Published in Nacional number 738, 2010-01-04

Autor: Janusz Bugajski

Janusz Bugajski: Croatia and it`s neighbors face a risky future

Janusz Bugajski holds the Lavrentiadis Chair in South East European Studies at Washington’s Center for Strategic and International Studies

Janusz BugajskiJanusz BugajskiThe economic storm that swept through Europe during the past year has not subsided. It will have lasting repercussions for the new democracies as 2010 promises to be a year of severe challenges for political moderation and public resilience from the Baltics to the Balkans.

In the first post-transition crisis sparked by the bursting of the global financial bubble, some doomsayers predicted the demise of the liberal economic era and major reversals in democracy building. In reality, there has been no wholesale economic collapse and no systemic political failure even though several governments have been replaced.

Social unrest and political extremism has been limited, while yearnings for state control of the economy or for national protectionism remain limited. Although the region has been economically battered it has largely weathered the storm. Nonetheless, each country is bracing itself for further economic and social challenges that will continue to test the stability of their political institutions.

Several governments have fallen largely because of deteriorating economic conditions that diminished their parliamentary support and ruptured the ruling coalitions. However, there has been no domino effect and no lurch toward leftist or rightist radicalism. Discarded governments have been replaced by new center-right or center-left coalitions while electoral support for ultra-nationalists or radical populists has been limited.

Recent opinion polls indicate that a majority of citizens mistrust their political elites and much of the business class, which they believe have benefited unfairly from the economic reforms and are not suffering during the recession. However, the public simply want a competent, honest, and uncorrupted government with a viable economic program. The democratic systems themselves are not under serious threat and each country's institutions seem resilient.

EU membership remains the only viable foreign policy alternative for all the West Balkan aspirants. These economies, which initially appeared to be relatively protected because of their low level of export dependence and external borrowing, will face increasing economic problems as the recession continues to ripple across the region. Additionally, the poor business environment that typifies much of the region further handicaps all the economies. On the other hand, reigning in budget deficits will guarantee that the impact of the crisis is even more painful for the public and a slow recovery is not expected until 2011.

The results will depend on many factors that cannot be easily forecast. These include the strength of the global economic recovery particularly in Western Europe, the condition of the financial sector, the diversification of exports and investments, and the pursuit of economic development models that utilize new technologies. The prolonged post-crisis recovery is likely to result in regional diversification as competition for capital and markets increases. Foreign investors are more likely to favor countries with more stable economies, predictable governments, lower corruption levels, and a beneficial business climate.

Analysts are unable to predict when economic performance will hit rock bottom and eventually rebound. The World Bank has warned that the Balkan economies are likely to recover more slowly than other developing economies and the social and political repercussions will be felt for many years.

In the broader region, among the more resilient states such as Poland and the Czech Republic where governments have survived or new centrist coalitions have gained office, steady economic performance depends on upholding fiscal discipline and reducing budget deficits. The suffering states such as Hungary and Latvia, which have witnessed financial meltdowns, will take longer to rebound but may have already hit rock bottom and are maintaining essential anti-recession policies and benefit from long-term EU assistance. The most troubling group of states are the economically uncertain Balkan and post-Soviet countries who are not EU members and cannot depend on being rescued by the Union.

The public has displayed patience and resilience during the traumatic transition period from state socialism to liberal capitalism and during the arduous struggle for independent statehood. Radical or revisionist political forces have only limited appeal and nationalist economic prescriptions have been rejected by all governments.

Until now, the new democracies have demonstrated their adaptability and stability under enormous economic stress. Predictions about massive social unrest, political breakdown, or reformist reversals have proved to be misconceived. Nonetheless, there are too many unknown variables, including the full depth of the Europe-wide recession, to predict with any degree of certainty the social and political repercussions of continuing economic decline or indefinite stagnation.

In this unsettling environment Croatia's presidential elections are significant for the EU aspirant and its neighbors. Croatia needs a president with economic understanding and experience to help weather the oncoming wave. Under the Croatian constitution the president's role is more pronounced than in several other states where the head of state is indirectly appointed by parliament. The presidential ballot will be important not because of doubts about Croatia's democratic process. Its significance lies in the impact on Croatia's qualifications for EU entry. It will be vital for the new president to work closely with both government and parliament to make certain that Croatia meets all the conditions for Union membership over the coming two years.

Given the deep global recession, Croatia needs a president who can authoritatively address questions that matter most to the electorate, especially economic performance, unemployment, living standards, and the impact of EU accession. The head of state must also answer questions that are of key concern to international institutions, specifically on how Zagreb intends to combat pervasive organized corruption.

The EU Commission will be closely monitoring Croatia's commitment to anti-corruption campaigns and the proper management of EU funds. Lingering frustration is visible in Brussels that Bulgaria and Romania were admitted too soon into the Union without sufficiently cleaning up their houses. Indeed, an unofficial chapter has been added to the EU acquis communitaires regarding the corruption quotient and Croatia is first in line for closer examination before admittance is assured.

There is an additional negative dimension in failures to tackle organized corruption. It opens up the country to Russia's state-directed business penetration and political influence. Whereas corruption in the Balkans serves private interests, in Russia it serves state interests and is a fundamental feature of government policy conducted primarily through its energy companies such as Gazprom. Kremlin leaders aim to embroil officials in targeted countries in business arrangements that favor Russia's energy and business expansion. Non-transparent commercial transactions can in turn increase Moscow's influence over foreign policy in parts of CEE.

Countries such as Bulgaria, Romania, Croatia, and Serbia, which are suffering from ballooning state debts, budgetary shortfalls, and declining foreign investments, are being tempted to participate in Russia's energy contracts that may promise substantial profits and regular energy supplies but could in the long term promote even more extensive official corruption and dependence on Moscow. Although the Russian government does not have the resources to bail out any former satellite, it has exploited the recession to inject loans and investments with specific political conditions among neighboring post-Soviet states while seeking to undermine the diverisfication of energy supplies from the Caspian basin that could unxermkne Russia's monopoly. Zagreb must beware not to become entrapped in the Kremlin's web of energy operations that will leave it susceptible to political blackmail.

While EU accession does not fully shelter countries from economic hardship, membership ensures interdependence and shared responsibility for economic stability and is safer than being outside the Union. Clearly, the EU will not allow systemic banking failure or national defaults among any member state and works closely with international financial institutions to provide emergency assistance.

Because of deepening inter-state interdependence it is not the interest of EU members to allow any CEE economy to declare bankruptcy as their own banks and companies would also suffer and the Union as a whole would enter a period of unpredictable instability. This growing interdependence is mirrored in the political realm where the Lisbon Treaty, designed to better coordinate foreign policy making, went into effect on December 1, 2009.

A longer term danger also hangs over the western Balkans. The economic storm raging throughout Europe will probably place EU enlargement on hold and may indefinitely postpone the entry of candidates and aspirants from the Balkans after the expected accession of Croatia by 2011. Governments in Germany, France, and Holland have signaled that allowing new states into the Union could increase public opposition at a time when national defensiveness is on the rise as a consequence of the economic slowdown. Indeed, the Balkan states could be entering a vicious circle, whereby denial of EU entry combined with economic crisis may stall the necessary reform process. This will in turn retard economic growth and lessen each country's qualifications for EU accession by stimulating the negative forces that hinder accession.