely reluctant to get engaged with ground troops. Opinion polls show EU citizens more prepared to commit ground forces, for understandable reasons of proximity, even when the US and EU share the same political values and judgements. It is evident that the long-run solution to the Balkan conflicts will have to be through the integration of the region into civilian, civilised Europe, and that there will have to be a progressive transition from militarised to civilian order. This transition will necessarily require a dove-tailing of military, police and civilian presences in the region. The EU will have to take the lead role in assuring the coherence and adequacy of such operations. It is seems unlikely that NATO bombing operations will result in a simple, clear-cut end to the Milosevic regime, with a new peace to prevail all by itself thereafter.

The EU has of course been moving in the direction of creating its own military capabilities, including the development of doctrine and organisation within NATO for the European Security and Defence Identity. In recent months there have been important advance, beyond the hesitant and sketchy provisions of the Amsterdam Treaty. The St Malo declaration on European Defence at a UK-French Summit in December 1998 signalled a fresh willingness to advance. The conclusions of that meeting [see Schake, Bloch-Laine and Grant, 1999, for a full analysis] were taken further by the German EU Presidency in a document addressed to EU foreign ministers in March 1999. This text gives the most recent indication of the potential of the EU in the defence domain:

“The aim is to strengthen CFSP and complement it by the development of a common European policy on security and defence. This requires a capacity for action backed up by credible military capabilities and appropriate decision-making bodies. Decisions to act would be taken within the institutional framework of the European Union. The European Union Council would thus be able to take decisions on the whole range of activities in the external relations of the Union (Trade, CFSP, Defence). The Amsterdam Treaty incorporates the Petersberg tasks (“humanitarian and rescue tasks, peace-keeping tasks and tasks of combat forces in crisis management, including peace-making”) into the Treaty. The focus of our efforts therefore would be to assure that Europe possesses appropriate capabilities (including military capabilities) and structures to conduct crisis management in the scope of the Petersberg tasks. This is the area where a European capacity to act is required urgently....”

“For effective implementation of its operations, the European Union will be able to choose, according to the requirements of the case, either EU-led operations using NATO assets and capabilities, or EU-led operations without recourse to NATO assets and capabilities. ... Furthermore the EU will need a capacity for analysis of situations, sources of intelligence, and a capability for relevant strategic planning. This may require in particular: - regular meetings (or ad hoc) of the General Affairs Council, including defence ministers; - a permanent body consisting of representatives with pol/mil expertise; - an EU Military Committee consisting of military representatives; a Military Staff including the Situation Centre...”

While the above text is not a decision, it none the less gives an authoritative insight into the direction of EU thinking.

Official policy was carried a step further at the NATO Washington Summit of 23-24 April as follows:

“ we stand ready to define and adopt the necessary arrangements for ready access by the European Union to the collective assets and capabilities of the Alliance, for operations in which the Alliance is not engaged militarily as an Alliance. The Council in Permanent Session will approve these arrangements, which will respect the coherence of its commanbd structure, and should address:

• assured access to NATO planning capabilities to contribute to military planning for EU-led operations;
• the presumption of availability to the EU of pre-identified NATO capabilities and common assets for use in EU-led operations;
• identification of a range of European command options for EU-led operations, further developing the role of SACEUR in order for him to assume fully and effectively his European responsibilities;
• the further adaptation of NATO’s defence planning system to incorporate more comprehensively the availability of forces for EU-led operations.

The potential capabilities described are exactly what is appropriate for operations in South-East Europe, especially from the time that heavy bombing operations give way to peace-making and peace-keeping. Planners for the future of South-East Europe may therefore develop implementation scenarios for completely integrated EU operations in the region, bringing together the entire spectrum of military-political-justice/home affairs-economic competences.

[Premature to discuss organisation of peace-keeping at end of Kosovo conflict].

In the case of Bosnia, following the above lines of military policy and in the context of a New Associate Membership, the NATO SFOR might be trnsferred into an EU-led operation in about two years time, say 1.1.2002.

2.8 New membership categories

The EU faces a dilemma. On the one hand it understands that its unique integration process, which is built around its institutions and law, has already proved its capacity to achieve reconciliation and civilised order among countries that were formerly at war. On the other hand it senses that its present enlargement process, involving the jump from 15 to perhaps 27 Member States, presses against its maximal absorptive capacity for expansion. Yet experienced observers of the present Balkan conflicts (such as the successive High Representatives C. Bildt and C. Westendorp) express the view that the communities there will not manage to change their behavioural modes from conflict to reconciliation without the strongest incentives for insertion into the structures of modern Europe (i.e. the EU).

Could there be a way out of this dilemma? For there to be a debate on this question the nature of the limits to the EU’s expansion have to be clear. It is suggested that the limits are today essentially of three types:

1. values: the absolute priority must be not to dilute the fundamental values of the EU’s political, economic and social order;
2. powers: concern not to disturb too sharply or rapidly, and with unknown possible consequences, the balance of powers and influence between the Member States and between the institutions;
3. management: concern not to congest the legislative, decision-making and executive processes.

A way of proceeding might be to consider, while respecting these three concerns, how far the EU might maximise the participation of the non-candidate countries of South-East Europe, so as to create the greatest possible sense of “inclusion” within the EU. This concerns both the policies of the EU (as already been sketched above) and its institutions, as follows.

The established category of associate member is not adequate, since the need is for a fresh formula with greater substantive integration, carrying a real sense of immediate inclusion in the EU, not just through a vague prospect of full membership at some distant date. The need is for virtual membership (although the term is not suitable for official use), in the sense of creating a perception of “inclusion”, even if some features of institutional participation might be missing. The EU has already been accomodating some major opting-out arrangements for the non-euro and non-Schengen countries. There hardly needs to be a doctrine of absolutism for the “5”, if a pragmatic formula could be found. Both sides (the EU and the “5”) might explore the possible content of new membership categories, enabling all of the region to aspire quite soon to becoming members of the EU in a manner taking duly into account political imperatives. The status of a New Associate Member category might be as follows:

New Associate Member of the EU:

• necessary, international Statehood recognised (but should not be a micro-state)
• necessary, inclusion in the European Economic Area, Mark II
• possible, inclusion in the European Monetary Area
• necessary, Civil Security Agreement
• possible, Military Security Agreement
• extensive but incomplete representation in EU institutions (see detail below)
• expectation to become full member state, but not for many years.

A sketch of the relationships with the EU institutions might then be as follows.

