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Editor' s noteSouth-Eastern Europe, especially the Western side, is often associated with fledgling states, impossible politics,

stalled economies, violence and corruption. Romania, Bulgaria, Albania along with the countries that emerged from

the disintegration of Yugoslavia set out to forge their futures as independent market-based democracies. Important

efforts by internal forces and by the international community have been devoted to stabilise this region. Accession to

the European Union has been an idea of right direction for the Balkan countries’ transition process. Although further

efforts of the Balkan states to fulfil the criteria and reach the required political, economic and technical standards are

necessary, however, in this specific and peculiar moment, we can notice new circumstances that might put on a test

the EU itself, too. These include the global economic and financial crisis and the challenges for the economic liberal-

ism with the possibility of coming back to the concept of protectionism.

As South-Eastern Europe is open to the challenges brought about by the global economic crisis, the countries of the

region are starting to search for new options towards renewed development policies leading to a sustainable recov-

ery process. The resumption of economic growth, the accession to the European Union as well as accelerated reforms,

modernization of infrastructures and new energy routes are critical for the region’s exit from the crisis. However, all of

them imply teamwork, coherence, planning, multilateral networking, and increased investment flows.

In an attempt to create a new locomotive for all stakeholders, the International Conference on “South-Eastern Eu-

rope: Crisis and Perspectives"w organized by the Centre for Progressive Policy Research in co-operation with the

Hellenic Center for European Studies and the Institute of International Economic Relations, under the auspices of

the Ministry of Foreign Affairs, brought together political leaders, decision makers, EU officials and business execu-

tives and provided a platform to discuss regional prospects. This special issue includes some of the most interesting

speeches delivered in this international seminar, offering to the public an updated view for the regional developments

that are in pipeline.

Dimitris Xenakis

Guest editor

for this special issue:

Dimitris Xenakis

(University of Crete,

Hellenic Centre

for European Studies)

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ISSN 1791-2237

© The bridge . All rights reserved. Neither this publication nor any part of it may be

reproduced, stored in a retrieval system, or transmitted in any form or by any means,

electronic, mechanical, photocopying, recording or otherwise, without the prior

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Where opinion is expressed it is that of the authors and does not necessarily coincide

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A quarterly review on European integrationSE Europe & the SE Mediterranean

Vladimir ChkhikvishviliCreating a common

energy point

cover story 40 - 41

cover story 12 - 15

Dimitris DroutsasWhat we do there

cover story 32 - 35

Håkan MalmqvistThe way ahead

cover story 26 - 29

Spyros KouvelisEntering the EU

www.bridge-mag.com

Daniel SpeckhardReconstructing the area

cover story 36 - 38

cover story 20 - 23

Cristian Bichi Restart the growth

to change tha balkans

Neven MimicaSteps forward into the European

Integration processes

cover story 30 - 31

cover story 16 - 18

Dr. Milan ParivodicThe European Union as a challenge

Riccardo PulitiThe impact of pipelines

cover story 44 - 45

Louka T. KatseliPriorities of Greece

cover story 48 - 49

contents

First, planning for later years means planning now, for more years.Second, planning for the fu-ture means different things to different people.Differences can be found be-tween generations, genders, low-and high-income, coun-tries and regions. Lower income employees, even within less advanced economies, have higher expec-tations for their lifestyle during retirement. The attitude towards retirement and managing assets has changed (e.g. how long do people want to work).It is obvious that these develop-ments affect the financial solutions that companies and pension funds provide to address the wide-rang-ing needs of customers worldwide.Investing in later lifeWhile mainly men in the advanced economies will be prepared, wom-en and low income households in the transitional and developing countries’ economies will find them-selves unable to financially secure themselves in old age. In between these two extremes there is a large group; those vulnerable to financial hardship in later life, unless they get prepared.All of us (government, self, em-ployer, and families) have to real-

ize the importance of having more than one source of retirement income. However, a previ-ous research showed that it was not the lack of money which people feared most during their old age, but the softer values, like the loss of status and the loss of pow-er and opportunity to contribute to societies and communities where they live. Adding to the above, what most people would like to leave as their legacy -again- is not mon-ey, but non-monetary values, such as their perspective of

life, their knowledge, and their way of offering to their communities.

Population structure in the EU25 is expected to change dramatically between now and 2050. Particular-ly, life expectancy will tend to raise the elderly population (ages 65+) by about 80% in Greece and 77% in the EU25. Moreover, the ratio of the elderly population over the working age population is projected to dou-ble in 2050 for EU25 and more than double in Greece. So we do have some good news and some bad news. On the one hand, we live longer. On the other hand, less people will finance the social system. Furthermore, the so-cial system must finance more el-derly people.If we want to establish a sustainable and fair pension system, we shouldn’t focus in only one pillar, as it is not sustainable either at the present, or at the future: Pay-as-you-Go state pensions are no longer affordable,

given the current and fu-ture demographic situation.It is urgent to transform the mono-pillar pension system into a multi-pillar one. Only then will the employees be able to receive retirement income from dif-ferent sources. We need to restruc-ture the first pillar, by transforming it into a standard basic retirement in-come provider, in order to enhance solidarity between generations and society. The second pillar (occu-pational pensions) should also be activated by improving the existing legal framework. This will provide a second source of income dur-ing retirement and make the level of retirement a matter of personal choice, which won’t based on ge-neric rules. Moreover, we have to further expand third pillar by provid-ing tax incentives to consumers and develop a level playing field.

Private companies can definitely support pension reform. Interna-

8 9

tional compa-nies bring inter-national expertise by importing ready made and tested so-lutions, in the fields of customer service, actu-ary, risk management, fund management and asset management. Increased competition contributes also to the development of the pen-sions sector in a plethora of ways; firstly, by giving custom-ers more possibilities to switch to other pension providers; secondly, by enhancing efficiency in terms of pension administration, thirdly, by bringing constant pressure to opti-mize investment returns; and finally, by bringing innovative approach to the whole industry. Last, but not least, companies employ highly skilled advisors or consultants that can provide individual advice and personal customer service.

After having developed a level play-ing field we can enjoy a number of benefits, such as a highly transpar-ent system, a consistent and long-term political support without politi-cal opportunism, a consistent legal framework which will encourage the arrangement of pension provi-sions and a wide array of invest-ment opportunities.

Nevertheless, its time for the finan-cial industry to change its mindset. Currently, advisors and financial services providers are accustomed to accumulating wealth rather than

distributing it. Under these circumstances, advice is crucial: the financial industry must understand is-sues of provid-ing income for life and offer appropriate recommen-dations. It should focus on products that facilitate careful de-cumulation of savings in retirement and emphasize on compliance, transparency, simple and straightforward information. Fi-nally, the financial industry ought to educate the consumers, so the latter will be able to make the right deci-sions for their retirement plan.Certain of the statements contained herein are statements of future ex-pectations and other forward-looking statements. These expectations are based on ING Greece management's current views and assumptions and involve known and unknown risks and uncertainties. Actual results, per-formance or events may differ mate-rially from those in such statements

due to, among other things, (i) gen-eral economic conditions, in particu-lar economic conditions in ING’s core markets, (ii) performance of financial markets, including emerging mar-kets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persis-tency levels, (vi) interest rate levels, (vii) currency exchange rates (viii) general competitive factors, (ix) changes in laws and regulations, (x) changes in the policies of governments and/or regulatory authorities. ING assumes no obligation to update any forward-looking information contained in this document.

Bram Boon CEO ING Greece

For the last two decades, South-

eastern Europe met, like other Euro-

pean regions, outstanding develop-

ments. The most significant differ-

ence between Southeast Europe and

other regions is that the collapse of

the communist regimes unleashed

uncontrollable powers that led to

well known, tragic conflicts. How-

ever, despite the typical forecast

(maybe even wish, for some people)

that the Balkans would confirm

their former characterization as the

“powder keg of Europe”, conflicts

have been confined geographically,

without managing to compromise

peace and stability in the wider area.

Southeastern Europe had

started the painful adjustment to

the new conditions,

almost immedi-

ately after the

collapse of the

communist regimes,

even before tranquility returned to the re-

gion. Every country tried to gain stability

and economic growth; even those which at

first place had focused on nationalistic pri-

orities –that were eventually proven cata-

strophic. After all, the abolition of the East-

West divisive line allowed Europe to recover

gradually its normal political and economic

unity, while its military safety was taken for

granted.

Within this framework, it is not a para-

dox that many Southeast European states

sought their accession to the Euro-atlantic

institutions as soon as possible. The time of

expression of this pursuit varies, as the con-

ditions (internal and external) were different

from one country to another.

NATO and European Union took a posi-

tive stance vis-à-vis the Balkan states’ inter-

est to join them. Concerning NATO, things

were easier. A minimum level of military

structure’s conformation to the alliance’s

criteria was enough in order for the ap-

plication to be accepted. The procedure’s

resilience was not due to the NATO

members’ need to enhance their se-

curity by accepting new countries as

allies; it was due to the perception

that the latter’s integration would

have been a prerequisite for the

consolidation of security in Eu-

rope, where the vast majority

of countries belonged in the

same group. I leave aside

the matter of protecting

the new candidates from

the ex-superpower’s

potential expansionary

aspirations, as those

concerns were

-at large- ex-

aggerated. In

all, partici-

pating in the

North Atlantic

alliance con-

tributed effec-

tively, not only to the security, but also to the

internal stability of the specific states.

The European Union also took positively

the new countries’ entrance applications. It

wasn’t particularly rigid towards fulfillment

of the accession criteria. Very few countries

from those that joined European Union in

the last years were actually fulfilling the

conditions that European Union had posed.

Comparing this with the strictness that

characterized the older candidacies, we can

realize that the most important criterion for

the new countries to enter was that of po-

litical convenience. The original aim was to

accelerate the accession process, even with

some derogation towards the economic cri-

teria. Of course, European Union was rigid

towards matters concerning the respect of

human rights and democratic freedoms:

every acceding country fulfilled totally the

Union’s demands in this sector.

However, the accession to the Euro-at-

lantic institutions alone didn’t (and couldn’t)

solve the endogenous problems that were

facing many countries. For a variety of rea-

sons, not all countries of the region man-

aged to enter. Some of them, like Croatia,

are too close to do so. For some other,

like Bosnia, accession seems to be too far

away. Unfortunate experiences concerning

certain newly admitted countries’ perfor-

mance have made Brussels more cautious.

The current economic crisis has hit all

countries. It is, however, particularly painful

for the weaker economies, consequently for

the most countries in the region. The fall of

production was too large in the Southeast

European countries. In the area, the growth

rate fell to -6.2% in 2009. Nevertheless, the

crisis duration doesn’t seem long. Recovery

is expected for the 2010. Despite the initial

projections, capital outflow was smaller

now than during past crises or here than in

other regions.

By Yannos Papantoniou

10 11

The amelioration of the international en-

vironment, particularly in the rest of Europe,

the stimulus packages that were adopted by

the governments of the area and the support

the latter were given by the international

organizations have

contributed to recov-

ery. The International

Monetary Fund and

the European Union

stood by the weak

economies of the re-

gion, while the inter-

national banks and

the countries where

their headquarters

lie were providing

them with adequate

levels of liquidity for

the normal opera-

tion of their financial

systems.

E x p e r i e n c i n g

this crisis has en-

abled us to draw

some useful con-

clusions concerning

the effectiveness

of the imple-

mented eco-

nomic policies

during the tran-

sition to market

economy proce-

dure in the last two

decades.

First of all,

positive and negative

aspects of financial

integration have come to light. Integration

fostered growth, but also drove to a credit

bulge that created destabilizing effects,

deepening the crisis, especially through ex-

orbitant borrowing in foreign currency. Con-

sequently, those risks should be addressed

by revising the regulatory framework and

hardening supervision, in order to control

more effectively the credit expansion and

narrow borrowing in foreign currency.

It is becoming more evident that what

is needed is not a smaller government with

constant privatization and deregulation, but

a more effective government and better in-

stitutions. Investor climate is largely affected

by administration operation. Bureaucracy,

ineffectiveness and corruption are the main

impediments against undertaking healthy

business initiatives. The bigger failures to-

wards transition can be spotted in the qual-

ity of institutions and business practices.

Along with the improvement of the

regulatory framework about the financial

systems’ operation and the establishment

of stronger domestic capital markets, it is

crucial to rationalize and modernize the in-

stitutions. This includes the updating of the

education system and investment on hu-

man capital which -in the era of knowledge

economy- contributes decisively to growth.

If these reforms are com-

bined with convergence macroeconomic

policies and the continuation of support by

the international organizations, they will

secure the preconditions for the dynamic

recovery of the Balkan states and their full

integration to the European institutions.

Towards this goal will help the fact the

region is evolving into an intercontinen-

tal energy transit. Most of the existing or

planned oil and gas pipelines between Eu-

rope and Asia pass through the area. This

development, apart from strengthening

regional economies, also upgrades the geo-

political role of the area and attracts interna-

tional investment funds.

Moreover, the resolution of pending po-

litical issues is a necessary precondition for

the integration to Euro-atlantic institutions. I

do not want to be thorough, but I would like

to remind -as an example- the Bosnia-Her-

zegovina case. It has been led to the current

situation, in order to escape from a really

bloody civil war. This development, how-

ever, doesn’t facilitate Bosnia’s transition

from an international protectorate regime to

a status of an equal partner that will be able

to join international organizations.

Bilateral problems of political nature

that still exist among countries encumber

the process of integration to international

institutions. It would be an exaggeration

if we demanded from NATO or the EU to

handle situations that could destabilize their

cohesion.

This conference is not going to give

solutions to every problem that we have to

face. It does create, nevertheless, a frame-

work for seeking effective approaches and

strengthening international

cooperation in a key geopo-

litical area. The magnitude

of the economic and social

problems and the devel-

opments that are set into motion

for the near future don’t let any space for

complacency and entrenchment into barren

positions and policies of the past. The coop-

eration of all actors that can offer creatively

to the efforts undertaken is needed, in or-

der to secure stability and development in

Southeastern Europe.

Yannos Papantoniou is the President of the

Centre for Progressive Policy Research

(KEPP), Former Minister of Economy & Fi-

nance and of National Defense of the Hel-

lenic Republic

cover story

Greece is once again taking a leading role

in the Balkans. We are sending messages to

the countries of the region to the effect that

they can once again count on Greek support

with a vision of European integration.

The incorporation of the countries of

Southeast Europe into Euro-Atlantic institu-

tions is a strategic choice for us; for Greece.

After a series of conflicts and crises,

the countries of Southeast Europe are now

closer to achieving social and political stabil-

ity and economic development.

Throughout the region, democratic gov-

ernments are now in power. The carrying

out of peaceful and fair elections – in which

the members of minorities participate freely

– is in large part considered a given.

