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European Western Balkans
Analyses

EU Growth Plan: Small funds for huge ambitions

Berlin Process summit in Tirana; Photo: European Union

In November last year, the European Commission presented the Growth Plan for the Western Balkans, an economic program aimed at reducing the socio-economic gap between EU member states and the Western Balkans, further integration countries of the region within the framework of the Common Regional Market (CRM) and preparing for the region’s inclusion in the EU single market.

For this purpose, the EU will allocate 6 billion euros, of which two billion will be in the form of grants and four of loans with favourable terms. The EU’s goal is to double Western Balkan economies over the next ten years.

Economic experts note for the European Western Balkans that the Growth plan has its benefits, but they point out that the offered funds are not sufficient to fulfill all ambitions set by the EU.

Branimir Jovanović, economic expert from The Vienna Institute for International Economic Studies (wiiw), says for EWB that the EU Growth Plan represents around 20% of the funds that countries of the region currently receives through IPA funds, which does not constitute a significant increase.

„To goals set by the EU, such as doubling the GDP in the region and similar objectives – will certainly not be achieved because the specific measures are too weak. The total size of the financial component of the Plan is 6 billion euros. The IPA funds currently in place have a total size of 30 billion euros. They have been in place for several years, and we can see that they have not yielding significant results. Why would this new instrument, which is five time smaller, be any better“, Jovanović says.

Predrag Zečević, economic analyst and owner of the BiznisCG portal from Montenegro, assess that Montenegro can be entitled with around 413 million euros from Growth Plan. He believes that these funds are significant, but not sufficient to narrow the economic gap between the countries of the region and the EU.

“Montenegro alone needs 6-8 billion euros just for building the much-needed network of highways, expressways, and complete railway reconstruction, which is literally the value of Montenegro’s annual GDP. Montenegro requires substantial funds to meet the closing benchmarks for Chapter 27 in environmental protection and significant resources for digital and green transformation”, Zečević says.

He adds that the Growth Plan is a good idea, but the EU would serve countries from the region better by enabling the use of EU structural funds.

Funds too small to force political elites to reforms

All EU institutions have insisted that countries in the region must meet a series of criteria to access funds. Among them are also reforms related to the rule of law and democracy, as well as political criteria. For Kosovo and Serbia, the condition will also be related to the progress in the normalization of relations.

Alignment with EU Foreign policy will also play an important role in the distribution of funds. According to Radio Free Europe, there is disagreement among EU institutions regarding this issue. While the European Parliament insisted that alignment with Foreign Policy, including sanctions against Russia, should be a precondition for the distribution of funds, the stance of other institutions prevailed, advocating for an expectation for countries in the region to adjust to foreign policy rather than an explicit precondition.

Branimir Jovanović underlines that these funds are too small to compel politicians in the region to implement necessary reforms.

„If we look at the details of the new instrument, only 2 billion euros are in the form of grants, over a period of 4 years. So, only 500 million euros per year for the entire region, which is about 0,3% of the region’s annual GDP. How can anyone expect such small funds, which are at the level of statistical error, to compel politicians to implement reforms that they have been unwilling to implement for years?”, Jovanović says.

Answering the question whether it is possible for some countries not to be granted funds due to a lack of reforms, Branimir Jovanović says in theory yes, but in practice some countries may receive less, some more, but none will be at zero.

What I believe will happen is that countries will maybe receive half of the available funds. Because the condition to receive the funds is the fulfillment of reform agendas, which the countries themselves will negotiate with the European Commission. So, it’s not that the EU will impose reforms on the countries, but each country will negotiate with the EU what needs to be done. And then these agendas will include reforms that are not so problematic, which the countries will fulfill, and therefore they will receive some funds”, Jovanović believed.

Stefan Ristovski, researcher at European Policy Institute (EPI) from Skopje, believes that lack of reforms could certainly result in some of the countries in the region no being able to reap the benefits from the Growth Plan.

The Growth Plan offer is conditioned on progress on domestic plan, i.e. political will and wide societal agreement for accelerated reforms, advancement in the Common Regional Market and absorption capacities of the WB countries for additional funds. Lack of reforms could certainly result in some of the countries in the region no being able to reap the benefits the Growth Plan offers. This would also depend on effective monitoring and assessment of reforms, as well as the EU’s resolute commitment to impartially applying build-in conditional mechanism”, Ristovski believes.

While the European institutions are finalising the text of decision on the Growth Plan for the Western Balkans, countries of the region are working on preparing a reform agendas, the fulfillment of which will be a condition for receiving funds.

The only country in the region that, at the time of publishing this article, has published its reform plan is Montenegro.

Predrag Zečević assess that the government document is both ambitious and good, but some aspects could have been better.

“The Montenegrin government must support the private sector (barely mentioned in the document) with at least 100-150 million euros for the development of small and medium-sized enterprises. Montenegro is the only country in the world where average salaries in the public sector (950 euros) are at least 30% higher than salaries in the private sector, which is nonsensical because the private sector is the one filling the budget and driving the economy. The public administrstion has become so overly attractive that the private sector is the one filling the budget and driving the economy”, Zečević says.

Plan does not grant full access to EU single market

The Growth Plan’s foundations rest on four pillars which countries of the region need to achieve enhanced growth rates, economic convergence with the EU, and social progress.

The first pillar supports economic integration within the region via the existing Common Regional Market (CRM), essentially aiming to develop a single market for the region inspired by the EU’s single market model. The second pillar seeks to extend this integration to the level of the European Union (EU), enhancing the region’s economic links with the EU’s single market. The third pillar is focused on providing additional financial assistance to the region to facilitate integration efforts and incentivise the necessary reforms. The fourth pillar is designed to expedite the essential reforms required for the region to meet EU standards, serving as a stick to the carrot of financial support.

Speaking about the positive aspects of the Growth Plan, Branimir Jovanović says it is good that the plan includes its open acknowledgment of the EU’s intention to open up its single market to the Western Balkans before their accession to the EU, positioning the existing initiative for a Common Regional Market within the EU accession process, and increasing the financial support that the EU provides to the region.

„However, each of these elements has its weaknesses and shortcomings, leading to an overall impression that the Plan falls short of expectations”, says Jovanović.

„Concerning the Common Regional Market of the Western Balkans, it currently does not function properly due to unresolved political issues in the region, and the Plan does not offer solutions to overcome these problems”, adds Jovanović.

Regarding access to the EU single Market, Jovanović explains that the specific measures outlined in the Plan are insufficient and focus on less critical aspects, thus not granting the Western Balkans full access to the EU market.

Stefan Ristvoski says that the “early” integration to the Single Market would not fully open EU borders, but rather offer simplify procedures and lower costs for trade should the WB countries adopt relevant EU acquis.

“The Western Balkan economies significantly lag behind EU averages, thus the increase of funding and the integration to the Single Market can decrease the gap but hardly would replicate the effects of EU membership”, concluded Ristovski. 

The European Parliament and Council of the EU have not yet managed to agree on the final text of decision. The institutions are under significant time pressure as the European Parliament dissolves in April, and the consent of this institution is necessary for the adoption the decision. If consensus is not reached next week, there is a risk that adoption of the Growth Plan for the countries in the region will be delayed until winter.

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