Hope and strength in the Western Balkans

The findings, interpretations and conclusions are those of the authors and do not necessarily reflect the views of the European Investment Bank

You can download the essay here

CONTRADICTIONS

I couldn’t move: my eyes had got trapped in the view I had just glimpsed through an old window. It was like a Bruegel painting, looking down the hill to the surroundings of Shtupel, Kosovo. Blurry geometry outlined a couple of hills on the horizon and a few houses below covered in snow, with the wooden parts sticking out of the sheer white. The only movement was the light grey snakes of smoke between the rooftops and the sky.

“Do you understand why?” “What?”, I said to my translator, pretending I had always been there and looking down at my small cup of hot coffee to avoid the stare of Adela, a Roma woman born in Kosovo.

“Do you understand why, even though my whole family was persecuted both by the Serbs and by the Albanians as both always thought we were traitors and would collaborate with the other side, I will never move away from here?” While Nikolino, my translator, was speaking, I had to look up to Adela. She was holding firmly in her arms the last-born child of the house. Her big eyes were moving around quickly to keep check on the other kids. They were as black as the obsidian stones I had seen as a child while on holiday with my family in Salina on the Aeolian Islands in Sicily. At that point, I had to make a huge effort. Like a goalkeeper on the ground jumping back up again to catch the sudden second shot after having saved the first, I went on describing when and how, thanks to donations raised by the Italian chapter of Caritas, her roof would be rebuilt for her and her family to allow them to keep living there. To stay in that gem of paradise. Later Adela turned my coffee cup upside down for a couple of minutes. Before I left she read the grounds in the bottom of my cup and with a big smile told Nikolino that a bright future was waiting for me. I too smiled.

The second vivid memory of my first time in the Western Balkans¹ in 1999 was the cold winter with the rarefied air smelling strange. I grew up in a newly built suburb of Milan where the gas supply had already been installed, so as a kid I had never experienced the smell of winters heated with coal or diesel fuel. That day I had to go to Pristina to negotiate a sizeable purchase of wood for construction.

I left my house in Klina quite early in the morning and I remember the thermometer outside showing minus 28 degrees. In that cold, the colours of the blue sky that sunny day were in bright contrast to the blinding white of the snow over the hills. Not long after passing the Russian checkpoint, as I approached Pristina, suddenly the sky turned a lighter blue with some shades of grey emerging from not far away on my left. One of the largest lignite-fed power plants in the whole region was in full motion, and still is today with a generation capacity of over 1 300 MW. Walking through Pristina I still recall the pungent stench of this power plant when it was operating. This was my first real experience of certain contradictions in the Western Balkans.

Coal-polluted air, like in several cities in the region, versus the surrounding untouched, beautiful and wild nature. Recent plural unity versus the exacerbation of nationalism. Progress of modern architecture and cultural centres at a crossing point between Mitteleuropa and the East versus decay from unprecedented and inhumane conflicts or neglected investment. Vibrant, ambitious and optimistic entrepreneurs versus disenchanted citizens talking for hours about corruption and a tragic past over coffees and cigarettes in bars. I remember feeling weird about it, thinking of the new millennium just around the corner.

More than 20 years have gone by and the citizens of the Western Balkans have taken many steps forward to overcome the disaster left by the conflicts of the late 1990s. Citizens and institutions in the Balkans have repeatedly confirmed their ambition to become part of the European Union and have made significant efforts to turn this dream into reality. Much is still to be done, but the goal of catching up with the living standards of Milan or Lyon or Stuttgart and avoiding having to move away to seize a new professional opportunity or find a better school for the children is worth the effort.

The European Union has introduced policies to support the gradual integration of the Western Balkan countries with the Union. On 1 July 2013, Croatia became the first of the seven countries to join, and Montenegro, Serbia, the Republic of North Macedonia and Albania are official candidates. Accession negotiations and chapters have been opened with Montenegro and Serbia, and Bosnia and Herzegovina and Kosovo are potential candidate countries (as of June 2020). Source: European Parliament.

The EIB has done a lot in the Western Balkans over the last 20 years and I am proud to have contributed to this work. Since 2000, the EIB has provided around €11 billion in financing to build transport infrastructure that connects people and regions. A good example of this work is the financing supporting the pan-European corridors running through the Western Balkans: Corridor X and Corridor Vc. Corridor X, which has received €750 million for the Balkan region alone, starts in Salzburg and ends in Thessaloniki, Greece. It covers 2 300 km of roads and more than 2 500 km of railways, connecting 12 airports and four sea and river ports. Corridor Vc (European route E73, 702 km), to which €1 billion in funding has so far been committed, connects Hungary to Croatia and Bosnia and Herzegovina and includes the recently built Svilaj bridge over the Sava River, on the Bosnian-Croatian border. This type of work brings the Western Balkans even closer to Europe.

Then there is our support for foreign business, such as the €500 million package for the Fiat 500 factory in Kragujevac, Serbia. We also support local banks, helping them give loans to small companies across the region. We help redevelop urban areas, such as the project around the Lana riverfront in Tirana, which received €8 million to reorganise streets and other urban infrastructure, so rehabilitating and boosting the neighbouring districts, restoring the drainage system to enhance the quality of life and preventing flooding.