Two countries in the region, Bulgaria

and Romania, are already members of the

European Union, while all the countries in

the Western Balkans have established sig-

nificant institutional links with the European

Union, whether as candidate countries or

potential candidates for accession.

Regional cooperation has undergone,

I would say, a qualitative upgrading, with

the establishment in 2008 of the Secre-

tariat of the Regional Cooperation Council

in Sarajevo, which coordinates cooperation

programmes amongst Balkan states in the

most important sectors of state activity,

including economy, infrastructure, energy,

security and human resources.

However, despite the noteworthy prog-

ress that has been achieved, we have even

more important work ahead of us; work that

will enable us to capitalize to the greatest

extent possible on what has been achieved

so far.

The rate of reform – we must be frank

– is not always, and in all cases, satisfactory,

in spite of the positive steps that have been

taken in the fight against corruption, orga-

nized crime, illegal migration, inadequate

infrastructure and the grey economy. New

efforts are required to fully eradicate these

phenomena and their repercussions for the

societies of the region.

Finally, there are a number of unresolved

political issues and differences between the

countries of the region.

The international economic crisis and its

impact on the countries of the region are,

according to forecasts, probably going to be

deeper and of longer duration than initially

expected.

This renders more imperative the need

for a coordinated effort amongst the coun-

tries of the region, as well as cooperation

with European agencies and international

financing mechanisms, so that the crisis can

be dealt with. So that the economic devel-

opment work can be completed, along with

the consolidation of the rule of law and the

creation of effective institutions that can be

trusted by all of the citizens of the countries

of the region.

In light of the developments in South-

east Europe, the basic priorities of the Greek

presence are, first, the creation of a climate

of political stability, the strengthening of

good neighbourly relations and closer coop-

By Dimitris Droutsas

12 13

eration with the countries of the region on

both a bilateral and a regional level.

Our second priority is the economic and

social development of the Balkan countries.

Third, the promotion of the European per-

spective of the whole region.

Allow me, ladies and gentlemen, to

underscore the contribution of Greece and

Greek investments to the economic growth

of the region; the efforts to create a single

economic space in Southeast Europe, as well

as the initiatives we have undertaken in the

energy sector, with the aim of creating a

larger and more competitive market.

The Hellenic Plan for the Reconstruc-

tion of the Balkans, HiPERB, is an effort on

the part of Greece to incorporate isolated

and fragmentary development assistance

initiatives into a single plan, promoting a

comprehensive development policy aimed

at the political, economic and social stability

of Southeast Europe.

Through this Plan, actions are being

carried out for the construction of ma-

jor infrastructure projects, as well as for

strengthening private initiative in Albania,

Bosnia-Herzegovina, Bulgaria, Montenegro,

the Former Yugoslav Republic of Macedonia,

Romania and Serbia.

These actions and projects contribute

significantly to – among other things –

the modernization of infrastructure, the

promotion of productive investments, the

strengthening of the social state and the

redressing of social inequalities.

The total sum that is to be disbursed

for the purposes of the Plan by 2011 comes

to €550 million, while total commitments

to date have surpassed 50% of the total

budget.

At the same time, the dynamic pres-

ence of Greek enterprises has made a sig-

nificant contribution to the stability of our

neighbouring countries for some years now.

Enterprises that at the outset undertook

considerable business risks, extending their

activities to our neighbouring countries,

while at the same time opening the way for

cooperation between our countries.

Today, Greek investments in the coun-

tries of Southeast Europe come to over $20

billion, and over 3,500 Greek enterprises are

active in the region, having created some

200,000 jobs.

Greece is the top foreign investor in

Albania, the Former Yugoslav Republic of

Macedonia and Serbia, and is second among

foreign investors in Romania and Bulgaria.

In the financial sector alone, there are

some 2,000 branches of Greek banks in

Southeast Europe. I believe that our dynamic

economic presence in the region makes us a

real motor force for development and prog-

ress on the course to Europe.

The need to strengthen the European

perspective of the Western Balkans is a

longstanding Greek position, clear from the

most recent Greek EU Presidency, in 2003.

With the now famous Thessaloniki

Agenda for Southeast Europe, we elaborated

at that time a solid institutional framework

through which the Balkan countries as a

whole – as well as each of these countries

individually – might move towards the or-

gans of the European Union. And we worked

hard for the accession preparations and har-

monization of all the Balkan countries with

the European Criteria.

The first result of this policy is – I think

– that four Balkan countries are today al-

ready members of NATO, and two are in

NATO’s partnership for peace programme,

cover story

two Balkan countries have been EU member

states since 2007, with active Greek support,

I dare say. Two states are candidates for ac-

cession to the European Union, while all of

the countries of the Western Balkans have

signed Stability and Association Agreements

with the European Union.

At the same time, the gradual liberaliza-

tion of the visa regime for all of the citizens

of the countries of the region has been de-

cided upon, based on targeted obligations

for reforms that will lead to their harmoni-

zation with European standards.

In view of the institutional develop-

ments in the European Union, we believe

that new momentum is needed for Euro-

pean integration and deepening. It is our

impression – we see it every day – that the

momentum we created in 2003 for the Eu-

ropean accession courses of the countries of

our region has died down.

For this reason, Greece has already un-

dertaken a new initiative that will give new

momentum to the Union’s enlargement in

Southeast Europe, and this initiative requires

the close cooperation of all the countries of

the region. We propose the drawing up of a

new roadmap for the European integration

of the Western Balkans, with a target date

of 2014, which we hope will give new mo-

mentum to the European Union itself, par-

ticularly in light of the enlargement fatigue

being voiced by certain partners.

I want to stress that this proposal, the

date of 2014, is a clearly political target date.

It is a political proposal and has symbolic

content: It is 100 years after the outbreak of

World War I, and in simple historical terms

one might say that the problems and differ-

ences that we still see today in our region

have their roots in 1914.

And we say this: The European Union –

and I think we all agree on this – is the most

successful peace project Europe has ever

known. So we think the European Union

needs to undertake its responsibilities in the

Balkans, to contribute actively to peace and

stability in our region as well: The Balkans,

an integral part of Europe.

Allow me to add that even the current

situation we see in Kosovo could – I believe

– have been avoided if the European Union

had undertaken the role is should have in the

Balkans in a timely manner and with resolve.

This is our vision for the region. This

is Greece’s vision for the region, and I will

have the pleasure and the opportunity in

the coming days to pass on this message

from Greece regarding our region during a

brief tour I will carry out of all the Balkan

countries.

On this course, ladies and gentlemen, all

of the countries must, of course, prepare ef-

fectively to meet the necessary prerequisites

for adoption of the European acquis, respect

for international law and, of course, good

neighbourly relations.

I would like to stress at this point that for

us, for Greece, prior resolution of the name

issue is a clear prerequisite for FYROM’s

opening accession negotiations with the

European Union.

And I make it clear once again, from

this platform, that the opening of accession

negotiations is the exclusive responsibility of

EU member states, and thus Greece as well.

Greece’s position – our position on the

name issue – our national red line, as we

call it, is clear and well known to everyone: a

14 15

name with a geographical qualifier for use in

relation to everyone, in all instances – erga

omnes.

Equally clear and well known is our de-

sire, within the framework of our national

position, to contribute constructively to the

finding of a solution. Greece is participating

with proven dedication in the negotiation

process within the framework of the UN,

with the aim of finding a mutually accept-

able solution.

We go to the negotiating table with an

open mind, as I have repeatedly stressed.

And we proved this with the recent initiative

on the part of the Prime Minister himself to

hold a brief introductory meeting with his

counterpart, Mr. Gruevski. We also briefed

UN Secretary General Ban Ki-moon during

his recent visit to Athens, as well as his per-

sonal envoy.

And I want to underscore that Greece is

driven by a genuine desire for a solution, but

there should be no misunderstandings or

surprises. We – Greece – are making things

very clear.

Unfortunately – and I have to say this –

the other side persists, even in recent state-

ments, in a sterile nationalistic intransigence

and continues to trade on Greek history and

culture.

We, as Greece, are extending a hand of

friendship to our neighbouring people, and it

is up to our neighbours’ leadership to choose

between the inflexibility and nationalistic

rhetoric that is blocking the country’s Euro-

pean course, and the constructive dialogue

that will free up its European future – which

we genuinely hope for.

Our vision, ladies and gentlemen – the

vision of any Greek – cannot be a foreign

policy that stops at batting away problems.

We will work for a foreign policy that is dy-

namic and multifaceted. A foreign policy of

initiatives. Our guide is the creation of con-

ditions that will contribute to peace and co-

operation, as well as the protection of Greek

interests and Greek sovereign rights.

It is our goal and vision for Greece to

return to the front line, to strengthen the

country’s position, showing it once again to

be an active and trusted power prepared to

pursue its interests.

We are picking up the thread of a foreign

policy that addresses all major international

developments, effectively defending na-

tional rights, giving a voice and negotiating

power to Greece.

Today, Greece is being called upon to

find its identity again – its role – and for us

this course is clear: Greece makes gains as

a country of values, a country that defends

the principles, international law and human

rights through which we too reinforce our

integrity and security.

We want Greece to play a leading role

again, as a force for security, stability and

development; as a guarantor of respect for

international law, human rights and univer-

sal values.

We want Greece to play the leading

role in its immediate neighbourhood – the

Balkans – and we want the countries of the

Balkans to move ahead with a clear Euro-

pean perspective and future, with Greece as

a strong ally and steadfast friend.

Dimitris Droutsas is the Alternate Minister

of Foreign Affairs of the Hellenic Republic

cover story

The world economic crisis did not leave a

major impact on Serbia because it was not

involved into the international economic

arena as much as other international busi-

ness and other more developed countries. In

some cases though, the luck of liquidity has

led companies to fail, resulting in unemploy-

ment. That is not a disaster. Perhaps more

dangerous are the structural problems of the

Serbian economy, because those problems

cannot be resolved after the revolution of

5th October, 2000.

The crisis is just a very low tempera-

ture comparing to the structural problems

of the Serbian economy. In order to solve

these problems we have also to solve certain

political issues, without which, Serbia can-

not improve its economy to the level of its

true potential. The most important politi-

cal issues which the governments and the

Parliament of Serbia are dealing with can

be summarized in four: we are late in Eu-

ropean Union accession, while Bulgaria and

Romania are part of it; NATO remains a very

open and debatable issue in Serbia; Kosovo

remains an open wound regarding the issue

of recognition; and finally, Hague is unfortu-

nately still not a closed book for Serbia. We

need to find quickly the appropriate solu-

tions on those four issues.

Recently, a political event took place for

the Serbian position in the world and that

was the visit of US Vice President Biden. It

was the first visit we had since 1976 actually.

This visit has marked a new US position to-

wards Serbia, and somewhat has the impact

of unlocking Serbian international relations.

Since then only Holland is blocking Ser-

bia’s application of the stabilization

and association programme, keeping Serbia

on the margins of the European Union inte-

gration. But now Holland is under pressure

from US to change this. It seems a matter of

weeks for this to happen.

However, it really seems strange that the

European Union is not, itself, using the privi-

lege to de-block the application, because,

such a development is in favor of Europe, as

Serbia has already benefited from the trade

arrangements with the European Union.

Serbia has the right to follow the applica-

tion for the candidate status to

the European Union,

s o m e -

By Dr. Milan Parivodic

16 17

thing that could happen very soon, even

next month.

The recent arrangement between Ser-

bia and the International Monetary Fund

is very important, in order to balance the

losses in revenues in the first half of 2009.

This is a 3 years arrangement with about 3

billion euros in support of financial stability,

in addition to the European Union’s loans for

stabilizing the budget. Hence, in the second

half of the year, the revenues have been

significantly improved, certainly more than

what we expected for this soon.

The Serbian foreign

policy is multiple

in the

sense that the government and the Presi-

dent define foreign policy. For both of them

the European Union is an essential strategic

target. Serbia also sees naturally the US,

Russia and China, as strategic help-

ers. This multiple policy

of course in-

cludes Greece

as literally best friend.

But this multiple policy came as

a consequence of the weaknesses we felt,

particularly, during the first Bush govern-

ment, when he made a clear unipolar policy

and we felt unsupported. I remember him

being very disappointed about Serbia with

the support we got in 2002-2003, when the

financial system was really stretched after

the devastation of Milosevic regime

and so forth.

The results

of the

Serbi-

an government

in the last period are very

good. Most important is that the

European Commission has finally decided

to remove traveling restrictions to Serbians.

It started from the symbolic Saint Nicholas,

that the Serbians would be able, finally, to

freely travel the world. This is a very impor-

tant success.

cover story

What are the challenges for the Serbian

economy? Unfortunately there are numer-

ous challenges. First is our competitive-

ness. The competitiveness of our economy

is weak, and the reasons for that lie in the

weak industrial base devastated in the ‘90s

and not enough developed in beginning of

the 21st century.

At the moment the crisis impact is re-

ally on the companies, resulting in weak

Serbian exports. The consequence of that

is an international trade imbalance, in the

sense that we export about 15% of what we

import, nearly 55%. This year imports dra-

matically decreased a bit more than exports.

Therefore foreign investment into Serbia is

essential.

What should be changed and what are

the proper actions that could unblock and

significantly improve the situation in Serbia?

Firstly, a combined election system: a

combination between proportional and a

majority system would improve the quality

of politicians and strengthen the Parliament.

Another problem detected

is that the Demo-

cratic Party,

which is really the leading force towards

European Union, does not have a true part-

ner on the right side. This remains a big

challenge.

We very much support the initiative for

2014 of the Hellenic Republic, although it is

a very complicated issue in Serbia, as the

majority is against NATO. So, some kind of

arrangement with NATO has to be invented.

Something similar to what Tito did in 1995,

by a treaty which actually gave us privileged

relations with NATO, but not all of it.

Formally our policy is neutrality and that

is something clearly blocking. A clear vision

for Serbia is needed. The political parties are

not willing to define their vision of Serbia

because this strengthens their freedom on

policies they would like to choose. And they

are opportunists by nature. Unfortunately I

don’t see really a challenging vision in that

respect. I don’t see elections on the horizon,

but political stability and a few potentials to

boost investment in Serbia.

Dr. Milan Parivodic is former Minister of

International Economic Relations & Finance

of the Republic of Serbia

18 19

I will focus on how and to what extent the

global economic and financial crisis spilled

over to Romania and what were the policy

responses to these developments. I will also

make some remarks on the outlook for the

Romanian economy and on challenges in

the future period.