Council of Ministers. Here would lie the most fundamental limit to the institutional participation of autonomous states or regions, for all the three reasons listed (values, powers, management). This limit should, however, ease over time with growing constitutional maturity of the EU itself (e.g. with the evolution of voting weights and the extent of majority voting in the Council), as well as of the political systems of the autonomous states. However when these limits are relaxed, there would effectively be room for autonomous states to become full Member States.

In the foreseeable future there could be specific joint sessions of the Council with the autonomous states and regions, but without voting rights. There would be inclusion in the so-called European Conference, which provides for the “structured dialogue” between the Council and the accession candidate countries. Useful experience in “EU culture” can be acquired through participation in various working parties and committees handling those policies in which the New Associate members might participate (as in the pre-accession programmes). Selected civil servants could be detached to the Council secretariat for temporary periods.

Commission. The number of Commissioners is already a sensitive issue awaiting solution at the next IGC, e.g. reduce the large Member States to one. The idea of introducing graduations between senior and junior Commissioners may also have potential, drawing on the example of governments which conventionally have junior ministers without seats in the cabinet or council of ministers (because otherwise there would be too many). The idea of a constituency or rotating member for autonomous states might also be explored, but this is not a straightforward proposition either for the ideology of the Commission or for the states which might be concerned. Staff members possible on detachment for 3 year periods.

European Parliament . The European Parliament could consider the proposition that New Associate Members could elect Members of the European Parliament, as long as the European Parliament was itself satisfied with the democratic credentials of the state concerned. Initially there would be non-voting status (model of Puerto Rico in the US Congress). Voting powers could be recognised later, but at this stage the number of members would have to respect Treaty limit (700).

European Court of Justice . As a start, junior professional lawyers could join the staff of the Court (temporary contracts of 3 years, some maybe to return as judges twenty to thirty years later).

European Central Bank . No board member, but observer status for fully euro-ised states. Staff members for temporary periods.

European Investment Bank . Constituency representation on board possible (as EBRD). Staff members possible.

Consultative institutions . These include the Committee of the Regions and the Economic and Social Committee. Full participation possible.

High Representative. May be designated by EU in New Associate Members or other regions, especially where security agreements are substantial.

Other institutional innovations. EU sponsorship of overlapping jurisdictions or organisations where the frontiers do not match the needs of specific cultural communities.

2.9 Financial resources and costs

EU finances . The Berlin agreement over Agenda 2000 offers some perspectives. By 2006 the annual EU budget expenditure should reach 104 billion euro, including 14 billion euro for six new member states (whose populations amount to 63 million). This total leaves a margin of about 20 billion euro unallocated, before reaching the statutory limit of 1.27% of GDP (124 billion euro). Of this 10 billion euro may reserved for the remaining accession candidates, three non-Balkan states with 11 million population (Latvia, Lithuania and Slovakia) and two Balkan states with 31 million population (Bulgaria and Romania).

The remaining “5” states have a population of 25 million (Croatia, FR Yugoslavia, FYR Macedonia, Bosnia, Albania). Similar scales of financing suggest annual expenditures of about 5 billion euro in normal circumstances, which would suffice to make a great difference to their economic prospects (this amounts to about 10% of their current GDP). A substantially greater amount risks encountering serious problems of absorptive capacity or of creating conditions of aid dependency, and should of course be avoided.

The amounts cited are thus within the margin of uncommitted resources allowed by the present 1.27% GDP ceiling. The Agenda 2000 negotiations have just been completed with considerable difficulty. However they do leave room for accommodating a new political imperative, such as a major initiative for integrating the whole of the Balkans.

An amount of 5 billion euro per year in budgetary funds would allow large scale investment and reconstruction programmes to be financed, in addition to the proposed budgetary compensation for loss of customs duties and monetary seigniorage. However such resources from the EU budget does not include investment funding from the European Investment Bank, which has very large financial capabilities. The EIB had by the end of 1998 made a total of 9 billion loans to Central and East European countries, and has opened a pre-accession lending facility for candidate countries for the years 1997-99 of 7 billion euro.

Costs of war . The above figures do not take into account exceptional post-war reconstruction costs. Estimates of war damage so far to the FR Yugoslavia begin to emerge. The EU Commission has mentioned 30 billion euro, Carl Bildt has quoted 50 billion euro and the Yugoslav authorities have quoted 100 billion euro. [Such estimates are obviously highly speculative at this stage]. For the cost of military operations on the side of NATO, the US spent $1 billion on air strikes in the first month of the conflict, and has voted an increase of $12.9 billion in budgetary appropriations for the rest of the 1999. Military analysts say that the cost of a protracted war with ground operations could mount to $30 billion, whereas the Gulf war in 1991 cost $102 billion.

Macroeconomic needs . First estimates of the macroeconomic effects of the conflict [IMF and World Bank, 1999] point to a balance of payments gap of about $1.5 billion in 1999 for Albania, Croatia, FRY Macedonia, Bulgaria and Romania. Detail of these estimates is given in Tables 6 and 7. The EU and IFIs now have considerable experience at cooperative operations, notably wherever the EU is deploying important resources. This is largely positive and should continue in South-East Europe for many years.

2.10 General aspects of EU strategy

Three strategic points need bringing together, having been dispersed through several of the above sections.

Conditionality. Opening of negotiations for New Associate Membership would be conditional on respect for the established democracy/human rights/minority rights criteria, but with two qualificatons. The depth of the culture of modern European “civil society” cannot be achieved in the Balkans for a generation, so what counts here is a judgement whether the political institutions are respecting the fundamental rules and sincerely driving in the right direction.

For accession to the zero-tariff free trade multilateral trade regime there should be no political conditionality, beyond that associated with the removal of sanctions and cessation of military conflict. This would be because of (a) the value of free trade as a key mechanism for openess, fostering sound governance, and (b) the position of Serbia in the economic geography of the whole region.

Executive capacities of the EU. These need serious strengthening, but this is surely achievable. Innovations to de-congest the Commission and Council in Brussels are suggested with:

• South-East European Agency for Reconstruction and Development (SEARD), as subsidiary of the European Investment bank,
• South-East European Foundation for Democracy (SEFDEM),
• South-East European Foundation for Education (SEFED),
• decentralised responsibility of Commission Delegations for micro projects.