THE EIB IN THE WESTERN BALKANS

In 2018 the EIB finalised a €100 million loan to ensure the safe navigability of the Danube and Sava rivers in Serbia. This operation had significant value and helped build a strong and cohesive Europe. As the Trieste-born scholar and writer Claudio Magris wrote in his book Danube in 1986, this river is at the centre of the German, Magyar, Slavic and Jewish Mitteleuropa that together contributed to the defeat of the Third Reich. A long time after the end of the Second World War, this financed project enabled a number of wrecks of Nazi vessels sunk in 1944, when the Third Reich had started suffering the fightback of the Soviet Red Army along the Danube, to be removed. More importantly, the upgrading of fluvial infrastructure will further connect Europe with Serbia by enabling goods to be shifted by more efficient and greener inland waterway transport compared to heavy trucks on the roads. The gap, however, between the European Union and the Western Balkans is still too wide.

Average GDP per capita is frequently below one third of that in Germany. Economic studies indicate that full convergence will take at least two generations at the current rate of economic growth in both Europe and the Western Balkans region. Air pollution in cities such as Pristina in Kosovo, Skopje, Tetovo or Bitola in North Macedonia and Zenica, Tuzla or Sarajevo in Bosnia and Herzegovina is still often three times higher than in the most polluted cities in Europe. Indices of infrastructure development such as rail density, installed power generation capacity and broadband coverage are on average less than half of those of Europe. The rule of law (procurement; autonomy of public administration; independence and effectiveness of the judiciary; fighting against corruption, etc.) is ultimately still a challenge compared to European standards in terms of regulations and their application.

CLIMATE ACTION AND COVID-19

The challenge of contributing to a carbon-neutral Europe by 2050 will not be successfully addressed without coping with the urgent environmental needs in the Western Balkans. The air pollution generated by the obsolete and inefficient coal-fed power plants in the region is responsible for up to one in five premature deaths in several cities of the Western Balkans. Furthermore, air pollution knows no borders and affects neighbouring countries. Ignoring this urgency may jeopardise the efforts of several European countries struggling to reduce pollutant emissions to maintain air quality standards.

By the same token, the much needed economic growth of the region may trigger additional energy demand. It is therefore essential that the European Union and the EIB embark on additional efforts to address the climate urgency in the Western Balkans, which also requires a fair and just transition in the same way as areas of Europe are massively reliant on fossil fuels. In particular, synergies between a green and a digital agenda for the region will be key. Investments facilitating digitalisation and the more efficient use of energy will improve living standards and support economic growth that is sustainable and increasingly decoupled from the proportional rise in energy consumption. The EIB will need to support electricity generation from renewable sources, so offering a more long-term, cleaner and sustainable alternative to different patterns – like that in Bosnia and Herzegovina, where the authorities have instead decided to invest in a new 450 MW thermal power plant that will be built and financed by Chinese competitors. Looking ahead, there is hope for a brighter and greener future in the Western Balkans.

The EIB has to date extensively supported the healthcare sector in the region, with more than €400 million already committed to finance new hospitals and laboratories in Serbia and Bosnia and Herzegovina. New investments for a better healthcare system granting equal access to all are being appraised in Kosovo, Montenegro and North Macedonia. Pandemic preparedness and response capacity in the region will need to be upgraded.

The pandemic has also affected the already fragile and heavily export-oriented economy of the region. Precise estimates of the real impact on the economy in the short, medium and long term are impossible to make at this point. The most pessimistic scenarios portray a worrying economic recession in a region that was already growing too little to catch up with European macroeconomic standards within a generation. Country lockdowns and payment freezes imposed by decree to prevent the spread of COVID-19 have hit the region’s firms hard. Companies, utilities, municipalities and other entities are suffering a sudden halt in their revenue streams and as a result they sometimes don’t have enough liquidity to pay salaries and invoices, let alone taxes. A combination of relaxation of restrictive, coercive rules by the public authorities, an injection of liquidity into the economy, and sound preparation and execution of investments is essential to keep the system alive and capable of getting up and running again as soon as the freeze is over. The Bank is ready to increase its financial support, particularly for small and medium-sized enterprises (SMEs) to ensure that they can retain workers and navigate safely through such an unprecedented crisis and become more resilient and productive than before.

As stated by EIB President Werner Hoyer during the EU-Western Balkans summit in May 2020, the EIB has prepared a package worth €1.7 billion to support healthcare andSMEs. More specifically, a €500 million regional facility will target the public sector, including healthcare, civil protection and SMEs in countries where national promotional institutions are already in place. A separate €400 million regional facility will target the private sector to benefit small and medium-sized enterprises via local private financial institutions. Coupled with its response to the COVID-19 crisis, the Bank will also speed up the deployment of €800 million to support investments improving the overall socio-economic conditions in the Western Balkans.

The EIB has operated in the Western Balkans for more than 40 years and is prepared to do even more in the future to improve the lives of the citizens of Western Balkans countries and close the gap with living standards in the European Union. Let us turn this hope into a reality.

1) Bosnia and Herzegovina, Serbia, Montenegro, North Macedonia, Albania and Kosovo*. * This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.