Starting position

During the early stages of the current

global financial crisis, the Romanian econ-

omy performed well. However, with the

deepening of the crisis in the fall of 2008,

the collapse in global trade and the increase

in risk aversion on the international financial

markets, a period of five years of sustained

economic growth in Romania came to an

abrupt halt. Notwithstanding the robust

growth of 7.1 percent registered in 2008

as a whole, the economic activity declined

sharply in the last quarter of the year (-2.75

percent, quarter-on-quarter) and has fallen

even further in the first quarter of the current

year (-4.6 percent, quarter-on-quarter). The

strong economic growth over the last few

years, which was fuelled by large foreign di-

rect investments and capital inflows, as well

as by a domestic credit boom, has been ac-

companied by widening external imbalanc-

es. At the end of 2008, the current account

deficit reached 12.3 percent of GDP. Loose

fiscal and income policies also contributed to

the increase in the vulnerability of Romanian

economy to adverse developments, with the

government deficit rising from 1.1 percent of

GDP in 2004 to 5.4 percent of GDP in 2008.

The relatively strong reliance of domestic

banks on external funds and a high share

of foreign currency loans in the loan stock

added to the vulnerabilities of the country.

Economic reform program

In response to the perceived vulnerabili-

ties and deteriorating prospects, the gov-

ernment and the National Bank of Romania

have developed a comprehensive economic

policy program comprising measures to

address the external and fiscal imbalances

and strengthen the financial sector. Its im-

mediate objective was to facilitate an or-

derly adjustment of the external deficit, thus

easing excessive pressures on the exchange

rate which could otherwise cause severe

balance-sheet effects on the corporate and

household sectors, resulting in a sharper

downturn and tensions in the banking sec-

tor. Specific program objectives aim at: (1)

reducing the fiscal balance to bring the defi-

cit below 3 percent of GDP by 2011; (2) main-

taining adequate capitalization of banks and

liquidity in domestic financial markets; (3)

bringing inflation within the target range of

the central bank by end-2009 and maintain

it there; (4) securing adequate external fi-

nancing and improve confidence.

In support of this program, a joint finan-

cial assistance of up to EUR 20 billion was

provided to Romania by the EU, the IMF, the

World Bank and the EBRD.

Banking sector measures

The Romanian banking system proved

to be resilient during the crisis thanks to

the absence of toxic assets, strong balance

sheets in the financial sector and strict su-

pervision by the central bank. It has so far

weathered relatively well the shock gener-

ated by deeper than anticipated contraction

in the economic activity. Although the non-

performing loans (measured as the ratio of

overdue and doubtful loans to total loans, at

net value) have increased from 0.24 percent

in September 2008 to 1.23 percent in Sep-

tember 2009, the profitability of the bank-

ing system remains in positive territory. As

of end-September 2009, the average capital

adequacy ratio was 13.7 percent, up 0.57

percentage points since March 2009, and all

the banks recorded solvency ratios above 10

By Cristian Bichi

20 21

percent. On the same date, the liquidity in-

dicator was 1.63, a level which is well above

the prudential requirement of 1.

In the second half of last year and during

the current year, the Romanian authorities

took several actions aiming at enhancing

the stability of the domestic banking system

and underpinning public confidence. These

actions included measures to ensure that the

banking system will remain well-capitalized

and sufficiently liquid, steps to strengthen

the crisis management framework and im-

provements in the deposit guarantee legal

and operational framework.

A key measure undertaken by the Roma-

nian authorities was the preventive increase

in own funds and solvency of fundamentally

sound credit institutions operating in Roma-

nia in order to allow them to withstand the

negative effects of the financial crisis. This

capitalization program was also seen as a

tool to strengthen the possibilities of these

institutions to finance the real economy.

Under the program, the National Bank

of Romania has used stress testing tech-

niques to assess the vulnerability of the

capital positions of 29 banks, Romanian le-

gal persons. The stress tests were conducted

in March-April 2009, in accordance with a

methodology agreed with IMF. Based on

the stress tests results, additional capital

requirements were identified for a number

of banks (subsidiaries of EU credit institu-

tions and domestically- owned banks)

in order to maintain at least a 10 percent

capital adequacy ratio in the period Sep-

tember 2009 - May 2011. These banks were

asked to ensure the required capitalization

by-end September 2009 and end-March

2010. Under the so-called “Vienna Initia-

tive”, the parent banks of the largest nine

foreign banks incorporated in Romania, met

in March, May, and August 2009, on which

occasions they committed to maintaining

their existing overall exposure to the country

and to increasing capital of their subsidiar-

ies as needed. The continuing involvement

of these foreign banks (from Austria, Greece,

France and Italy), representing more than

70% of the domestic banking sector assets,

is crucial for the successful implementation

of the macroeconomic reform program of

Romania.

In the area of liquidity, the National Bank

of Romania has required banks to put in

place alternative financing agreements and/

or to diversify their financial resources.

Other measures taken by the Romanian

authorities concern the protection of bank

deposits. In October 2008, in order to under-

pin public confidence in the banking sector,

the Romanian government has increased

the deposit guarantee ceiling for natural

persons to the lei equivalent of EUR 50,000

(previously the lei equivalent of EUR 20,000

per account holder and per bank). Further

amendments to the existing legal frame-

work regarding the bank deposit guarantee

scheme were introduced in June 2009, by

government ordinance. The new legal provi-

sions ensure the full transposition in the na-

tional law of the recent EU requirements in

the field of deposit protection, providing for

increasing the coverage level for small and

medium size enterprises to EUR 50,000 (in

lei equivalent) and reducing the payout de-

lay to a maximum of 20 days. The ordinance

also introduces a new mechanism of declar-

ing deposits unavailability by the central

bank and improves the financing regime of

the bank guarantee scheme providing for a

state loan, in extraordinary situations, when

the resources of the scheme are insufficient.

In the area of crisis management, the

NBR has introduced measures aiming at

enhancing its enforcement powers. Under

Government Emergency Ordinance No.

25/2009, amending the existing banking

law, the NBR was granted the powers to

request capital increases and restrict divi-

dend distributions for credit institutions in

distress. New amendments to the banking

cover story

law and the special bank insolvency law

are planned in the near future, with the

objective to allow the Romanian authori-

ties to take timely and effective measures

to restore the viability of a troubled credit

institution. The amendments will offer, inter

alia, more powers to the administrators of

banks placed under the special administra-

tion regime.

Monetary policy measures

The conduct of monetary policy dur-

ing the current financial crisis has been

characterized by a prudent management of

interbank market liquidity, combined with

successive reductions of interest rates and

minimum reserve ratios. The downward

trend of the monetary policy rate has been

consolidated during 2009, its level being

gradually decreased to 8 percent. The mini-

mum reserve ratio (MRR) for FX-denomi-

nated liabilities with a maturity lower than

two years was reduced down to 30 percent

in two stages with equal magnitude of 5

percent, following the MRR reduction to 0

percent for FX-denominated liabilities with

a maturity longer than two years in May of

the current year. At the same time, the MRR

for local currency liabilities with maturities

lower than two years has been decreased

in two stages from 20 to 15 percent, while

the maturity of the main monetary policy

instrument (auction-based repo operations)

was increased up to one month. Through

these measures – adopted in the context

of persisting low volatility of the exchange

rate of the domestic currency and ongoing

economic contraction – the NBR aimed

at calibrating the broad money conditions

with a view to consolidating the inflation

rate convergence towards its medium-term

targets and to securing the necessary condi-

tions for the sustainable revitalization of the

lending process.

Fiscal policy measures

The economic program of the Roma-

nian authorities includes also a strong fiscal

policy package aimed at achieving a neces-

sary short-term fiscal adjustment and intro-

ducing reform measures to make public fi-

nances more sustainable on the longer term.

The government deficit target for 2009,

initially established at 4.6 percent of GDP,

was revised in August 2009 to 7.3 percent

of GDP to take into account the larger-than-

expected economic contraction. Achieving

this objective will still require further signifi-

cant adjustment efforts, including measures

to reduce the wage bill and implementing

the announced spending cuts in good and

services. For the next year, the Romanian

authorities are committed to taking further

measures to bring the deficit to 5.9 percent

of GDP.

Crucial for the success of the fiscal strat-

egy are reform measures in the following

areas: (1) restructuring of the public sector

to reduce the budgetary staff together with

a unified wage law to produce a less costly

pay scale for public sector employees; (2)

pension legislation reform; (3) implementa-

tion of a Fiscal Responsibility Law; (4) public

enterprises reform; (5) restructuring of the

financial relations with the local govern-

ments; (6) improvements in tax administra-

tion; and (7) streamlined social assistance

programs. In early November 2009, two

important laws concerning the fiscal re-

form package were promulgated. The first

one, the unified wage law, would allow

the public sector wage bill to be reduced to

about 7 percent of GDP by 2015. The second

provides for the restructuring of numerous

state agencies in the government sector by

22 23

either abolishing or incorporating them into

relevant ministries. The fiscal responsibility

law and the pension reform law, (agreed as

structural benchmarks under the IMF as-

sistance program, by 30 November 2009,

respectively 31 December 2009) are still to

be approved by Parliament.

Romania’s macroeconomic outlook is

improving, but there are still policy chal-

lenges facing the country.

The economy is likely to register a GDP

contraction of -7.5 to -8 percent in 2009, and

a slow recovery of 0.5 to 1 percent is expect-

ed next year. The external imbalances have

also undergone significant adjustments.

Through the first nine months of this year,

the current account deficit stood at EUR 3.3

billion, reflecting a sharp fall by 74.6 percent

compared with the same period of 2008.

This current account deficit was covered by

foreign direct investments inflows in a pro-

portion of 106.4 percent. The significant nar-

rowing of the current account has eased the

concerns about the financing requirements

and the vulnerability of the country to capital

outflows. It also contributed to the easing of

pressures on the exchange rate and inflation.

The CPI inflation rate is projected to be 4.5

percent for end-2009, within the variation

band of the central bank under the inflation

targeting regime. In 2010, the inflation rate

is forecasted to fall below the central target

of 3.5 percent to as low as 2.6 percent. Cur-

rently, the key challenge that Romania needs

to address is the successful implementation

of its program of fiscal consolidation and of

institutional reforms in the public sector. The

political turmoil in recent weeks, preceding

the presidential elections scheduled for 22

November 2009, with a run-off on 6 De-

cember 2009, led to an interim government.

Currently, this government cannot legally

submit a 2010 budget to Parliament. It also

cannot undertake strong commitments on

the rebalancing measures envisaged under

the revised pension reform legislation in

order to bring the 2010 deficit down to the

fiscal target (5.9 percent of GDP) established

in the economic program under the multi-

lateral financial support package provided

by the European Commission, the IMF and

the World Bank.

Under the circumstances mentioned

above, despite good overall performance

under the economic program, the IMF and

the European Commission decided, in early

November 2009, to delay the next install-

ments of the multilateral financial support

package until a new government takes

office.

Evidence suggests that there is a broad

political consensus on the fiscal target for

2010, although differences of views remain

on how to achieve this target. I am confident

that the future government, to be nomi-

nated after the presidential elections, will

show a strong commitment for reforms.

This will allow for a rapid completion of the

program review and a smooth disbursement

of delayed financing. At the same time, the

macroeconomic policy mix will benefit from

a more efficient coordination.

Cristian Bichi is Head of Section for the Fi-

nancial Crisis Management Unit in the Na-

tional Bank of Romania

cover story

The enlargement of the European Union

has always been an important, independent

chapter of European integration and not

simply a corollary of the Community’s suc-

cess or of the notion of the Single Market.

European integration was aimed from the

outset at Europe’s peaceful reunification.

The European Community is not and should

not be the exclusive club of the six found-

ing members. In fact, the accession of new

member states has been a crucial issue that

has concerned the European Union repeat-

edly during its major development phases.

So the enlargement is one of the most

effective tools at the disposal of the Euro-

pean Union for the consolidation of peace,

stability and prosperity in Europe. But this

truth stands perhaps even more for the

region of Southeast Europe. The European

Union has repeatedly confirmed, even at

the highest level, the European perspective

of the countries of the Western Balkans. This

region cannot and should not be absent

from a united Europe.

On this course of the Balkans towards

the EU, a useful precedent has been set by

the accession of other countries from the

region, and particularly the recent entry of

Bulgaria and Romania.

Greece, as an old member state, realises

and recognises this. With the accession

of Bulgaria and Romania to the European

Union, on 1 January 2007, the fifth wave

of enlargement in the Union's history was

completed. This wave symbolised the reuni-

fication of a continent that had been divided

for decades. In fact, it is important that this

was the first time since Greece’s accession

to the then EEC, in 1981, that other Balkan

countries became members of the Union.

Bulgaria’s and Romania’s course towards

the EU certainly went through different

phases. Their accession crowned a process

that had started in the early 1990s, with the

signing by Bulgaria in 1993, and Romania in

1995, of the Association Agreements with

the European Communities. Following the

decision of the European Council of Helsinki

in 1999 to accept an enlarged group of 12

candidate countries, the negotiations with

Bulgaria and Romania started in 2000. But

a year later, the two Balkan countries were

separated from the group of 12, because of

deficiencies identified in the adoption and

implementation of the community acquis,

chiefly in the fields of Justice and Home

Affairs.

The European Council of Thessaloniki in

2003, held under the Greek EU Presidency,

was a milestone not only for the countries

of the Western Balkans, but also for Bulgaria

and Romania, as it confirmed that these two

countries were “part of the same inclusive…

enlargement process”, and that the target

date for their accession was 2007. Finally,

following intensive efforts and an accelera-

tion of the reform process, the above target

was achieved and the two countries became

the 26th and 27th EU member states.

By Spyros Kouvelis

26 27

The notable difference with regard to

the accession of other Central European

countries is that in the case of Bulgaria and

Romania, the difficulties that lingered until

the last moment in a series of fields, and

particularly in the field of Justice and Home

Affairs, resulted in the accession of the two

countries with the concurrent implemen-

tation of accompanying measures recom-

mended by the European Commission and

approved by the Council, which combined

the provision of assistance with the threat of

sanctions. It should be noted that the reform

of the justice system and the fight against

corruption and organised crime are still ar-

eas of major European interest also in the

case of the Western Balkans.

What are the political conclusions to be

drawn from the accession of Bulgaria and

Romania to the EU? Certainly, their entry,

the outcome of constant efforts, is a turn-

ing point, firstly for themselves, on their

course towards a better future. Secondly, it

is a turning point for the future of the entire

region of Southeast Europe, as it gave new

momentum to regional cooperation on the

basis of respect for European principles and

values. For the EU itself, its enlargement to

the Balkans offers several important oppor-

tunities for a more active role in the region.

With regard to Greece, it has been offering

new prospects for bilateral cooperation with

our two neighbours and partners.