Timing, enlargement and pre-accession strategies. There have to be some landmark dates, although the essence lies in a long process. 1.1.2000 should be capitalised on, to initiate new directions, with formal opening of accession negotiations for a second set of candidates, and opening of negotiations for a first set of New Associate Members. 1.1.2003 should be the target date for the first set of full Member State accessions and the entry into force of the Treaties for a first set of New Associate Members (preferably all “5”, but depending on political conditions).

 

3. Needs of South-East Europe

If the objective is the true integration of the states of South-East Europe into modern Europe, all will have to align on the common set of political norms and policies as the rest of the EU. But the transition to these common standards will follow varied paths, and in this sense call for specific agreements at least for some years.

3.1 Croatia

Croatia’s GDP per capita is at the same level as some in the first group of EU accession candidates, such as Estonia (Table 1). Moreover qualitative indicators of progress in the transition towards a normal market economy and legal system published by the EBRD, suggest that in these respects Croatia is at a standard comparable to some first group accession candidates, such as its neighbour Slovenia. (Table 2 and 3). It therefore could aspire on economic grounds to full EU membership. Croatia is moreover a country whose population size (nearly 5 million) is larger than Slovenia or any of the Baltic states.

However Croatia’s leadership has been slow to implement its commitments on improving democratisation, human rights and the return of refugees, which were laid down in the Erdut and Dayton/Paris agreements, and in Croatia’s accession to the Council of Europe. Although there has been slow and begrudging movement on some of these issues recently, the impression given by the current government is that it does not move decisively towards implementing international norms on the election law, local government, the administration of justice, the protection of minorities or the freedom of the media.

It is entirely possible that there will be a change of attitude in the very near future. If opinion polls are to be believed, the ruling HDZ is likely to lose its parliamentary majority in the elections which are due before the end of 1999. Whether the new government is an alignment of moderate HDZ elements with other moderates, or as seems more likely a completely new coalition comprising the Social Democratic Party, the Croatian Social Liberal Party, the Croatian Peasants Party and others, there could well be a new willingness to face up to the real meaning of integration into the modern European system.

The situation may be in some respect analogous to that of Slovakia a year ago, where the EU and NATO had clearly signalled that the Meciar leadership was insufficiently respectful of the accepted norms of democracy and minority rights. In this case the incentive of being reclassified from the second to first category of EU accession candidates seems to have been effective. An important point here is that the new Slovak government credibly claims to be promoting reconciliation with the country’s minority Hungarian population. Any new Croatian government will need to similarly demonstrate its commitment to reconciliation with the country’s Serbs, and not only with those who are still resident but also with those who left during the war years.

The urgent need therefore is for the EU to devise a strong and clear incentive for the normalisation of Croatian political standards: for example the opening of negotiations to become a New Associate Member State of the EU as soon as political conditions are met.

3.2 FYR Macedonia

FYR Macedonia’s GDP per capita is a category lower than Croatia, but it is none the less comparable to some second group accession candidate countries, such as Latvia and Bulgaria (Table 1). Its progress in terms of structural economic transition indicators is assessed by the EBRD to be the same overall as both Bulgaria and Romania. However its current macroeconomic performance has recently been remarkably positive, in terms of rapid growth (5 % in 1998), and low inflation and public sector deficit. In these respects FYR Macedonia is to be ranked alongside Bulgaria as most positive performers of the region, whereas Romania is performing poorly (high inflation and negative growth). Still, FYR Macedonia has a formidable agenda for economic reforms to pursue, including pushing back widespread corruption.

Contrary to the case of Croatia, FYR Macedonia deserves already to be rewarded for its remarkable political achievement in acting as a bulwark against the widening of the Bosnian and Kosovo conflicts, and in achieving reasonable standards of inter-ethnic political cooperation between its Macedonian, Albanian and Serb communities. In late 1998, for instance, the outgoing multi-ethnic coalition government was replaced by a new multi-ethnic coalition government. However the new coalition is inexperienced and remains fragile. FYR Macedonia’s political system would need and deserve external support, even without the enormous pressure now exerted on the country’s institutions by the Kosovo war, the substantial influx of refugees, and the visible protests of the Serb minority against NATO action.

The leadership of FYR Macedonia wrote to the President of the Commission in March 1999 asking for the immediate opening of negotiations for associate member status with a view to full membership. Later the same month a joint group of members of the European and FYR Macedonian parliaments supported this request. The EU reportedly reflects currently on whether to agree to open negotiations for an association agreement. The urgency of the situation warrants a change of speed and priorities. A full array of economic opportunities and aid should be opened up, comparable to the pre-accession programmes for candidate countries. Given its small population size, the EU may be hesitant about creating early expectations of full membership prospects. On the other hand there is an urgent case for offering the opening of negotiations to become a New Associate Member State already now without further preconditions.

3.3 Albania

All the state institutions are chronically weak, and in 1997 came to a state of virtual anarchy. Its leaders and elite express the desire to join civilised Europe. But there are deep internal political divisions, reflecting the legacy of the disastrous regimes of Enver Hoxha and Sali Berisha. Berisha’s party continues to boycott parliament, and there is a persistent legacy of distrust after the assassination of one of Berisha’s party colleagues and the subsequent riots last autumn. However, the gravity of the Kosovo conflict has provoked a few minor acts of reconciliation between Berisha and the current Prime Minister, Pandeli Majko, who came to power after the autumn 1998 crisis.

Criminal interests are very widespread, to the extent that smuggling, corruption, and trafficking in drugs, weapons and refugees are major economic activities.

In the economic domain the Bosnian model of a euro-based currency board, controlled by a Westerner as central bank governor, could be applied. The more radical step would be to euro-ise totally the Albanian economy as well as allow for predominant ownership of the banking system by EU banks. If euro-isation were to be undertaken cooperatively between the EU and Albania, then it would be fair for the EU to make a grant to the Albanian budget corresponding to a normal amount of seigniorage gains by a central bank running a stable currency.

If it were also agreed that Albania moved to zero-tariff free trade, it would also be fair for the EU to make a compensatory grant to Albania for the loss of customs revenues to the state budget. Given the high degree of smuggling and low performance of the Albanian economy at present, the EU could make an offer of tariff compensation that should be attractive to the Albanian state (higher than what the Albanian authorities can actually collect, but still a small amount for the EU budget).

These two actions - euro-isation and free trade - both accompanied by financial compensation to the budget - would completely transform the incentive structure, ground rules and governance of the economy, in the sense of a radical cleansing of corruption, criminality and cronyism.

