WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

By Branimir Jovanovic
Photo credit: European Union, 2020

Тhe European Commission has just adopted its 2020 EU Enlargement Package. This is the first Package since the new methodology on EU accession was introduced in February this year. The additional conditionalities that were introduced with the new methodology, which are supposed to ensure that accession countries stick to reforms, are now accompanied by more economic assistance to the countries. Specifically, the Commission adopted an Economic and Investment Plan for the Western Balkans, which sets out to provide up to €9 billion of EU funding for investment in sustainable connectivity, clean energy, environment, digitalization, human capital and competitiveness.

The Report elaborates what kind of reforms are needed in each of the countries, providing “clearer and more precise recommendations and guidance on the next steps”. In general, the areas in which all the countries are underperforming most are the rule of law and the fight against corruption.

Deeper economic integration of the Western Balkans with the EU is needed

A recent study by the Bertelsmann Stiftung and wiiw has evaluated the EU’s efforts to enhance regional economic cooperation in the Western Balkans during the last two decades. We have argued that the results have not been satisfactory. The EU has tried to bring political reconciliation via economic integration in the Western Balkans, but this has not been achieved, as the potential to boost economic growth via increased economic integration among six small and fairly poor countries is necessarily small. We have argued that a more sensible approach would be to deepen economic integration of the Western Balkans with the EU, ahead of full accession. The experience of the Visegrad countries has shown that greater EU integration can indeed spur deeper regional ties.

In this light, it is positive that the new Enlargement Package provides economic assistance to accession countries, as this will foster their economic convergence to the EU. We also view the areas on which the Economic and Investment Plan focuses as appropriate, as they refer to sustainable and equitable growth. Still, we assess the Plan as insufficient, as the stated €9 billion, over the seven-year period to which they refer (2021-2027), would amount just to 1% of the GDP of the Western Balkan countries. This is only slightly higher than IPA I and IPA II - the IPA I budget for the six Western Balkan countries amounted to €5.3 billion, while IPA II amounted to €6.9 billion. Furthermore, the amount might turn out to be even smaller, as it is subject to the adoption of the next Multiannual Financial Framework 2021-2027. Moreover, as this finance will be disbursed through IPA III, the finally disbursed amount is likely to be even smaller, as the use of IPA funds in these countries is never 100%.

Stringent conditionality without greater support might backlash

The new methodology is also likely to complicate the accession process of the Western Balkan countries and might slow it down. Even though the Commission states that the implementation of the “rigorous but fair assessments” will speed up progress on the EU path, the new methodology might actually prolong EU accession, if certain reforms are assessed as insufficient. This might backlash in EU scepticism, unwillingness to conduct reforms and nationalism, which will hurt regional cooperation and hinder the long-term economic and social prospects of the region.

This is not to say that European Commission should not require reforms from the Western Balkan countries and should not insist on conditionality. Our study has indeed stressed the necessity for stringent conditionality related to governance and the rule of law. But these requirements should be accompanied with deeper economic integration of the Western Balkans in the EU, such as full involvement in the EU budget.  Full access to the EU budget will provide Western Balkan countries with annual funds of 2-5% of their GNI, while the impact on the net contributors to the EU budget would be negligible, ranging from 0.009 percent of 2017 GNI in Ireland to 0.04 percent in Germany. Other options to consider are partial entry into other parts of the EU Customs Union and single market and deeper services and labour integration.

Thus, the EU Enlargement Package should pair its stringent conditionality for reforms with more economic integration of the Western Balkans into the EU.