Allow me to set out the following in

more detail:

The accession of Bulgaria and Roma-

nia to the European Union is first of all the

achievement of their peoples. It came as the

reward for the necessary efforts and sacri-

fices that spanned many years, to the ben-

efit of the countries themselves of course,

in order for them to be in a position to take

up their full obligations as participants in

the common European endeavour. The full

implementation of European criteria and

prerequisites is at the heart of this endeav-

our. As full members of the European Union,

Bulgaria and Romania now have the ability

to make their own contribution to this joint

effort and thus enrich the Union’s cultural

diversity.

Furthermore, for the first time since

Greece’s accession in 1981, two more Balkan

countries became members of the European

Union, which was an event of major sym-

bolic significance. Their accession has been

a positive development for the stability and

prosperity of the entire Balkan peninsula,

whilst showing the way to the European

perspective’s of the region’s other countries.

Moreover, it was confirmed that this path

towards accession is traversed through per-

sistence, will for progress, the fulfillment of

all the criteria and prerequisites, intensive

work, and of course the power of coopera-

tion and the promotion of good neighbourly

relations.

Bulgaria and Romania’s EU accession

has also given a new momentum to the

Union’s interest in Southeast Europe and, in

fact, during a period of enlargement fatigue.

Furthermore, their accession translates into

the expansion of the Union's presence in the

Black Sea region – a development of strate-

gic importance.

Finally, the EU enlargement to the Bal-

kan countries was very important for our

country as well. For more than two decades,

cover story

Greece was a “European island” at the corner

of the Balkan peninsula, geographically cut

off from the rest of Europe. With the acces-

sion of Bulgaria and Romania, Greece is now

geographically connected with the rest of

Europe. But it is of the utmost importance

mainly because it furthers the Greek strate-

gic goal of turning the Balkan peninsula into

a truly European neighbourhood of peace

and cooperation. The region’s European

integration translates into the creation of a

zone of security and stability around Greece;

a stable framework of relations and un-

derstanding with our neighbours, and also

broadened cooperation abilities aimed at

development. For this reason, Greece be-

came – and has been acknowledged as – a

firm and active supporter of Bulgaria's and

Romania's efforts.

The indisputable fact is that since 2007,

the conditions have been created for sub-

stantial strengthening of regional coop-

eration and, most of all, bolstering solidarity

between the Balkan EU member states on

the basis of respect for European principles

and values. The potential and opportunities

for bilateral cooperation between Greece

and its two neighbours and partners have

now been multiplied. With the launching

of the trilateral cooperation, we also inten-

sify the coordination of our actions within

community bodies, as three equal Euro-

pean partners. Also, Romania, Bulgaria and

Greece jointly reinforce the region’s voice

within the EU.

Here, I would like to point out that be-

yond the significant funds allocated to these

countries by the European Union through

its financing programmes, Greece has also

supported Bulgaria and Romania through

HiPERB. HIPERB is an ambitious plan, initially

of five-year duration (2001—2006), subse-

quently extended for a second five-year pe-

riod (2007-2011), with a view to implement-

ing the comprehensive policy for the region

of the Balkans. This policy’s objectives are

the modernization of infrastructure, the pro-

motion of productive investments, support

for democratic institutions and the rule of

law, the strengthening of the welfare state,

and the mitigation of social inequalities.

HIPERB's budget, worth a total of more

than €500 million, finances projects, ac-

tions, studies, and activities in other Balkan

countries (Albania, Bosnia-Herzegovina,

Montenegro, FYROM) but also in Kosovo. Its

aim is to encourage the Western Balkans on

their European course and, at the same, to

consolidate political, economic, and social

stability across the entire region of South-

east Europe.

Our country does not see the next

enlargement wave as just another step

forward. We see it as an historic wager,

because it essentially concerns our neigh-

bourhood. Thus, we have every reason to be

active in this process and become the motor

force behind our region’s course towards Eu-

ropean integration. Greece, as a country that

has benefited from enlargement, knows

that the next enlargement fatigue should

not affect the European perspective of the

Western Balkans.

28 29

Greece’s gains from its accession into

the European Union have been manifold: It

consolidated and deepened its democratic

institutions, it secured funds and founda-

tions for its economic development and

has succeeded in participating on an equal

footing in an economic and political world

power, also having a say in the decisions the

EU makes. Today, most Greeks recognize

that the European Union is a foundation on

which security, economic prosperity and

progress are built. It can and should become

the foundation for our broader region.

Furthermore, given that our country is

taking a leading role in guiding the Western

Balkans on their accession course, a new

framework of regional cooperation could

be created with an emphasis on green de-

velopment, environmental protection, en-

ergy security through the use of renewable

and alternative sources of energy. This new

policy of sustainable economic development

that the EU has been trying to implement

can be promoted across the broader Balkan

region, which is the most appropriate from

a geopolitical point of view. Greece can and

must promote this policy and play a leading

role in achieving stable and sustainable de-

velopment for the region.

Our country has been a pioneer of the

European course of all the countries of the

Balkans. Under the Greek EU Presidency in

2003, the well-known Thessaloniki Agenda

was adopted and has now become the offi-

cial springboard and compass for our West-

ern Balkan neighbours’ European course

thus far. And today, following an admittedly

difficult period of reflection for the European

Union, it is now high time to give new mo-

mentum to this perspective. This is the aim

of the initiative announced recently by the

Prime Minister in Istanbul concerning a new

road map for the intensification of the Euro-

pean course of the region’s countries.

This initiatives, by setting 2014 as a tar-

get date for the accession of all the countries

of the Western Balkans to the EU, is not just

strongly symbolic. It is also based on a spe-

cific and tangible logic: To encourage the

countries of the Western Balkans to move

ahead with more determination with the

necessary reforms and the resolution of their

pending issues, and to given new incentives

to the peoples and governments of the re-

gion’s countries in order for them to fulfill

their common European vision.

Spyros Kouvelis is the Deputy Minister of

Foreign Affairs of the Hellenic Republic

cover story

Croatia is a candidate country for the

European Union membership and our ac-

cession negotiations are getting well un-

derway. Once we managed to agree how to

proceed with a solution to the border issue

with Slovenia, we are now in a position to

conclude the technical part of our accession

negotiations, somewhere by mid of the next

year, and then to go into ratification process,

which might bring Croatia to full European

Union membership by the very beginning of

2012.

This is good news for Croatia, because it

is a clear recognition of all successful reforms

we have done, and that those reforms, actu-

ally, irreversibly brought us to the European

values.

But this is good news for European

Union as well, because it is a clear proof

that after the indecisive and vague common

foreign and security policy at the beginning

of the crisis and war in former Yugoslavia,

today it has definitely designed an efficient

policy for the southeastern Europe that

could stabilize the region and could gener-

ate new candidates and new members of

the European Union from that region.

It is also good news for other western

Balkan countries as Croatia becomes a kind

of motivation - a model which proves that

implementing very demanding and hash

European Union reforms is a rewarding

process.

After 20 years of the Fall of the Berlin

Wall, the European Union was granted a

political promise and commitment towards

countries that were on the wrong side of

the Wall. Nobody could deny that almost all

countries of southeastern Europe were on

the wrong side of the Berlin Wall.

So, 20 years ago the point of departure

for the central, eastern and southeastern

European countries was the same or very

similar. But where is the region of the south-

eastern Europe today? It is clearly ranking

far behind central and eastern Europe. This

is a potentially dangerous situation for the

region. But this is also potentially dangerous

for the stability and security of the Europe as

a whole. And this is a burden for the ambi-

tious European Union to be one of the few

key players on the global world scene.

What went wrong with the region?

Definitely there are at least three reasons

or three causes of this situation. First there

were conflicts in the last decade of the 20th

century, in the southeastern Europe. Then a

fade of very modest national economic and

other reforms were pursued. There was also

a lack of truly modern and democratic lead-

ership in the 1990s. Actually, a kind of na-

tionalistic instinct prevailed on democratic

values and democratic principles in those

newly established countries.

On the other part of the problem we

have to admit also that an inadequate and

late response of the international commu-

nity to the conflicts and wars in the region,

also contributed to that unfortunate situa-

tion in the region. In short, one could argue

that there was a lack of will and capacity

internally but also a lack of incentive and a

push externally for the Europeanization of

the Balkans.

European Union so far often acted in a

way “we shall be waiting until the region

and the countries of the region make a

move, first move shall be done regionally

and then we shall another move to support

their European road”. But this could not be

a productive policy. European and regional

efforts must go in parallel.

In spite of all of these, during the term of

the next European Commission, until 2014,

all countries in the region would make a

step or two forward into the European in-

tegration processes. Croatia shall be a new

European Union member most probably by

2012. FYROM would start accession nego-

tiations. The joining Turkey in advance stage

of negotiations. Albania, Montenegro and

Serbia would become candidate countries,

and Bosnia-Herzegovina and maybe Kosovo

would also apply for membership in that

period.

In the European Union there is still a very

complex and inter–related mixture of finan-

cial crisis, economic crisis and recession. This

is a new element adding in all the problems

that European Union so far has shown. The

institutional setup of the European Union is

still underway, while the enlargement pro-

cess has created bigger differences among

the member countries. These elements of-

ten seem to somehow straight away from

each other until Lisbon. Actually all those

negative elements finally match together in

By Neven Mimica

30 31

Lisbon, where a new institutional treaty was

accepted.

European policy towards the region

could be successful when only if it is con-

sistent, coherent, and credible. Consistence

means keeping the same requirements for

all that are of course changing in the region,

but also changing in the European Union

member states. So the requirements should

be the same Copenhagen criteria. Coherence

means to ask for the same commitments

that are exercised by the very new member

states, and credibility means to keep the

enlargement and membership perspec-

tive high on the European agenda without

doubts about the European prospects of the

western Balkan countries.

We have to show that we are able to

forge a political consensus on accession

to the European Union among all politi-

cal stakeholders in the countries. We must

also be ready to show the capacity to attract

foreign and direct investments even in the

time of crisis. This would be our entry card,

for the European Union. Hence there are still

some instabilities growing in the new ar-

rangements for Kosovo’s independence and

Serbia.

The first lesson we have learnt in the

process of accession to the European Union

is more important than the very accession.

During that process everything has been

reformed and transformed in the country:

state of democracy, political values, econ-

omy, legislation, society, institutions. And

people’s mind has also changed, which is

the most difficult reform for sure.

Second lesson we have learnt is about

communicating to the people. This process

must not remain just in the political elite.

The latter must always turn their eyes be-

hind their shoulders in order to see that

somebody follows on the road to Europe. So,

communication of Europe must not be one

way street, but must be a true dialogue be-

tween the public and all those participating

in the reform process.

The third lesson is about the importance

of regional cooperation. We have learned,

maybe in the hard way, from the very be-

ginning, but now we are definitely sure that

without stable European neighbourhood,

Croatia could not be a European country.

Concluding, our region needs more

Europe. We need the European Union to be

present in the region. This is the last instable

part of Europe and without enlargement to

the region there can be no sustainable sta-

bility and security for the Europe as a whole.

Regardless of the problems of the present

concerns on the borders of enlargement, the

end result of Croatia’s accession is already

known. South-eastern Europe shall be a

part of the European Union, because Europe

is unimaginable without the Balkans, as it is

south-eastern Europe without Europe.

As the Lisbon Treaty is now ratified,

there are no longer obstacles to the con-

tinuation of the enlargement policies. This

should also be a signal to lift all existing

political and mental reservations within the

European Union and therefore, a renewed

consensus on enlargement is necessary.

For a renewed commitment of the Euro-

pean Union in the region, we need to work

together on a new approach. We need actu-

ally a “new Thessaloniki”. That is something

that the Presidency of the European Union

and the new President of the European

Council should really think off, to have a

renewed commitment, very clear commit-

ment on the perspective of the southeaster

countries on their European future.

Croatia has proven that enlargement

continues to work even under much stricter

criteria. We are ready to share our experienc-

es to help our neighbours in their integration

efforts, and we are ready, even before the

membership, to advocate the region into

European Union and visa-versa.

Today we can see the same commit-

ment by high Greek diplomatic officials, who

actually described the same vision Greece

wants to advocate in the region and the Eu-

ropean Union. Hopefully very soon, Croatia

from the northern part of the Balkans and

Greece from the southern part of the Bal-

kans could join efforts and work together to

the benefit of all Balkan countries for their

European future.

Neven Mimica is Deputy Speaker of the

Croatian Parliament and Chairman of the

European Integration Committee, former

Minister for European Integration & former

Deputy Minister of Economy of the Republic

of Croatia

cover story

While it is still early to assess the out-

come of the on-going enlargement during

the Swedish Presidency, I’ll try to summarize

the achievements so far and give an outlook

that links the future of enlargement policy

with the broader institutional changes,

mainly due to the Lisbon Treaty.

The overriding priorities of the Swedish

Presidency have to do with the global eco-

nomic situation, employment and climate.

We also want to enhance the EU’s role as

a global actor. Enlargement is another top

priority. And of course, discussions about the

new Treaty have taken another prominent

position up till now.

The Lisbon Treaty replaces the rotating

Presidency in the area of external relations

with a High Representative for Foreign and

Security Policy. This person will chair the

Foreign Affairs Council and also head the

new European External Action Service. We

all hope that this will bring a new momen-

tum to the EU’s external dimension and its

role as a global actor.

We should not expect miracles from

the New Treaty, as the history of the EU is

one of evolution rather than revolution. Still,

this will be an exciting period as the new

institutional structure hopefully will trans-

late into more clarity, coherence and clout

in the EU’s external policy. We cannot pre-

dict the results of this transformation today

as all mayor transformations take time but

I am optimistic that the EU will emerge as

a stronger global player a year or two from

now.

The Treaty will now enter into force and

the new Commission and top positions have

to be filled quickly so that policy discussions

can take centre stage again. An extra, infor-

mal European Council is planned for the 19

November in Brussels, with the aim of sort-

ing this out.

The history of EU and its enlargement

tells us that membership is a strong guaran-

tor of lasting peace, reforms and social and

economic progress. This outcome from en-

largement policy is even more important in

the Western Balkans than it was at the pre-

vious accession with the EU-12. The bench-

marks and conditions to be met to move to-

wards accession are a crucial there to avoid

that internal or bilateral conflicts resurface.

Croatia is the most recent example of

swift developments and changes, achieved

just a bit more than one decade after Civil

War. The agreement between Croatia and

Slovenia, just concluded in Stockholm on 4

November, shows that the incentive of EU

membership is still powerful enough for

countries to try to overcome difficult bilat-

eral issues. This is an important trend that

hopefully can show the way forward for

other countries.

The attraction of enlargement continues

to transcend all political and geographical

divides of Europe and could not be better il-

lustrated than by the fact that both Turkey

and Iceland at different ends of Europe are

striving for EU membership.