The EU and its member states have already been supplying support for security services:

• the Italian led military and para-military force which in 1997 stopped the violent anarchy, and permitted restoration of more normal democratic governance;
• technical assistance support for training the police force (EU financed);
• support in staffing customs posts from the Italian and Greek customs services.

Also Greece has made a major contribution in easing social and political tensions by absorbing very large numbers (between 300 000 and 400 000) of Albanian migrants.

The support from EU Member States from security services and the military has been a limited response to needs. But the scale of outstanding problems is still enormous. Even the most transparent criminal activities have not been overcome. For example, at the Southern port of Vlore the police report that smugglers operate 180 speed boats (each worth about $100 000, and so amounting to a major investment). Recently the senior Albanian police offical in Vlore, deployed from Tirana with enhanced anti-smuggling law, impounded nine of these speed boats. However he was then confronted with 300 smugglers, who kidnapped him, until release of the boats [Financial Times, 17/18. 4. 99]. Italy has posted substantial soldiers and coastguards in Albania in order to try to limit trans-Adriatic trafficking [obtain evaluation].

Stronger intervention could be envisaged, if the Albanian authorities at a certain time wished to make a more decisive break with the status quo. Customs posts could be run, not just advised, by EU/member state services, thus to stop frontier corruption. Police and para-military forces, presumably from Italy and Greece, could control the flow of illegal migration, especially across the Adriatic, through being able to operate on the Albanian coast more effectively, rather than chase speedboats in the night across the Adriatic. The police force could be directed for a while by EU nationals, supported by para-military contingents.

The Kosovo crisis is quite directly linked to the lawlessness of the North of the country. Western support in arming and strengthening of the Kosovo Liberation Army will do nothing to alleviate the problems of organised crime in Albania.

It is of course for the Albanian government to choose its strategy. Albania requests accelerated integration with the EU. The response of the EU tends so far to emphasise the need for prior convergence on EU norms first. A more pro-active but very frank response seems worth trying in the new circumstances. The EU could test the Albanian requests, to see whether the implications for a complete change in the ground rules of society and the economy could be accepted, including implementation systems. The trade, monetary and budget compensation mechanisms have already been outlined. To this would have to be added an open examination of the scale of heavy police cooperation adequate to control the situations such as those described. If Albanian political preferences were to go less far than might be adequate actions, that would be their legimate choice, but if Albania was really willing to turn the page on the past the EU should be willing to invest in much more comprehensive actions.

3.4 Bosnia and Herzegovina

Since the Dayton agreement of 1995 Bosnia has a complex protectorate regime, keeping the peace between ethnic communities and enforcing the multi-entity map. NATO/SFOR troops stands alongside the international High Representative, who has sweeping powers under the Dayton Agreement (as extended by the Bonn meeting of the Peace Implementation Council of December 1997). The monetary regime, a DM/euro based currency board is controlled by a Western central bank governor (from New Zealand), designated by the IMF. Large-scale reconstruction aid is being supplied by the EU and World Bank. The organisation is summarised in Box 1.

Box 1: Bosnia Herzegovina: international governance since Dayton

Annex		Area of authority		International body
1.A		Military aspects		NATO (IFOR/SFOR)
1-B		Regional stabilisation		OSCE
2		Inter-entity boundaries		NATO (IFOR/SFOR)
3		Elections		OSCE
4		Constitution		High Representative
Article IV		Constitutional Court		European Court of Human Rights
Article VII		Central bank		IMF
5		Arbitration		OSCE
6 part B		Human rights ombudsman		OSCE
6 part C		Human rights chamber		Council of Europe
7		Refugees & displaced persons		European Court of Human Rights
8		National monuments		UNESCO
9		Public corporations		EBRD
10		Civilian implementation		High Representative
11		International police force		UN
Source: Chandler, 1999

 

Bosnia provides a unique experience on the practical organisation of a modern protectorate system, the lessons of which need to be drawn. It is evident that the attempt to motivate Bosnia more strongly towards progressive governance still faces a daunting uphill struggle.

Although there has been a certain recovery of economic activity from the very reduced levels of war-time, the economic performance of Bosnia remains very poor. This is in spite of massive international financial assistance (pledges of $5 billion in 1996 for four years, of which $4 billion had been committed and $2.7 billion spent by the end of 1998). While much physical infrastructure has been rebuilt, economic reform policies have been stalled by old communist mentalities, intrusive bureacracy, inter-entity frictions and endemic corruption. For example the trade regime was until very recently splintered between the three entities, with the Croatian and Serb areas continuing free trade with Croatia and Serbia, while inter-entity trade was subject to illegal taxes. The banking system is inefficient and corrupt, distorted by so-called Payments Bureaux, controlled by political parties, holding monopolistic privileges. Foreign investment is deterred.

In brief, Bosnia has so far wasted the chance to make a lasting economic recovery [IGC, 1999]. Deputy High Representative Jacques Klein remarks [Klein, 1999]: “The economy of Bosnia will never prosper without free trade and market economics throughout the region. ... The answer lies in more enlightened government, not more enlightened map making, across the region. It lies in an open, democratic, free-trading Balkans, with close links to Europe and the rest of the world.”

On the performance of the Dayton system of international governance Klein also has a message: “In Eastern Slovonia, as UN Administrator, I had control of both the civilian part of the mission and the military force.... The two sides of the mission were therefore completely integrated, .... and working in tandem. In Bosnia ... the NATO-led force operates under its own mandate, and may - or may not - assist the implementation of the civilian aspects of the agreement. Carlos Westendorp as High Representative is primus inter pares amongst a plethora of civilian implementing agencies which include the UN, UNHCR and OSCE. He has no control at all over SFOR, although we work closely alongside them. Things work out remarkably well in the circumstances, and SFOR, especially in recent months, have been immensely supportive of the civilian effort.”

“But in drawing up future mandates, there is no doubt in my mind that the chain of command is one aspect that needs careful attention, and that a single individual - be that individual military or civilian - in charge of both the civilian and military aspects would be preferable. This is regarded as heresy in some quarters. But ...”

The post-Dayton political regime in Bosnia has recently been assessed in an independent study as follows [Chandler,1999]: “Although Bosnia remains formally a sovereign state, the extension of international mandates over the state has left little space for Bosnian state institutions to make or to implement policy. The extension of the administrative powers of the High Representative, in particular, has meant that policy is made at international forums and implemented within Bosnia through a parallel system of internationally-run committees and task forces. .... This experiment in externally imposed democratisation raises questions about the relevance of sovereignty and political autonomy to the long-term success of the democratisation process, .... whether international democratisation strategy has been able to facilitate the development of Bosnian self-government or whether the level of involvement has made it more difficult for the international community to exit from Bosnia”.