The Western Balkan countries are on the

same journey. It has turned out to be a rocky

one for some of them. However, I have no

doubt that all Balkan countries will become

members once they fully overcome the ten-

dency to make policy along ethnic lines and

show the political will to further integration,

regional cooperation, good neighbourly

relations and respect for minorities. These

conditions together with rule of law will

be their admission tickets to the European

Union, joining a group of countries with

common values and standards.

For the EU, this will not only complete

the reunification of the continent 20 years

after the fall of the Iron curtain. It is a matter

By Håkan Malmqvist

32 33

of enlightened self-interest and of enhanc-

ing our own economic growth, security and

freedom.

And it creates opportunities to broaden

the common EU approach in crucial areas

such as energy security, migration and in-

frastructure such as the Trans-European

networks.

We are quiet content with the achieve-

ments of the past few months. The number

of countries that has now formally requested

membership has doubled from three to six

within the last 12 months. The member-

ship negotiations for Croatia have been un-

blocked and there are ongoing preparations

for an “avis” on the applications of Montene-

gro and Iceland. We hope to add Albania to

this group very soon.

The Commission’s progress report pack-

age has been generally positive and demon-

strate that enlargement is a positive force for

reforms in Turkey and the Western Balkans.

Before the end of the year, we aim to decide

on granting visa liberalization to the FYROM,

Serbia and Montenegro.

Our efforts to speed up Bosnia-Her-

zegovina’s pace on its European track have

been difficult but we hope that they have

pointed to the way forward for the country,

in the light of the PIC on 18 November. The

study presented for Kosovo should be the

beginning of new avenues for cooperation.

Hopefully we will make further steps for-

ward in the enlargement field ahead of the

European Council of the Swedish Presidency

in December.

I hope the Swedish Presidency has dem-

onstrated to the skeptics that enlargement

policy is still moving forward. This is not to

say that we do not face significant obstacles

in this area. Progress is uneven among the

countries, where some are moving forward

and others are standing still or even risk fall-

ing behind, for different reasons.

The most critical challenge remaining

is the failure in some countries to carry out

the reforms required to meet the Copenha-

gen criteria. Such reforms require two basic

ingredients: political will and hard work to

adopt and implement the necessary laws,

building of institutions and making them

work effectively. The EU can help with the

latter by giving advice and assistance but

political will cannot be substituted – it is

fully in the hands of national politicians and

authorities.

Let us take a closer look at where we

stand with each of the countries that aspire

to EU membership, from the perspective of

the Presidency and after having received

the Commission’s progress reports. And I

include Iceland, though its not by any mea-

sures a South-East European country, but to

give you the full picture:

Croatia

Croatia has traveled very far on its road

to membership of the EU and kept up a high

pace of reform. We welcome the agreement

with Slovenia, which allowed negotiations

to continue. Croatia is approaching the fin-

ishing line even though substantial work still

remains in some areas such as the justice

system, improved cooperation with the ICTY

and the transformation of the agricultural

support system.

It is up to Croatia to do what is required

and demonstrate concrete results in these

areas in order to enter the EU as the next

Member State. The start of discussions on a

financial package and the drafting group for

the Accession Treaty indicate that the con-

clusion of the negotiations are approaching.

If Croatia delivers, the EU Member States are

ready to propose the opening of the remain-

ing chapters and next year could see nego-

tiations coming to a conclusion.

Turkey

We welcome the fact that Turkey con-

tinues to maintain EU integration as its top

priority and that it now has a new national

programme for the adoption of the acquis.

Accession negotiations continue to move

forward. More positive steps have been

taken to strengthen the justice system and

related institutions.

cover story

Other reform proposals need to lead to

concrete results. A real national consensus

on the remaining large scale reforms re-

quired is now needed, to increase the speed

of membership preparations.

Democracy, rule of law, respect for hu-

man rights, including minorities, freedom of

expression and media, as well as women’s

rights, need to be strengthened in a way

that leads to irreversible results. Turkey has

become a more active player in the region

and the normalization of relations with Ar-

menia is most welcome.

Still, we need to see movements also in

other areas. Turkey must fulfill the obliga-

tions of the Ankara Protocol and normalize

relations with the Republic of Cyprus.

Former Yugoslav Republic of

Macedonia

The EU is encouraged by this year’s

presidential and local elections which, ac-

cording to observers, met most international

standards. We are hopeful that negotiations

on the name issue with Greece can soon

enter into a decisive and constructive phase,

characterized by mutual confidence. Given

the positive assessment that the country re-

ceived in the progress report, we hope that

membership negotiations can be opened

very soon.

Montenegro

Montenegro’s EU perspective has been

embedded in a series of formal agreements

including the comprehensive SAA, which is

expected to enter into force soon. Key issues

such as the capacity and further indepen-

dence of the judiciary need to be tackled de-

cisively in order for the reform momentum

to continue. After a decision by the Council,

an avis report is prepared by the Commis-

sion, with Montenegro working hard right

now on answering the questionnaire. The

avis, which is expected for next year, will

form the basis for deciding whether Mon-

tenegro can formally become a candidate

country for EU membership.

Albania

Albania has been gradually moving to-

wards European integration, a process that

has accelerated in recent years. A Stabiliza-

tion and Association Agreement entered

into force last April. We hope that the Com-

mission can very soon be tasked with pre-

paring an “avis” for Albania. To reach its goal

of EU membership, Albania must rapidly es-

tablish a constructive dialogue between its

main political parties so that together they

can support the national project of European

integration, not least to create a fully sat-

isfactory judiciary system and root out the

high level of corruption.

Serbia

The progress report points out that

there is a stable, pro-EU government in

place in Belgrade, aiming at bringing Serbia

closer to the EU. In our view Serbia shows a

new maturity and commitment in terms of

fulfilling the obligations of EU accession. Co-

operation with the ICTY is improving – the

latest update from Mr. Brammertz will likely

reflect this - and the capacity of the public

administration is good.

The Presidency’s ambition is to reach

agreement among Member States on a

decision on the Commission’s proposal to al-

low the IA to enter into force and to start the

ratification process of the SAA. We would

then also be ready to receive Serbia’s appli-

cation for membership.

Bosnia-Herzegovina

The Progress report showed overall sat-

isfactory implementation of the IA. At the

same time, progress has been very limited

with respect to other EU-reform areas in-

cluding the European Partnership and the

SAA. Due to internal political division and

obstruction in key reform commitments the

political situation in B-H remains of serious

concern to the EU, since key reforms have

come to a halt.

Real progress towards membership is

not credible as long as the OHR is present in

the country. In order to break the deadlock

on political dialogue and obtain the neces-

sary agreement on such issues as the condi-

tions for the closure of the OHR, the Swedish

Presidency and US partners has held talks

with local political leaders at Camp Butmir.

It is now entirely in the hands of the local

leadership to move their countries out of

deadlock and avoid falling behind the rest

of the region in the EU-integration process.

34 35

Kosovo

We find it encouraging that the EU re-

mains committed to its long term engage-

ment in the developments of Kosovo. The

fact that the EU is divided about the status of

Kosovo does not prevent a fully committed

approach as regards Kosovo’s political and

socio-economic development – in line with

the European perspective of the region. It is

clearly in the interest of the EU that Kosovo

develops in accordance with the rest of the

region. In addition to the progress report,

the Commission presented a communica-

tion examining means to further Kosovo’s

political and socio-economic development.

This communication provides a frame-

work for concrete measures to be taken by

Kosovo in order to move forward on its EU

integration.

Iceland

Following a year of historic political

and economical challenges, Iceland applied

for membership in July 2009. Considering

that Iceland has a strong democratic tradi-

tion and has already adopted large parts of

the Community acquis as a member of the

EEA and Schengen cooperation, we expect

that Iceland could soon become a candidate

country and open membership negotiations

in due course.

There is however, no fast track for Ice-

land’s accession process, but it should move

with the speed that is appropriate and fair

given its preparations for membership.

Lastly, a few words on the importance

of functional regional cooperation in the

Western Balkans. This cannot be overesti-

mated, both for the region’s development

and its EU integration. Continued EU-sup-

port in this field is necessary. It is also crucial

to strengthen the strategy and impact of the

Regional Cooperation Council as a comple-

mentary instrument to the Stabilization and

Association Process, and to outline a clearer

and more operational mandate from the

South-East European Cooperation Process

(SEECP) and other stakeholders.

The recent review of the work of the RCC

demonstrates that much needs to be done

to increase the effectiveness of this body so

that it can become the driving force for re-

gional integration which it aims to be.

To look more into some of these ques-

tions, together with the Regional Coopera-

tion Council, the Swedish Presidency and the

Commission are organizing a conference in

Brussels on 9 December called “The Western

Balkans: Overcoming the economic crisis -

from regional cooperation to EU member-

ship”. It will focus more on the economic

and financial situation in the Western Bal-

kans with particular emphasis on the con-

sequences of the economic crisis, analyzing

the current situation and identifying ways

forward, for example through improved re-

gional cooperation.

You can see that at the end of the year,

we will look back and say that this has been

a busy Presidency for us, but also hopefully

a successful one where Sweden has tried to

make its contribution to keep enlargement

policy on the right track.

Håkan Malmqvist is the Ambassador of

Sweden to the Hellenic Republic

cover story

I will focus on the U.S. Administration’s

priorities for the region – and particularly

the Western Balkans – and how we are

working in partnership with our European

friends to get where we need to go.

Let me start, by sharing with you one

concrete symbol of the partnership and

shared vision between our countries. I am

speaking of our energy cooperation in the

Balkans. Greece’s and the United States’

development agencies have partnered to-

gether to help create an environment to

support private investment, improved ener-

gy security, and increased economic growth

in Southeast Europe. I am proud of this co-

operation, particularly since both President

Obama and PM Papandreou have made

climate change and greening the economy a

priority. We hope to continue to build on this

collaboration as we work toward our shared

objectives of supporting stability, prosperity

and full integration into the Euro-Atlantic

community for the entire region.

For the United States – and many other

countries represented here today – the Bal-

kans are an area of symbolic and strategic

importance, and. in the last century a battle-

ground. While enormous progress has been

made, the Western Balkans remains one of

the last regions in Europe where there is po-

tential for people to turn to violence to solve

their differences. Bringing Balkan countries

onto the mainstream Euro-Atlantic path is

probably the single most important tool for

ensuring peace and stability in this region.

And the economic benefits of this path –

with the growth of investment, trade and

employment – will reinforce the sustain-

ability of peace in the region.

The Obama Administration places great

importance on completing the task of sup-

porting a fully integrated Balkan region into

the Euro-Atlantic community. Despite the

challenges from the global economic slow-

down, we can see that the region is moving

forward. All of the countries have undergone

dramatic political, economic and social tran-

sitions. All of the countries in the region have

become valuable partners of the United

States and Europe including contributing or

planning to contribute, to international se-

curity operations. And, all of the countries in

the region are committed to, and have taken

steps toward, eventual membership in the

European Union.

The United States shares the goals of the

European Union and Greece. We are work-

ing to create the preconditions for sustained

stability – functioning democratic processes

and institutions, respect for the rule of law

and human rights, regional cooperation, and

economic development. In concert with our

European partners, we are intensifying our

engagement with the region’s leaders and

pressing for reforms that will advance their

states toward the European mainstream.

Vice President Biden’s May visit to the re-

gion and his public speeches in Bosnia and

Kosovo made clear our commitment to help-

ing the countries in the region to overcome

debilitating legacies and realize their aspira-

tions. And most recently in Bosnia, Swedish

FM Carl Bildt and Deputy Secretary of State

Jim Steinberg have joined together in the

Butmir process to help that country’s leaders

to find a way through the political impasse

that stands in the way of their Euro-Atlantic

aspirations.

However, critical challenges remain -

challenges compounded by the pressures of

a global economic crisis and the significant

By Daniel Speckhard

36 37

demands placed on the Euro-Atlantic part-

nership by other priorities around the world.

These priorities compete for, and place pres-

sure on, a limited set of resources available

for accomplishing our shared objectives – a

situation that that can exacerbate social

pressures within the region if not managed

well.

Crime and corruption remain one of the

most serious problems hindering political

and economic development in the region

despite extensive internal reforms and inter-

national support. After more than a decade

after assistance, the forces of democracy,

openness and modernity still struggle in

some places against backward-looking eth-

nic nationalism and intolerance. Much work

remains to be done.

To this end, U.S. support has placed and

emphasis on helping authorities in the re-

gion to reduce opportunities for corruption

and bribery through building oversight and

audit capabilities and increasing their capac-

ity to investigate and prosecute corruption

and financial crimes. We have worked to

empower civic groups, associations, and the

media so they are better able to scrutinize

government operations. And we helped

these countries to reform judicial systems by

increasing accountability, transparency, and

independence. To give just one example, the

United States is participating in the EU’s Rule

of Law mission in Kosovo, which is monitor-

ing, mentoring and advising the Kosovo po-

lice and judicial institutions.

The U.S. government remains a major

donor of assistance to the Western Balkans

in the areas of democracy, human rights and

the rule of law. In 2009 alone, the United

States allocated more than 116 million dol-

lars to these activities. 44 million dollars of

this amount went for support for fair elec-

tions, development of a vibrant nongovern-

mental sector, and effective and transparent

government. Assisting in the development

of justice systems that effectively fight crime

while preserving due process and ensuring

full access by citizens to legal remedies is a

priority. We are spending more than 70 mil-

lion on this in 2009, including in training and

capacity development for police.

And we are engaged not only in finan-

cial support but also on a humanitarian and

person-to-person level. The fight against

trafficking in persons is a personal priority

for me – it is a modern tragedy with age

old roots, and the Balkan Peninsula – unfor-

tunately – is one of this illicit trade’s most

popular modern routes. To combat the traf-

ficking of victims within the region and to

Southeastern and Western Europe, the U.S.

Government is working with local govern-

ments, Non Governmental Organizations

and international organizations, including

the International Organization for Migration

and UNHCR. Together we are building local

capacity to identify and assist victims. This

includes funding crisis hotlines and women's

shelters, improving training to help law en-

forcement better identify and treat victims,

and expanding public awareness and educa-

tion efforts to prevent vulnerable individuals

from becoming victims in the first place.

For others struggling to find a voice, the

U.S. government is working with govern-

ments and international organizations to

cover story

increase and facilitate minority represen-

tation in the civil service, judiciary, central

government, and elected bodies. Secretary

Clinton has also made it clear that the Ad-

ministration – and she personally – re-

mains strongly committed to promoting

the rights of Roma. On International Roma

Day, embassies throughout the region hold

events and activities to highlight the plight

of Roma, and they continue to press govern-

ments to work to end discrimination and

ensure equality of opportunity for these

communities.

Through small grants and technical as-

sistance programs, we are also working to

help build the capacity of local and regional

NGOs to advocate for policy reform, build

partnerships with public and private sec-

tors, and promote inter-ethnic dialogue and

understanding. We are working to advance

media freedom and enhance the media's

watchdog role by promoting investigative

journalism and providing training, legal,

and technical support to independent media

outlets. For instance, the U.S. Government

has helped to create a regional network of

investigative journalists in Southeast Europe

through the Crime and Corruption Reporting

Project. This is greatly expanding the reach

of investigative journalism and has garnered

support from other donors, including the

United Nations Development Program. We

all have a common interest in supporting

the development of civil society, the media,

rule of law and human rights in the region as

a key component of long term stability and

development.

The United States looks to Greece as a

partner and anchor of stability in the Bal-

kans. We have been impressed with the

priority the new Greek Administration has

placed on the region. Greece exerts consid-

erable influence in the Balkans through its

strong diplomatic ties as well as its leader-

ship in foreign investment and trade. We

commend Prime Minister Papandreou’s

public support for moving the Western Bal-

kans toward EU accession.

We recognize the challenge that the

name issue has placed in meeting this

broader strategic objective. Resolving this

issue is also important to both countries

as it will promote stability and provide the

foundation for enhanced economic ties. We

continue to support The U.N. led process to

finding an acceptable solution in the near

term and welcome the bilateral contacts

that have taken place recently to reinforce

this objective.

I am proud of the cooperation between

the United States and Greece in promoting

stability and development in the Western

Balkans. The Obama administration is inten-

sifying our engagement with Greece and the

region’s leaders to support their reforms and

advance their aspirations into the European

mainstream. In the end, we will all benefit

from their success.

Daniel Speckhard is the Ambassador of

the United States of America to the Hel-

lenic Republic

38 39

book reviewsGreece’s decision to lift its veto and grant candidate

status to Turkey at the ΕU Summit in Helsinki in De-

cember 1999 was the result of a paramount shift in

Greece's foreign policy that most analysts attribut-

ed to Greece's entry into the European Community

in January 1981. The paramount shift in Greece’s

policy toward Turkey has been the instigator of

a process that managed to bring a substantive

change, actually a breakthrough, on Greek-Turkish relations.

What were the reasons for this U-turn in Greece’s foreign policy vis-à-vis

Turkey, the neighboring state which was considered to be Greece’s major

security threat over the course of the last thirty years, as well as of the rea-

sons behind Greece’s major foreign policy initiatives? Was this fundamen-

tal reorientation of Greece’s strategy the result of a rational recognition of

Greece’s new strategic needs and priorities, of a more in-depth ideational

change related to a collapse of the traditional – and reigning – orthodoxy

about how to deal with the ‘threat from the east’ or of a combination of

both? When did Greece’s new strategy to transform the three decades

dispute with its NATO-ally and ‘arch-enemy’ into a less confrontational

and more stable relationship reach its climax? What were the particular

goals the new strategy was aiming at achieving and, most importantly, to

what extent had the new strategy managed through its implementation

to affect the behavior of Turkey and/or its definition of national identity

and interests? To what extent had the assumption of power by a conser-

vative government, in March 2004, resulted in an alteration for the better

– the so-called refinement – or for the worse – the so-called invalidation

– of the strategy adopted by the socialists?

Panayotis Tsakonas’ new book offers insightful answers to the above cen-

tral questions which --although related to the most important chapter of

Greece’s foreign policy in the post-WWII era—remained unanswered in

the relevant literature. Moreover, based on unique primary sources (given

that the author is an academic who served as an advisor to the former

Minister of Foreign Affairs, George Papandreou from June 1999 to January

2004) and extensive research on secondary sources, the book presents

the first theoretical treatise of the most significant shift ever made in

Greece’s strategy vis-à-vis Turkey.

Indeed, by advancing the 'strategic culture' literature the book illustrates

that culture is a basic determinant in understanding change in a state’s

strategy. It also highlights the causal linkage between culture and strate-

gic behavior by demonstrating the role particular realms of Greece’s stra-

tegic culture – agentic culture and national culture – play in explaining

outcomes and in accounting for change.

Moreover, by proposing how states employ international socialization

in their strategic approaches to transform the behavior of other states,

the book presents the most comprehensive explanation to date of what

defines a state's socialization strategy, when it is likely to emerge in rela-

tions between adversaries, what forms it can take and with what conse-

quences. The book thus shows how the paramount change in the tradi-

tional strategy Greece followed towards Turkey from the mid-70s and the

adoption and implementation of a new strategy in the late-90s provides

a unique empirical case to approach the concept of international socializa-

tion as a state strategy, pursued and implemented by a threatened Greece

vis-à-vis a threatening Turkey. By developing a particular type of social-

ization strategy, namely active socialization strategy, Greece managed

–Tsakonas argues—to transform over a certain period of time the EU

factor into a catalytic instrument able not only to strengthen its balancing

efforts but also to lead to the resolution of the Greek-Turkish dispute.

The book does not only offer a fascinating new theory on foreign policy

behavior, as T.V. Paul, James McGill Professor of International Relations,

notes in his endorsement. More important, taking stock of the book’s

findings Greek and Turkish decision makers now do know what it would

take for a breakthrough in Greek-Turkish relations to happen.

The Incomplete Breakthroughin Greek-Turkish Relations

Panayotis J. Tsakonas, The Incomplete Breakthrough in Greek-Turkish Relations. Grasping Greece’s Socialization Strategy (Palgrave Macmillan, Basingstoke and

New York, 2010), pp. 304

By Dimitris Xenakis

I will concentrate on Russian gas and oil

supplies to the region. To begin with I would

like to point out that such projects as Bour-

gas-Alexandroupolis oil pipeline and “South

Stream” gas pipeline do not represent - as it

is often deemed - a “political plot” of Mos-

cow aimed at a takeover of Europe.

We do not impose these pipelines

to anybody. They are merely commercial

projects – result of mutual understanding

of participating countries that we need to

strengthen the energy security in Europe by

diversifying ways of energy transportation.

I would like to provide an

explanation

Many analysts suppose that by the year

2020 Europe will need additional gas

volume equivalent to 200 bcm per year,

taking into consideration growing

consumption and demand as well as the fact

that gas production in Europe (with the

exception of Russia) is decreasing.

Another example: at present through

the Turkish Straits tankers deliver 110 mln.

tones of oil and 45 mln.tones of oil products

from the Black sea basin to international

market. That is the limit, and it will be im-

possible to guarantee safe passing for those

tankers if this limit is exceeded.

Taking into account the expansion of

the Caspian pipeline consortium (CPC) and

the growing export of oil from Kazakhstan,

Black Sea within 2-3 years period will receive

additionally 50 mln.tones of oil, which will

be impossible to transfer through the Straits.

Here should be added that the capacity

of the existing infrastructure has been fully

exhausted. Its deterioration and moreover

– economic, as well as political problems

in the transit-countries noticeably increase

risks.

Ukrainian gas transportation system

is considerably worn out and needs mod-

ernization. As it is known, last March the

European Commission and the Government

of Ukraine signed the Joint Declaration on

modernization of the Ukrainian gas trans-

portation system. However, up to now no

practical steps have been taken to this end.

By the way, we were surprised that this

Agreement was reached behind Russia’s

back which is in fact the only gas exporter

through Ukraine. Moreover, we indicated

repeatedly that we were ready to provide

technical and financial support for modern-

ization of gas transportation system in this

country.

With the main purpose to overcome

those interconnected and overlapping prob-

lems such projects as South Stream and

Burgas-Alexandrupolis were planned and - I

hope – would be realized.

South Stream gas pipeline project with

the leading role of Italian ENI and Russian

Gazprom is designed for transportation of 63

bcm of gas per year and its realization should

begin approximately at the end of 2010. At

present time Intergovernmental agreements

with most countries willing to participate in

this project, namely Bulgaria, Greece, Serbia,

Hungary were signed. Negotiations with

Slovenia and Austria are close to an end.

Recently Turkey has given its consent to cre-

ate offshore section of the pipeline running

within its exclusive economic zone.

Those Intergovernmental agreements

provide for establishing joint project compa-

nies which will undertake feasibility studies

and, in case the project is technically and

commercially viable, will proceed with fur-

ther planning, constructing and operating

the pipeline in territories of participating

countries.

That kind of agreement was signed with

Greece on April 29, 2008. In accordance with

this agreement Gazprom and the Greek

company DESFA are going to set up a joint

venture on a parity basis. The relevant basic

agreement between these two companies

was signed on May 15, 2009 in Sochi.

Some words about our cooperation

with Greece in natural gas sector

Russian gas came to Greece at the end

of 1996 when the main pipeline Kulata-

Athens was put into operation. During last

thirteen years about 30 billion cubic meters

of gas were supplied to Greece from Russia

through gas transportation system running

via Ukraine, Romania and Bulgaria. Since

then this system in Greece has developed

greatly. With the participation of Russian

companies branch pipelines to Thessalonica,

Keratsini, Lavrion, Volos and Alexandrupolis

were built. Other branch pipelines to Evia

and Ptolemaida are planned to be construct-

ed. Local gas networks are now developing

in Athens, Thessalonica and Larisa.

Some years ago we reached the upper

limit of 3,0 bcm of annual supplies of Rus-

sian gas to Greece through existing pipeline.

It’s impossible to pump more using the old

infrastructure. In case of necessity - and nat-

urally of Greek government’s willingness -

additional quantities of Russian gas could be

supplied through South stream gas pipeline.

By Vladimir Chkhikvishvili

40 41

I would also like to dwell on the

project of Trans-Balkan oil pipeline

Burgas-Alexandroupolis.

As it is known, discussion about this

project initiated by the Greek side started in

1994 under the PASOK government. Later

- in the period of 2005-2008 - during the

New Democracy governing, this project got

official legalization. I hope that in 2011 or

2012 the first oil quantities will start being

pumped through the new pipeline.

Now the implementation of the TBP

project with initial capacity of 35 million tons

of crude oil has entered the final stage. The

trilateral Agreement between Russia, Greece

and Bulgaria was signed in March 2007. This

agreement is a result of the good will shown

by the three countries to create an alterna-

tive transportation route for Caspian oil to

the international markets. The shareholders

reached an agreement in 2008 to register

in the Netherlands an International Project

Company (IPC) “Trans-Balkan pipeline”

where the Russian shareholder owns 51%,

the Greek shareholders own 24,5% and the

Bulgarian - 24,5%. Taking into consideration

that the Russian companies have to secure

necessary quantities of oil to fill the pipeline,

I suppose such division of shares is justified.

Greek and Bulgarian branches of the IPC and

its office in Moscow were established in

2008.

At the same time a number of oil pro-

ducing companies from other countries

shows permanent interest in TBP. The pos-

sibility for new shareholders to join the IPC is

on the agenda and such theoretical develop-

ment does not contradict with the trilateral

Agreement.

We assume that the construction of the

pipeline will commence in the fourth quarter

of the next year. This schedule requires the

unconditional support of all States-Partici-

pants of this project. In particular, the Law

proclaiming TBP a project of national impor-

tance is expected to be adopted in Greece,

the IPC has conveyed for the consideration

of the Greek authorities the draft “Host

State Agreement”. But at present the project

implementation to a great extent depends

on the Bulgarian government which has not

said its steadfast “Yes”.

OJSC “Transneft” (the leader of the Rus-

sian Joint Venture-shareholder of the IPC)

has initiated necessary steps aimed at form-

ing oil flows along the entire transit route.

In particular, on October 23, 2009 the IPC

“Trans-Balkan pipeline”, OJSC “Transneft”,

Sovcomflot and the Novorossiysk Shipping

Company signed an Agreement of Intent

which will guarantee uninterrupted and

stable transportation of crude oil along the

route from the port of Novorossiysk to the

port of Burgas.

Talking about possible competition with

the Samsun-Ceyhan oil pipeline, I would

like to underline that these two projects

are different with relation to their sources.

Samsun- Ceyhan oil pipeline will be filled, as

I understand, by the existing oil flows redi-

rected from the Black Sea Straits.

In respect of the ecological factor of

the TBP project, being frequently discussed

in Greece lately, it is necessary to underline

that the IPC “Trans-Balkan pipeline” enlisted

the services of leading world engineer-

ing companies with best experience in the

field of environment protection to design

and build the pipeline. Company intends to

use the most up-to-date equipment and

the latest technical solutions for constant

eco-monitoring applied at thousands other

similar pipelines. This will reduce the risks to

a minimum. But nobody could give 1000%

guarantees. Such guarantee could be issued

only by the Lord but no such precedent has

ever been registered.

By the way, the representatives of NGOs,

local authorities, mass media and other

interested parties from Burgas and Alex-

androupolis got acquainted this May with

the modern, safe and ecological-friendly

facilities of the Caspian Pipeline Consortium

in Novorossiisk. Public presentations of the

TBP project with special emphasis on envi-

ronmental issues were held in the munici-

palities of the Evros prefecture at the end of

April. They proved positive attitude towards

the project on the side of local residents.

I am convinced that the implementation

of the South Stream and the TBP projects

will bolster the energy security in Europe.

The construction and the operation of these

pipelines will attract to the participating

countries additional foreign investments,

create new jobs, secure inflow of consider-

able amounts as transit fees to the budgets

and contribute to the economic develop-

ment of the regions which the pipelines will

be routed through.

Vladimir Chkhikvishvili is the Ambassador

of the Russian Federation to the Hellenic

Republic

cover story

While the past decade has witnessed re-

markable progress in stabilizing the Western

Balkans and positioning the region on the

ladder to NATO and EU membership, signifi-

cant work still needs to be accomplished in

order to fully secure the peninsula as a com-

ponent part of the Euro-Atlantic commu-

nity. Working in tandem, the United States

and Greece can move this process forward

as the two long-standing allies share the

objectives of political stabilization, durable

security, respect for human rights, economic

development, and international institutional

integration for the entire Balkan region.

A collaborative bilateral initiative by two

key policy institutes in both countries, CSIS

(United States) and EKEM (Greece), aims to

promote the process of the Western Balkans’

Euro-Atlantic integration through the estab-

lishment of a U.S.-Greece Task Force.

Objectives & Agenda

• Assemble policy experts, regional

specialists, security and foreign policy

analysts, NGO representatives, business

leaders, and other interested parties to

create a durable network of expertise

committed to developing the U.S.-Greek

partnership in working more effectively

in the wider Balkan region.