There is a reply to these questions from the modern EU integration model, which contrasts with the precepts of the system of international relations to which the preceding quotations relate. The political values - of democracy, human rights and market economics - are common to both systems. But EU integration strategy has no place for “exit”. On the contrary there is progressive osmosis between democratic governance at three levels at least (EU, nation, region), to the point that political identities become blurred and overlapping. Only the EU has the potential legitimacy and resources to deliver the long-term solution through integration. It is a circumstance of history that the EU had not yet developed a full capacity ready for taking in hand the collapse of Yugoslavia. Indeed there was not beforehand a clear geo-political imperative for the EU to undertake ambitious systemic advances of this type.

With the war over Kosovo now following the Bosnian war, this imperative does however assert itself. There are implications for the Dayton regime in Bosnia as well as for Kosovo (see below). For Bosnia the international regime’s only “exit” strategy is to transform itself into EU integration strategy. In practical terms this points to a carefully phased transfer of responsibilities from the US and international organisations progressively to the EU. For example:

• the NATO IFOR would in due course become an EU led operation, continuing to use NATO assets still under existing ESDI doctrine, in say two years time;
• the High Representative, an EU national whose budget is paid 50.6% by the EU, would become the EU High Representative, whereas today he is the international High Representative;
• the European System of Central Banks would take over form the IMF the guidance of the Central Bank of Bosnia;
• the EU, under its newly developing competences for Justice and Home ministry Affairs, would take over the running of the UN international police task force;
• the EU would continue to rely on the Council of Europe (Court of Human Rights) as its partner and implicit agent in the human rights field.

Bosnian UN ambassador (former foreign minister) Mohammed Sacirbey has argued for deeper consolidation of this system into the EU. Similarly the High representative Carlos Westendorp has given evidence to the European Parliament, arguing that it is only through a vivid prospect of integration into the EU that the ethnic communities might be induced to concentrate on becoming part of modern European civilisation, rather than carry on with yesterday’s conflicts.

3.5 FR Yugoslavia.

Serbia. [The outcome to the war is so far unclear, and we abstain from making scenarios]. The only good solution to the war is one in which Serbia becomes truly democratic, converging on modern European norms. As the war continues the likelihood of escalation of the conflict only increases, be it into Albania, FYR Macedonia or Bosnia. A liberated and protected Kosovo, facing a militarily weakened but still defiant Serbia, would have poor prospects. The position of Serbia is also of great importance for the economic propects for FYR Macedonia, Romania and Bulgaria.

There has, therefore, to be a positive framework for reconciliation with Serbia, and for it to become a normal European state. Such is the deepest lesson that Western Europe has learned for itself in the last half century. The expectation has to be created that Serbia, with political renewal, will have a path ahead for full integration into the EU, no doubt also initially as a New Associate Member State, and to derive great economic and societal benefits. Post-second world war Europe saw emerge an astonishingly successful model for the reconciliation and integration of former enemies according to civilised norms. This model is all the more poignant in the present Balkan context, where pessimistic fatalism abounds, since both Western and South-Eastern Europe shared comparable horrors in the first half of the twentieth century. Serbia at the heart of the Balkans should be invited, with political renewal, to become a new spectacular recovery case.

The central place of Serbia in the region would also be reflected in many key features of a desirable post-war programme, for example measures to reverse the very serious brain-drain in recent years of the former Belgrade elite, programmes to build up new or stronger non-government organisations, and renewal of the region’s strategic transport corridors that pass through Belgrade.

Clearly, democratic renewal in Serbia would allow the FR Yugoslavia to survive and recover as a sovereign, federal state.

Montenegro. It is not for this paper to advance other ideas for the constitutional future of Monenegro, but to take note of what its democratic leadership declares. Thus M. Djukanovic, President of Montenegro [Financial Times, 22 April 1999]:

“What we have here is a permanent attempt by Milosevic to destabilise Montenegro and to overthrow the government by force. It is not realistic to expect that Mr Milosevic can succeed. At this point the very survival of the Federal Yugoslavia is being very much threatened.”

“My ambition is to preserve peace and build Montenegro into an open democratic society, economically prosperous an integrated into Europe, and to preserve its multi-ethnic character. If that could be done in the federal Yugoslavia I would fully support the federation. If Serbia had a different view of the federation, we shall have to look for another path, but this is not the moment for such crucial decisions”.

Kosovo. The draft Rambouillet Agreement leaves Kosovo as part of the FR Yugosalvia. As the war has deepened and the mass deportation of the Albanian Kosovar population forced by Serbian forces under cruel conditions, the chances have obviously greatly diminished (probably to zero) that the Rambouillet Agreement could ever be signed by both the Kosovar Albanians and the Milosevic regime.

If initially there has to be a complex international protectorate regime, there are the lessons of Bosnia to be borne in mind (see above). The EU has already declared its willingness to establish an interim administration. Responsibility for creating a suitable police force, holding elections and deploying military forces to protect the population is mentioned also, without saying who would be responsible.

As for economic prospects, Kosovo was already before the present conflict by far the poorest part of the former Yugoslavia, with GNP at a level in 1989 only one third of either Montenegro and FYR Macedonia [Table 1]. Now the economic infrastructure has been severely damaged. For what was until recently the economy of Kosovo, a detailed study is available [RIINVEST, 1998]. However, more to the point would be how to start again after the war. If there is to be anything more than a subsistence economy, there will have to be complete economic openness, preferably without any customs tariffs with any of its neighbours. Especially if initially there is a considerable “aid economy”, there should be no room opened for the kind of state corruption observed elsewhere the region. The free trade and euro-based monetary regime already described, with compensation for loss of customs revenue and seigniorage, would be a safe way to begin.

3.6 Existing accession candidates

An EU initiative such as outlined for New Associate Member States in South-East Europe immediately puts the spotlight also on the implications for the existing accession candidates.

Of states of the region or on the edge of it, Hungary and Slovenia are already deeply in the accession negotiation process. For these two countries there is a reasonably clear scenario, for example that the EU would by the end of 1999 set a date, such as 1.1.2003, as target for their accession. The hypothesis for the present paper is that such a scenario is likely, desirable and should not be affected.