• Alert the Washington policy communi-

ty, the NGO sector, and business leaders

to specific opportunities and obstacles

facing the Western Balkans in the re-

gion’s drive toward democracy, the

rule of law, market economics, regional

security, and international institutional

integration.

• Promulgate practical policy recommen-

dations for American and Greek poli-

cymakers and innovative approaches

in the Balkans and within international

fora on the basis of Task Force discus-

sions and findings.

• Publish Task Force papers and recom-

mendations and disseminate them to a

wider audience in the United States and

in Europe.

With the above priorities in focus, two

co-chairs of the U.S.-Greece Task Force have

been appointed to coordinate the project in

Washington and Athens as well as two re-

spective Working Groups.

• Co-Chairs

Janusz Bugajski

Lavrentis Lavrentiadis Chair; Director,

New European Democracies Project &

Senior Fellow, Europe Program

Theodore Couloumbis

Professor Emeritus, University of Athens

• Director of Research

Ioannis Armakolas - Research Fel-

low, University of Oxford

• Athens Working Group

Spyros Economides - Senior Lecturer,

London School of Economics and Politi-

cal Science

Ruby Gropas - Lecturer, University of

Thrace

Kostas Ifantis - Reader, University of

Athens

Dimitris Xenakis - Lecturer, Univer-

sity of Crete

• Washington Working Group

Ambassador R. Nicholas Burns -

Professor, Kennedy School of Govern-

ment – Former Undersecretary of State

for Political Affairs

Heather Conley - Director, CSIS Eu-

rope Program - Former Deputy Assis-

tant Secretary of State for European and

Eurasian Affairs

Stephen J. Flanagan - Senior Vice

President and Director for International

Security, CSIS - Former Special Assistant

to the U.S. President; senior director for

Central and Eastern Europe

Ambassador Robert S. Gelbard -

Chairman, Washington Global Partners,

LLC - Former U.S. Special Representative

for the Balkans

Ian O. Lesser - Senior Transatlantic

Fellow, German Marshall Fund of the

United States

James Miller - Professor, Georgetown

University

Ambassador Thomas Miller- Presi-

dent and CEO, The United Nations Asso-

ciation of the United States of America -

Former U.S. Ambassador to Greece and

Bosnia-Herzegovina

Ambassador Charles P. Ries - Senior

Fellow, Rand Corporation -Former U.S.

Ambassador to Greece

William H. Siefken - Senior Associ-

ate, CSIS - Former Director for CEE and

Eurasia, Lockheed Martin Corporation;

former Deputy Director for EUCOM and

CENTCOM

John Sitilides - Chairman, Southeast

Europe, Woodrow Wilson Center

42 43

Publications

CSIS and EKEM will publish concise

and forward-looking U.S.-Greece Policy

Reports on questions discussed and recom-

mendations formulated in the two Working

Groups. The topics will focus on significant

regional issues; for instance, promoting

Serbia’s Euro-Atlantic inclusion, developing

Kosova’s regional cooperation, resolving

the Macedonian/FYROM name question,

enhancing effective regional economic co-

operation, building stable democratic states,

and combating organized criminality. Three

interim U.S.-Greece Policy Reports will be

published following sessions of the Wash-

ington and Athens Working Groups and

through follow-up discussions by the proj-

ect directors. CSIS and EKEM will distribute

the U.S.-Greece Policy Reports to the U.S.

and Greek administrations, the U.S. Congress

and Greek parliament, and policy institutes

in the U.S. and Europe. The U.S.-Greece Final

Policy Report will be used at the close of the

project in September 2010.

Conferences

• Washington Conference: An interna-

tional conference scheduled for April

2010 will host Greek and U.S. govern-

ment officials and policy experts in

Washington. The event will focus on

the international security questions

impacting the Balkan region and the

policy priorities and approaches of both

Washington and Athens. It will include

senior U.S. and Greek officials, security

experts, and representatives from other

EU countries and the West Balkan states.

Pertinent recommendations of the U.S.-

Greece Task Force on security questions

will be issued at the conference and a

post-conference report will be released

and circulated in Washington, Athens,

Brussels, and the Balkan capitals.

• Athens Conference: A combined confer-

ence will be the culmination of the first

year of the CSIS-EKEM initiative and is

scheduled to be held in Athens in July

2010 focus on both security and eco-

nomic development. It will be the ideal

venue for issuing policy recommenda-

tions that were formulated during the

first year of the project. The conference

will assemble U.S. and Greek officials,

security experts, business leaders, eco-

nomic analysts, and representatives

from international financial institutes. A

post-conference report will be released

and circulated in Washington, Athens,

Brussels, and the Balkan capitals.

• Other Initiatives: The U.S.-Greece Task

Force project is open to other timely

initiatives, including briefings for U.S.

and Greek businessmen, expert visits

from Greece and the U.S., fact-finding

trips to Balkan capitals by the two proj-

ect co-chairs, and publication of policy

relevant articles in various American and

European media outlets.

Research Themes

• EU and NATO Enlargement: transition

and reform, SAA, MAPs, and condition-

ality, state building, impact of enlarge-

ment processes, security sector reform,

police reform, visa liberalisation, en-

largement fatigue, geopolitical gravita-

tion of the EU, prospects for the Western

Balkans.

• Regional Politics: political transition,

democratization, nationalism and

populism, state weakness, Kosovo’s

status, ethnic and religious minority is-

sues (Bosnia, Kosovo, Serbia-Presevo

Valley, FYROM), FYROM “name issue,”

transitional justice, legacies of conflict,

reconciliation (political consensus build-

ing, social and religious reconciliation,

economic collaboration), role of the in-

ternational community.

• Unconventional Threats: organised

crime, trafficking, terrorism, regional

cooperation, role of international

organizations.

• Human Security: environmental protec-

tion and environmental security, natural

disasters, health security and responses

to H1N1 flu, HIV-AIDS etc., social prob-

lems, integration of immigrants, re-

gional cooperation, role of international

organizations.

• Energy Questions: energy security, en-

ergy policy and infrastructure.

• Regional Networks and Infrastructure:

constructing infrastructure, European

and regional transport corridors, sea

transport routes, transport policy and

economic integration, new technolo-

gies, R&D, communications,  linkages

with Trans-European and East Medi-

terranean transport networks, re-

gional cooperation, role of international

organizations.

• FDI and Economic development: prior-

ity areas for Western entrepreneurs,

business environment and stimulation

of investment, responses to global fi-

nancial crisis, privatization and market

liberalization, political risk, social impact

assessment, regional cooperation, role

of international organizations.

cover story

The European Bank for Reconstruction

and Development (EBRD) is an International

Financial Institution (IFI) which is owned by

an array of states and other institutions, such

as the EC and the EIB. The states members

of the EU own around 64% of the capital of

the EBRD but the single largest shareholder

is the USA with 10.11% of the shares.

EBRD finances and invest in projects

located in the countries formally part of

the Soviet Union (FSU), the pact of Warsaw

and the non-aligned countries in South East

Europe (mainly the Balkans). Since January

2009 the mandate of EBRD has been ex-

tended to Turkey. The mandate of the EBRD

is to finance project that contribute directly

or indirectly to foster the transition from a

dirigistic economy to a market based one.

The EBRD performs its mandate starting

from a EUR 20 billion capital base.

As a Business Group Director of the

EBRD, I lead the Bank’s efforts in the Energy

sector, this means investments in power

generation, transmission and distribution

and investments in the whole related to

the exploration, transportation and distri-

bution of hydrocarbons. The total level of

investments by the EBRD in the energy sec-

tor is approximately equal to EUR 7 billion

– EUR 4.1 in Power and EUR 2.9 in Natural

Resources. In 2009 only, EBRD provided ap-

proximately EUR 1.5 billion to projects in the

energy sector.

EBRD usually finances/invests in pri-

vately owned projects using market-based

financial instruments such as corporate

lending, private equity and project finance.

In the Energy sector the EBRD follows

closely from core aims:

• Increasing the security of the EU energy

supply;

• Promoting sustainable energy con-

sumption and production to reduce the

environmental impact of energy and to

combat climate change;

• Promoting energy efficiency and reduce

energy intensity;

• Ensuring the availability of affordable

energy for the competitiveness of host

economies and the EU.

The aims described above, exemplifies

our integrated approach to climate and en-

ergy policy.

Obviously the financing/investments of

the EBRD in South East Europe do not stop at

the energy sector (more on this subject later

on). EBRD is a major financier (providing debt

like instruments and investor (equity/quasi

equity like instruments) in financial institu-

tions, transport and municipal infrastruc-

tures and to that very important economic

interconnecting sector which is represented

by the small-medium size enterprise.

The amount of financing/investments in

the South East region of Europe has reached

the level of approximately EUR 2 billion

in 2009, about 60% of which is in energy

projects.

The global financial crisis that we are

experiencing globally, has hit the South

East European Region later than the US and

Western Europe but, even if the impact has

been delayed it is quite important neverthe-

less. The “2009 Transition Report” published

by the Bank a few days ago is very clear in

showing the sudden slow down in GDP

growth: on average GDP growth has been

reducing from 7% in 2006, to 6.3% in 2007

to 6.5% in 2008 (estimate) to 6.2% in 2009

(projection).

The good growth experienced pre-

crisis, begins in the mid 90’s when many of

these countries experience a rapid process

of integration into the global economy and

income convergence with more advanced

economies.

Economic integration occurred mostly

at three levels:

• Trade – Trade volumes between the EU

(EI-15) and the South Eastern European

countries expanded particularly rap-

idly with a big impact on production of

goods;

• Finance – Financial integration pro-

ceeded at an even faster pace than trade

did, linked in part to political integra-

tion. The presence of foreign-owned

banks grew dramatically especially in

Central Europe, the Baltics and South

Eastern Europe;

• Labour – labour migration had a very

strong impact on the economic perfor-

mance since it generated considerable

remittance flows.

By Riccardo Puliti

44 45

The economic integration brought about

very important benefits to the South Eastern

European countries but also developed the

significant macroeconomic vulnerabilities

such as credit expansion being fuelled at a

very quick pace, trade unbalances created by

sudden imports fuelled by consumption etc.

In the context of a global crisis like the

one we are experiencing now, the unsus-

tainable nature of these vulnerabilities was

suddenly clear.

I believe it is now the work of the host

countries, the IMF, the IFI’s (such as the

European Investment Bank and The World

Bank Group), the EC and other important

countries (in terms, for example, of donor

countries) to help develop the right policies/

investments to kick-start economic growth.

Obviously this will have to take place in the

context of the global economic picture. It is

the work of the EBRD to be part of the pro-

cess described above.

As promised, I did not forget that the

subject of this panel is “New Energy Routes.”

At the EBRD, we believe that one of the most

compelling issues experienced by the South

Eastern European region in terms of energy

is the issue of lack of regional integration,

both in power transmission and in natural

gas transportation and storage.

Lack of regional integration in energy

infrastructure is a factor of vulnerability. In a

not too distant historical past, energy infra-

structure was designed on a national basis.

Nowadays new countries look rather differ-

ent and energy infrastructures present a less

than optimal degree of efficiency. Investing

in regional integration related projects will

contribute to make energy use more effi-

cient and economically viable and will also

help in diversifying energy sources where

necessary.

An example of the above is the develop-

ment, financing and construction of under-

ground gas storage, which can very much

contribute to an efficient use of gas and to

mitigate possible gas crisis. The EBRD has al-

ready financed two of these projects in 2009

for a total amount of around EUR 250 million

(in Hungary and in Croatia). An additional

amount of EUR 300 million should be used

during 2010 to finance the construction of

two new projects in Serbia and Bulgaria.

The financing of underground gas stor-

age is important in a context of solidaristic

use of energy within the EU and with neigh-

bouring countries.

In terms of new routes, we follow close-

ly the development of the Trans European

Networks - Energy (TEN-E) routes identi-

fied by the EU and which will contribute to

the trans-European energy infrastructure

network. The development of most of these

projects constitutes a first class opportu-

nity for the Southern European countries to

benefit of a network of high quality energy

infrastructure assets. The concept of a South

Eastern European “energy hub” is becoming

a reality.

In terms of large natural gas projects,

we follow closely all major projects. Our at-

tention is due to the relevance these projects

have in terms of energy diversification both

in terms of routes and sources. Russia will re-

main a very important gas supplier but other

countries could assume a bigger supplying

role, countries such as Azerbaijan, Turkmeni-

stan, Iraq, Egypt and the gulf region in terms

of LNG.

I strongly believe in the role of private

sector in the development of energy in-

frastructure. It is necessary that the right

instruments are developed to attract and

retain private investors. In this context the

importance of transparent, open, public ten-

ders procedures cannot be stressed enough

– these are the key pre-conditions to attract

and retain quality long term investors.

In conclusion, the identification and sup-

port of shared energy infrastructure projects

will bring about new investments, better se-

curity of supply and better efficiency which

will contribute to the economic recovery of

the region.

The improvement in the security of sup-

ply and the better energy integration should

also fuel both economic and political confi-

dence which in turn constitute a major base

for an additional effort in market reforms

which is the base for attracting international

investments.

Riccardo Puliti is the Business Group Direc-

tor of the European Bank for Reconstruction

and Development

cover story

The issue of the panel today is the in-

frastructure works in Western Balkans. I

want to present to you the Western Balkans

Investment Framework. What it is, how it

works and what interest it could present for

Greek and the Greek businesses.

A couple of years ago I was attending a

conference and it was about environment.

And there were three speakers. The first

speaker was from the European Commis-

sion and he mentioned that all candidate

countries and potential candidate countries,

when they build new environmental in-

frastructure it should follow the European

Union standards and abide by the European

Union directives, which of course is very

costly. The second speaker presented bud-

getary constraints of the various govern-

ments and sponsors. And the third speaker,

who was from the World Bank, explained

the physical space, a limited physical space

and limited capacity of governments and

municipalities to borrow.

So, how to solve this problem? The

answer is the Western Balkans Investment

Framework, we hope. During the last year or

so, the European Commission, the European

Bank for Reconstruction and Development

and the European Investment Bank worked

together to prepare a framework for coop-

eration in order to put together the resources

of the donors, who have grant money, and

the banks who have loans, in order to pro-

duce unique financial packages to finance

the big infrastructure projects in the Balkans.

The objectives are to maximize the le-

verage of the grants and donations. Also to

maximize coherence, synergy, efficiency and

the visibility in the investments, to support

of the investments, because you have to pri-

oritize and obviously not everything can be

done at the same time, so you need to put

together the major players and see which

projects are priority and how can they be fi-

nanced. Then, of course, the result is support

of the development of grater infrastructure

in the region.

Who can participate? Obviously the

western Balkans, as the geographical cov-

erage. All sectors contribute into social,

economic and environmental development.

And the eligible beneficiary entities can be

either the private sector or the public sector.