For Bulgaria and Romania the scenarios are much less clear, both because the degree of preparedness of these countries according to the Copenhagen criteria remains far behind the first group of accession candidates, and because they are more sharply affected by the new situation in the region. These two countries do already suffer the immediate economic consequences of the war, and would be concerned about receiving relatively or absolutely less favourable treatment from the EU if the “5” became beneficiaries of a major new initiative.

The position of the EU towards Bulgaria and Romania might be as follows:

• there would be assurances that their own applications for full accession would not be changed because of creation of a New Associate Member State category;
• the strategy would be about raising the integration prospects of the “5”, not retarding the integration prospects of the two (a positive sum game, not a zero sum game);
• there should be extra economic assistance to the two to help them absorb the adverse economic effects on them of the war.

Pre-accession strategies continue to be enriched for all candidates for full Member State accession, and this is particularly important to reassure Bulgaria and Romania. However the candidates for New Associate Membership would also be brought into the same process, or something closely related, as regards progressive inclusion in the policies and institutions. (Reference may be made for the Poettering report of 1997 of the European Parliament as a guide to a full range of possibilites going beyond what is so far happening, the text of which is reproduced in Annex B. This report could also be used as a basis for considering how to bring together pre-accession strategies for both New Associate Members as well as the full accession candidates).

To make clear that the New Associate Member States would not be leap-frogging over the present accession candidates, the target date of 1st January 2003 could be set also for the earliest formal entry into effect of the new agreements (although negotiations could begin without delay where political conditions are met, and various operating programmes could start also earlier).

The existing accession candidates of the region would for their part be expected to support maximum extension of cooperative programmes to the whole area in their own enlightened interests, not to adopt competitive attitudes. EU budgetary provisions should also make such attitudes unfounded.

3.7 South-East Europe Conference and Stability Pact

The EU Council (foreign affairs) decided on 8 April to prepare a new Stability Pact for South-East Europe, going beyond the previous regional Stability Pact work of 1994-95. The European Council on 14 April then decided that “the European Union will convene a Conference on South-Eastern Europe to decide upon further comprehensive measures for the long-term stabilisation, security, democratisation and economic reconstruction of the entire region. In this context, the Heads of State and Government underline that all the countries in the region have the propect for an increasing rapprochement to the European Union”. There have followed British and Greek proposals exploring the same terrain, as well as contributions by individual politicians [Balladur, 1999, and Bildt, 1999]. The German Presidency has now convened the Conference to initiate a Stability Pact process on 27 May 1999.

The previous Stability Pact initiatives, now transferred to the OSCE, were essentially aimed at getting EU accession candidates to resolve in a cooperative and stable way any outstanding issues affecting their own borders, including geographic border delimitation, and the treatment of national minorities across such frontiers. This helped consolidate positive trends and reduces the risks of problems emerging in the future.

For South-East Europe it is seems to be envisaged that a new Stability Pact would have considerably wider agenda, including security, economic and civil society issues. On the other hand the intensity of the tensions and conflicts in South-East Europe are such that a loose Stability Pact device is unlikely to be a substitute for hard commitments over a basic strategy for integration of the region into the EU (e.g. as in the core proposals of this paper). The initial official working papers for the Stability Pact were manifestly preliminary, with many topics mentioned without indication of what kind of mechanisms would be involved.

The British 8-point action has the quality of seeking to order responsibilities as between EU, NATO and OSCE as the lead actors. However the EU would follow a very gradualist approach, with an upgrading of present Cooperation Agreements, which “would lead on, in time, to tailored Association Agreements, and eventually the perspective of EU membership (governed by the Copenhagen criteria)”. This evolution is so gradual, if any, in relation to existing doctrine that it would hardly register on the radar screens of the countries in question, even after the bombing has stopped.

It is also proposed (German and British papers) that the OSCE Round Table for the region should bring together the many overlapping regional cooperation initiatives: the Royaumont Process, South-East Cooperative Initiative (SECI), the Central European Initiative (CEI), Central European Free Trade Area (CEFTA), Black Sea Economic Cooperation, and the so-called “Balkan Conference” of South-East European States, not to forget the truly pan-European organisations (Council of Europe and OSCE). For an account of these activites see Busek [1999]. Their simple enumeration invites the observation that these are many well-intentioned initiatives, but that they do not add up to a decisive and synergetic impact.

The time has certainly come to sort out these initiatives and organisation in more fundamental terms. This cannot be done without, first, greater clarity of strategic intent by the EU, together with an understanding over the future role of both the US and Russia in the region.

First the EU has to decide whether it is operationally serious about integration (economic, political, institutional) of the whole of South-East Europe into the EU over a time horizon that begins immediately and goes on for ever (integration has no “exit” strategy). If the answer to this is yes, then CEFTA will be scrapped and all market, monetary and pan-European infrastructure questions will be governed mainly by the EU integration framework. In this case the concept of Balkan integration is largely subsumed in European integration.

This point has to be made, since there are advocates mainly in the US (e.g. Carnegie Commission reports, Council of Foreign Relations debates) of regional integration which would appear to be largely apart from European integration. The argument is sometimes presented as if the Balkan region should transform itself after the present conflicts as West Europe did fifty years ago with Marshall aid. Of course the experience and ideology of the Marshall Plan is solid common wisdom in both US and EU equally. But its transposition into the present Balkan context could be done in either of two ways.

One variant is to envisage that the emphasis is on Balkan regional integration. But this particular thesis is a non-starter as a strategic option, since the region is too small to prosper on its own economically, whereas politically the governments and peoples want European (EU) integration, and do not trust the prospect of regional integration amongst themselves, with good reason to say the least. There will of course remain some useful room for regional cooperative mechanisms that are based on proximity. But a consolidation and ordering together of a whole collection of regional mechnisms (as in the proposed OSCE Round Table) is no substitute for the integration with the EU as the main game. If the main game is not organised sufficiently strongly, the regional Round Table cannot succeed. These arguments are hardly disputed as a matter of principle, at least in Europe. The problem is elsewhere, namely in the inherent difficulty of organising the European integration strategy fast and strongly, which otherwise sees the EU drift into Ersatz policy of elaborate diplomatic activity with less than strategic force.

The second variant, in which Balkan integration with the EU is the main game, has exactly the same philosophy, that traces back to the Marshall Plan. But history has moved on in some respects (EU economic and political integration), although less in others (continuing US leadership of heavy military operations). This is the reason why the new Balkan order has to emerge from a joint strategy of the EU and US. EU-US cooperation is solidly founded upon virtual identity of political values. It is obvious that the unique military capacity of the US is essential today in a war situation, while equally obvious also that the EU has to become the framework for the future. Beyond defining the strategic concept, there will have to be a precise dove-tailing of these complementary roles over time, and this has to be built into the design of a strategy at an early stage.

Carl Bildt’s sketch of a Stability Pact [Bildt, 1999], has a clear form:

1. Military security: initially NATO, but gradually acquiring a European character;
2. Economic integration: free trade, then customs union, then single market within the European Economic Area, with a new Balkan Reconstruction Agency (similar to the proposal in section 2.3 above);
3. Political security and integration: structures to move the “5” into the European Union during the next decade. Reconstruction should aim at 2005, full European integration at 2010.

The OSCE has the great advantage of involving Russia, Ukraine and Turkey as well as the US. OSCE has specialised capabilities (disarmament, conflict resolution etc). It is also a forum on many subjects, and operates by consensus. However there should be no illusions that an enhanced OSCE role can be the main game. It has to be a valuable supporting player, with EU integration as the main game.

The historical connotations of Balkan Conferences are about the redrawing of the maps of state boundaries. Already the EU has signalled that this is not the sense of the Conference proposed by the European Council. The need is to bring South-East Europe to join in the way the map of modern Europe is being redrawn. This is about extending the area of jurisdiction of key rules of the modern European political and economic order (often EU rules, but also those of the Council of Europe, OSCE etc., as set out analytically elsewhere [Emerson, 1998]). These rules govern large areas, overarching national frontiers. As these jurisdictions become more important, so also the significance of national frontiers is diminished, especially as people have complete freedom of choice where to live and work. This is or course the exact and total anti-thesis of ethnic cleansing, where people are moved forcibly to make the national/ethnic frontiers even more important.

3.8 Wider European Dimensions

First on Turkey, which by virtue of its size and situation calls for special consideration. A new system for South-East Europe needs to become an opportunity for a positive recovery of EU-Turkish relations. It would be for examination, initially perhaps by a special EU-Turkish forum, how Turkey might want to position itself in relation to ideas developed in this paper, retaining the premise that the EU continues to view the Turkish accession request by the standard Copenhagen criteria.

The European Council has recently invited the EU institutions to work out several foreign policy “strategies”, in relation to Russia and Ukraine as well as South-East Europe and the Middle East. With the importance now of defining strategy in relation to the South-East Europe, it is necessary to consider two kinds of interrelation with strategies for EU realtions with Russia and Ukraine. First, and most immediately, is the question how Russia’s active diplomacy in Belgrade may contribute to resolution of the conflict. Second, at a more technical level, several of the mechanisms of policy discussed above are also highly relevant to both Russia and Ukraine, for example on economic (pan-European free trade, transport corridors) and “third pillar” policies.

However, more fundamentally, the political dynamics in the wider Europe following a major initiative along the lines described above could become deep and powerful. If the whole of the South-East Europe were to join seriously in the EU integration process, then perceptions of exclusion in the remaining parts of the wider Europe would be intensified. Moldova for its party would probably ask to be included to join the new South-East Europe as a New Associate Member.

In Russia political dynamics are now particularly fluid, given the pre-electoral atmosphere, the severity of economic problems since the financial crisis of August 1998 and the acute sensitivities aroused by the NATO bombing of Serbia. If a new initiative for South-East Europe were initially undertaken with a Serbia that was still (for the West) the rogue state, then the negative interaction with Russian political dynamics would risk being seriously aggravated [see Emerson, 1999, on the dynamics of chaos and conflict, as well as integration]. In the contrary and more positive case, Russia could be a major contributor to the processes of pan-Balkan reconciliation, helping Serbia become truly democratic. In Ukraine political dynamics are also fluid in a pre-electoral period, with renewed internal tensions over the nation’s geo-political orientation aggravated by the conflict over Kosovo. The future of EU-Ukraine relations will also warrant a fresh examination.

These implications of the Yugoslavia crisis for EU relations with each of its three big neighbours are thus also very large matters, which has to be borne in mind when the outline of the post-war Balkan order is defined, and further developed in detail thereafter.

 

4. Conclusion

The war over Kosovo has been engaged because in Europe concepts of sovereignty and political norms have changed, such that (to paraphrase the words of the OSCE “Moscow Mechanism” of 1991) the events in Kosovo are being regarded as a matter of internal European affairs. By this logic Europe must be inclusive for peace as well as war.

A change of gear in EU strategy for the region needs now to be prepared. For the current EU enlargement process, the doctrine of deep and durable prior convergence on the acquis communautaire has dominated. This may appropriate for countries with a clear national sense of purpose in joining modern Europe, but is less adequate for communities suffering chronic disorders or consumed by conflict. The “regional approach” [Commission of the EU, 1998] for the former Yugoslavia plus Albania has been a poor and distant cousin to the enlargement process, deploying only very limited incentives with its conditionality.

A new policy needs to comprise a far more powerful, pro-active, and comprehensive approach, offering a far higher and quicker “inclusion” quality than policy so far. For this reason the idea of New Associate Membership of the EU has been presented.

The EU’s natural responsibilities are further increased by the intensity of NATO’s present military engagement. This action may produce a bending or even collapse of the Milosevic regime. But looking ahead, with the EU intending to acquire growing security and military capabilities alongside its existing economic, monetary and political competences, it is incumbent upon it to take the lead in organising the post-war South-East Europe. The European Council’s decided on 14 April 1999 to convene a Conference on South-East Europe to decide upon a comprehensive approach for the rapprochement of the whole region to the European Union.

The present paper debates the possible substantive content of such a comprehensive approach. We advocate real integration of the region into modern Europe, not just rapprochement. Also a process of dialogue with the political and opinion leaders of South-East Europe must of course be initiated without delay, to test ideas and adapt them more closely to locally perceived needs. The present (unofficial and independent) paper by CEPS may at least serve as an initial basis for reactions and counter-proposals. CEPS will intensify its own work along these lines in the light of reactions, and prepare more fully articulated proposals in due course.