Eligible cost of the individual organization

that participate to the scheme: The EIB, the

EBRD or the European Commission. The type

of grant, it can be for technical assistance

for projects’ preparation, or co-financing of

actual projects, constructions, or also, incen-

tives, interstates subsidies and insurance

premium.

But what exactly is the Western Balkans

Investment Framework? There are two com-

ponents. One component are grants, and

one component are loans. At this moment

we are at the very beginning of the scheme.

We have already invested 110 million euros

for grants. The banks, the partner banks,

which are the European Investment Bank,

and the Council of Europe Development

Bank, have already pledged 30 million. Then

the EBRD have created a joint fund where

other donors, countries in the European

Union and out of the European Union, Can-

ada has expressed interest, can invest. All

these, at this very moment, make something

like, 160 million. But the idea is that this has

to increase in the future. Then, of course, are

backed by loans. And the IFC have commit-

ted already 2 billion in loans, which makes

investment of the order of 4 billion.

Who are the key players? Of course the

beneficiaries, because we talk now from the

perspective of the investors, of the IFC and

of the European Commission, but all these

projects that we are talking are projects of

priorities of the countries they presented to

us for financing. The other players are the

European Commission, the International

Financing Institution, the EIB, the EBRD, the

CEB. But also can come in European Union

member states, other donors, and other

financial institutions, like bilateral financial

institutions, like the KFW of Germany.

There are the two sides, the grants and

the loans. On the side of the grants, for ex-

ample, we have already a project, which is

called Infrastructure Project Facility, where

we provide technical assistance for 32 mil-

lion to prepare bankable projects. So, there

the idea is only to assist in projects to bring

them into a situation where they can be pre-

sented to banks for financing. Also, we have

invested already money for co-financing of

municipal investments. Then you have the

money of the Western Balkans Joint Fund

and the other grants, and on the other side

the loans.

It works like that. The beneficiaries or

the promoters are presenting to a project

financiers group, which is a technical group,

which does the project certification, pro-

gramming and screening of all the big infra-

structure projects that are presented, with

the idea of having a common pipeline. Then,

this technical group, proposes to a steering

committee projects in the region that are

priority for financing and prepares single

financial packages, that is also the advan-

tage. Some grants, some loans on projects

are the most important and those who are

priority for financing. And then it goes to

implementation.

By Christos Gofas

inancing the infrastructure projects in the Balkans

46 47

It is important that the steering com-

mittee is giving strategic orientation, ap-

proves the operation and does supervision of

the action. For Greece, for example, it is very

interesting. First of all Greece can participate

as a full member at the steering committee,

but also in case of co-financing it can partici-

pate in the project financiers group.

We have the case of the Corridor-10, a

project that will be presented in the West-

ern Balkans Investment Framework. Greece

is co-financing by 100 million euro and they

can be fully associated and participated in

the project financiers group, which is assess-

ing and screening and technically assessing

the projects.

We are sitting in the project financiers

group, the European Commission, the part-

ner IFC, other bilateral financial institutions,

which Greece could take part. And they

are doing projectification, programming,

screening and assessment. What is interest-

ing is that the banks are sitting together and

working together in order to have a common

single pipeline of big investment projects.

The steering committee is where the

decision is taken, and where the strategic

rotations are given with many players and

actors. The regional cooperation council

represents the states of the region. You

have the beneficiaries, but you can have also

other observers. We intend to call the World

Bank to participate, for example, for the time

being as an observer.

A few words on the sectors:

Of course there are sectoral strategies.

Projects in environment for example, they

have to be part of the national sector strate-

gies, they have to be in line with the envi-

ronmental European Union and they have

to be included in regional pipelines that are

already underway. The same way in energy,

they have to be in line with the guidelines

for the trans-european networks that we

have talked before. Also there is Southeast

Europe Energy Community, which is prepar-

ing priority projects and so on and so forth.

In transport there is a southeast Europe

transport observatory, which is based in Bel-

grade, and they have prepare a co-regional

transport network. There is priority to rail-

ways, inland, water waste, in order to fight

against the climate change and of course

regional corridors.

Inside the Western Balkans Investment

Framework, when you have projects for

technical assistance, for project preparation

of investment projects, they have to be in

accordance with European Union priorities

and European Union accession needs. So,

the projects are presented through the na-

tional authorities to the project financiers

group, who is prioritizing the projects. Then

you have the decision by the steering com-

mittee and then we take the decision to give

order for service to consultants to produce

feasibility studies, designs, documents and

so on.

One is the investments that are pre-

sented either by the sponsors, the promoters

themselves, or by the IFC or by others from

the project financiers group, who does again

the same work of analysis, of screening and

of assessment. Then it goes to the steering

committee where it could be decided that

the project is not mature enough and then

you go back to technical assistance, where

we provide additional technical assistance

for further study and come back, or be pro-

posed for grant co-financing for investment.

The first pipeline for projects will be

submitted to the first steering committee of

the Western Balkans Investment Framework

on the 8th of December. But which are these

projects? For example, for the next meeting,

the first one is about regional local roads

in Albania with estimated investment of

100 million. This is not the loan, this is the

investment. The loan is less than the figure,

and then it will be supported by grant of 4

million co-financed by the EBRD and the EIB.

Also Corridor 10 will be presented. The

total investment is 1,6 billion euros, which is

not the whole of the investment. A grant of

10 million will be discussed in order to fund

the supervision of construction. In addi-

tion, Corridor 5C is another very important

project that is presented for approval. This

is Bosnia –Herzegovina part of the regional

core network.

We have already taken decisions that

we introduce to the scheme, and we have

already decided to co-fund actual works in

different municipalities, mainly water supply

in Serbia, in Bosnia, in Kosovo, in Albania for

84 million euros grants, that complement

loans of 500 million. For example, the wa-

ter supply for Argyrokastro in Albania. The

scheme itself is 22 million. There is 4,7 mil-

lion of grants, and the rest is loans, about 12

million.

Also, in Serbia, we have agreed in co-fi-

nancing the reconstruction the transports in

Belgrade together with the EIB. Finally, this

is another case where there is only technical

assistance for preparation of this project, it

is in Bosnia–Herzegovina-Biella water sup-

ply. So, we have already invested 2 million

for preparing a project in which total invest-

ment is 12 million.

Christos Gofas is the Head of Section for

Infrastructure and Cooperation with Inter-

national Financing Institutions, Directorate

General for Enlargement, European Com-

mission

cover story

The subject areas of today’s conference

“South-Eastern Europe: Crisis and Perspec-

tives” is as well-timed as ever. The coun-

tries of our neighbourhood are on a critical

turning point. They have to face significant

challenges, mainly in the area of economy.

It is obvious that the economic crisis has hit

hard also the economies of the Balkan coun-

tries, many of which have already entered in

a vicious circle of political imbalance. IT is a

common ground that economic instability to

trigger political instability and vice versa : a

political fluidity to induce economic wobbles

thus exalting economic instability There is

no doubt that the escape of Balkan countries

from the economic crisis will not be an easy

task. However, if you allow me, as closing

speaker of this conference, I will not focus,

in this short presentation, on the past and

on problems but on the future and on per-

spectives. In addition, in periods of crisis we

always have to see the opportunities emerg-

ing and we are here to suggest solutions and

implement specific actions.

The integration of Western Balkans into

the European Union is a one-way for the exit

from the crisis. Recently, we celebrated the

20th anniversary from the fall of the Berlin

Wall and the experience from the accession

of many countries of the former Eastern

block to the EU could only be characterized

as positive. The European Union is actively

engaged in the support of Western Balkan

economies, ensuring economic and political

stability through necessary reforms, devel-

ops new policy tools, regional institutions

and flexible means of financing for the fa-

cilitation of investments in key-projects for

the area, such as infrastructure works, SMEs

support, etc.

What is the role of Greece in this

procedure?

Greece will and must have specific goals

and play a leading role in the SE Europe as

a lever of development & economic coop-

eration at economic, political and technical

level.

A. As is known, South-East European

countries are among the first market-

destinations for Greek products. It is worth

mentioning that according to the data of the

National Statistical Service of Greece and our

Economic and Trade Bureaus in the area, the

volume of trade presents constant increase

during the last 3 years (2006-2008), exceed-

ing 8 billion Euros in 2008, showing a 7.1%

raise compared to 2007 (7.4 billion Euros).

Most significant trade partners of Greece

are Bulgaria, Turkey and Romania, having a

share reaching 76% of the total trade vol-

ume of Greece with the countries of South-

Eastern Europe.

As far as investments are concerned,

our country holds an important position

in South-East European markets. The total

invested Greek capital (1996-2008) ex-

ceeds 16.288 billion Euros. Taking also into

account investments made by businesses

of Greek interests through their affiliates

in third countries such as the Netherlands,

Luxembourg, Germany etc, the actual size

of total Greek investments is clearly bigger.

In 2008, it is estimated that our country

ranked first among foreign investors in Al-

bania, F.Y.R.O.M. and Serbia, third in Roma-

nia and forth in Bulgaria. The value of Greek

investments in countries of the Balkans is

estimated to reach 11.888 billion Euros. Ac-

cording to the Turkish Ministry of Finance,

Greece held the 3rd position among foreign

investors in the years 2006 and 2007. It

should be stressed that despite the adverse

consequences of the economic crisis and the

impulsive escapism shown by many for-

eign companies, the Greek ones remained

at the host countries supporting domestic

economy. Greek banks played a particularly

important role towards this direction.

B. At political level, Greece constitutes

an important junction partner for the inte-

gration of these countries in the European

institutions. As our Prime Minister under-

lined at the recent Summit Meeting in Brus-

sels, Greece - looking towards 2014- plays

a leading role in the Balkans while at the

same time plays a key role in the integra-

tion course of the countries of South-Eastern

Europe.

Typical example of a development tool

of Greece aiming at the economic, politi-

cal and institutional support of the Balkan

countries, with an ultimate target to en-

hance their European orientation, is the Hel-

lenic Plan for the Economic Reconstruction

of the Balkans (HiPERB). Secondary aims

of the HiPERB are the modernization of in-

frastructures, the promotion of productive

investments, the support of democratic in-

stitutions and justice, the modernization of

Public Management and Administration, the

enhancement of the social state, the con-

frontation of economic inequalities as well

as the vocational training of the work and

scientific force of the advantaged countries.

In parallel, we aim to upgrade the Greek

participation in the Black Sea Trade and De-

velopment Bank, in order to make an impor-

tant step towards the satisfaction of goals

set by the Black Sea Economic Cooperation

(BSEC). In addition to the above we support

every initiative coming from the private sec-

tor such as the Business Advisory Council – I

can see its President Mr Efthymiadis attend-

ing tonight- as well as the Union of Black Sea

and Caspian Confederation of Enterprises.

By Louka Τ. Katseli

48 49

It is a priority for the newly appointed

Ministry of Economy, Competitiveness and

Shipping which I lead - in coordination with

the Ministry of Foreign Affairs-, to motivate

the business community and the relevant in-

stitutions towards the promotion of regional

cooperation, lowering as much as possible

the fragmentation of power and increasing

the effectiveness of any initiative in favor of

the countries of SE Europe.

Greek enterprises contribute to the

transfer of know-how especially in sectors

where they possess a comparative advan-

tage such as shipping transportation, con-

struction, tourism and so on.

Within our goals rests the creation of

a Development Finance Institution in our

country as well, as seen in other European

countries, which will attract investments,

support commerce and development co-

operation among European and develop-

ing economies as well as the developing

countries situated in the wider area of the

European community by using as a catalyst

- among others-, the development aid and

modern financial credit tools that will en-

able Greek enterprises to invest in develop-

ing countries.

Ladies and Gentlemen,

Main objective of the Ministry of Econ-

omy, Competitiveness and Shipping, which

is the Ministry for the development of the

country, is the promotion of coordinated

policies with short-term target the reviving

of the economy and medium-term target

the restructure of the production basis of the

country, and the improvement of its com-

petitive position. The support of the extro-

version of Greek companies in combination

with entrepreneurship strengthening are the

main axes of our strategy. The regional co-

operation offers for Greece valuable advan-

tages: enlarges the market, produces new

investment opportunities, supports external

trade and facilitates the adjustment of Greek

economy and the business community into

the challenges of the necessary technologi-

cal advancement.

Especially in a crises period our answer is :

• Not to restrict but to strengthen periph-

eral cooperation

• No less but further investments in our

region

• No capital outflows but support and in-

crease of development aid in developing

countries as much as it is possible.

• Νo reduction but increase of the devel-

opment aid

Greece is a European country in the

conjunction of three continents. This is the

strategic advantage of our economic policy.

Significant precondition for the effective

utilization of the strategic advantage is the

undertaking of specific measures that are

this Ministry’s and my commitments

Our five major priorities are:

Support the entrepreneurship and the

extroversion of our economy by simplifying

all procedures of business start ups, licensing

and operation. Only in this way we can at-

tract investments from developing countries

that will use Greece as a polar for their busi-

ness initiatives in the greater area. We are

preparing the bill in cooperation with the

commercial chambers.

To secure an institutional and tax frame-

work stability for at least a three year period.

Continuous changes reverse any plan and

produce uncertainty in the investment com-

munity both in Greece and abroad.

The restructuring of public expense in

favor of investment and the activation of

community funds for the modernization of

infrastructure, the improving of competi-

tiveness and the restructure of the produc-

tive basis with effective use of state aid and

focus in Green Development. In the 2010

Budget Draft, public investments increased

by 800 m. while gross fixed capital forma-

tion as a percentage of GDP increases to

4,2%.

The upgrading of external trade entities

and the relevant bodies for investment at-

traction such as “Invest In Greece” and the

“Hellenic External Trade Organization in

order to coordinate their policies. The com-

mon goal of all these entities is to promote

the openness of the Greek economy, the

creation of value added products and the

improvement of competitiveness.

We take advantage of the comparative

advantages of our country in the area of ser-

vices and in particular in the areas of ship-

ping, tourism transportation and culture, in

order to establish new development polars

and regional development reconstruction.

Our aim is to implement a specific plan

with measurable results, which will be a ref-

erence point of progress and accountability.

In conclusion, I would like to stress out

that, beyond our political and economic

relations, what unifies us, the people of the

Balkans and of SE Europe, are our common

historic ties, our common past, common

feelings shall I say, that makes us having

lived through a troubled history, speak of a

common political and business language.

This is the most important ingredient of suc-

cess in the relations of our people. Those are

the common bonds we must utilize for the

sake of our countries and mostly for the sake

of our children.

Louka Τ. Katseli is the Minister of Economy,

Competitiveness & Mercantile Marine of the

Hellenic Republic

cover story

Tara river, Montenegro

50 51