From discussions over earlier versions of this paper we have received much encouragement and support for our approach, but also heard three objections, which may be summarised as follows:

1. The US would not like it.
2. The EU is not up to it.
3. The region is not up to it.

On the US, we do not agree that this is a correct perception of US strategic interests. Of course the US speaks for itself, and we for our part hear the US hoping that the EU will mature into taking even more solid responsibility for the European political, economic and security order, according to our common values. We warn against a persistent tendency towards timidity in some EU quarters, which are of the same type as heard for over twenty years ago over whether the EU should aim at monetary union.

On the EU, new capacities for execution of an integrated set of policies in the region would have to be created. Today there are insufficiencies, but the EU has shown repeatedly its capacity to grow into major new tasks with quite lean administrative structures (e.g. Structural Funds, European Central Bank). South-East Europe would, to implement the present proposals require some important new investments in administrative and political control mechanisms. So be it. Political imperatives command.

On the countries of the region, who is to say that the populations would not respond to a drastic change in the ground-rules and perspectives? It is clear that massive incentives and constraints would be required to induce real change in political, economic and societal behaviours, effectively a categorical change in the course of their history. Both the double ills - of ethnic conflict and corrupt governance - have to be faced up to in the region, which is what we propose. But far from all the region is mired in both. The forces of civilisation have the remaining islands of darkness increasingly surrounded. The populations need no persuading to aspire to a normal life, even if in some cases they have been tragically misled and carried away by criminal politicians.

There can be no illusions over the magnitude of the operation for the EU, if it were to take over the main responsibility for integrating the region - even just for these 5 small countries with only 25 million population. The task will lead, inevitably, to a new context for EU relations with Russia, Ukraine and Turkey, with far-reaching implications. Whatever its resolution, the present Balkan conflict, will surely lead back to the wider agenda of unresolved issues of pan-European stability and security. The whole task is in the same category as other recent EU projects of the last decade (single market, euro, the present enlargement negotiations): i.e tasks requiring systemic change, not just policy management. Within the EU the time for this task is a fair one, with the euro now in place and the imminent renewal of the European Parliament and Commission.

 

Annex A

Participants in CEPS Brainstorming Session, Brussels, 28 April 1999, on “A System for Post-War South-East Europe”

Carl Bildt, former High Representative in Bosnia-Herzegovina Joachim Bitterlich, German Ambassador to NATO Günter Burghardt, Director General, European Commission, DG1A Costas Carras, Association for Democracy in the Balkans Poul Christofferson, Danish Ambassador to the EU Brian Crowe, Director General, Council of Ministers Secretariat Nikos Efthymiadis, Association for Democracy in the Balkans Wilfried Gruber, German Ambassador to FR Yugoslavia Ferit Hoxha, Albanian Ambassador to the EU Danuta Hübner, UN Economic Commission for Europe Mladen Ivanic, Professor of Economics, Banja Luka Richard O’Toole, ABB, Zürich Romano Prodi, President-designate of the European Commission Panagiotis Roumeliotis, Coordinator, Royaumont Process Gerhard Sabathil, European Commission, DG1A Tom Spencer M.E.P.

Peter Ludlow, Director, CEPS Michael Emerson, Senior Research Fellow, CEPS Nicholas Whyte, Research Fellow, CEPS

N.B. None of the above guests of CEPS have responsibility for ideas expressed in the present paper.

 

References

Balladur E. [1997] , “Relancer pour les Balkans le Pacte de Stabilite ”, Le Monde, 15 April.

Bildt C. [1999], “A Stability Pact for South-eastern Europe 2000/2005/2010” , speech, 28 April.

Busek E. [1999], “Oesterreich und der Balkan: Vom Umgang mit dem Pulverfass Europas”, Molden Verlag, Wien.

Chandler D. [1999], “Bosnia: Faking Democracy after Dayton”, Pluto Press, London.

Commission of the EU [1998], “Regional Approach to the countries of South-Eastern Europe: Compliance with the conditions in the Council Conclusions of 29 April 1997 ”, COM(1998)237 final.

EBRD [1998], “Transition Report, 1998 ”, London.

Efthymiadis N, C Carras, P Papassarantopoulos and R Tzelepoglou [1997], Culture and Reconciliation in Southeastern Europe”, Association for Democracy in the Balkans.

Emerson M. [1998], “Redrawing the Map of Europe”, Macmillan.

Emerson M. [1999], “Cosmos, Chaos and Backbone for a Wider European Order”, Working Document No 130, CEPS.

Gros D. [1999], “An Economic System for Post-war South-East Europe”, (preliminary draft), CEPS.

Federation of Industries of northern Greece [1998], “The disincentives that Greek companies face in their business activities in SECI countries”, Thessaloniki.

Hanke S and K. Schuler [1999] , “A Dollarization blueprint for Argentina ”, Friedberg’s Commodity and Currency Expert’ Report, February, New York.

International Crisis Group [1999], “War in the Balkans: Consequences of the Kosovo Conflict and Future Options for Kosovo and the Region”, IGC Balkans Report No 61, 19 April.

International Crisis Group [1999], “Why Will No One Invest In Bosnia and Herzegovina?”, April.

International Monetary Fund and World Bank [1999], “The Economic Consequences of the Kosovo Crisis: preliminary assessment of external financing needs and the roles of the IMF and World Bank in the international response”, working paper, April.

International Monetary Fund [1999a], “Monetary policy in Dollarised Economies”, Occasional Paper No 171.

Klein J. [1999], “Speech”, to the Royal Institute of International Affairs, London, 21 April.

Komuro N. [1997], “Pan European rules of Origin ”, Revue des Affaires Europeenes, Vol. 7.

Moreno-Villaz J. [1998], “Lessons from the Monetary Experience of Panama: a Dollar Economy with Financial Integration ”, Ministerio de Planificacion, Panama.

Poettering H-G [1997], “Plea for a ‘New Enlargement Strategy” for the European Union”, Group of the European Peoples’ Party in the European Parliament, document DV\330\330534, 2 July.

Rambouillet [1999], “Interim Agreement for Peace and Self-Government in Kosovo ”, text signed by Kosovo but not FR Yugoslavia and Serbia, and to have been witnessed by the European Union, Russia and the United States.

RIINVEST [1998], “Economic Activities and Democratic Developement in Kosova”, Pristina, (report sponsored by Open Society Institute, CIPE, RIMA, Friedrich Ebert Stiftung and British Know How Fund).

Schake K., A. Bloch-Laine and C. Grant [1999], “Building a European Defence Capability ”, Survival, I.I.S.S., Spring 1999.

 

---

Endnotes

Note 1:  Sub-title suggested by Tom Spencer M.E.P.  Back.