The Stability Pact is History


When the leaders of the most powerful countries and organizations of the world assembled in Köln on June 10, 1999 to discuss the Stability Pact for South Eastern Europe, the future of this regional initiative seemed bright. On June 30 that same year, the official founding summit was held, with a photograph touted by the press as the most expensive in the world. Everybody was there, from regional leaders to the most prominent figures of the world political and economic establishment- with the specific exception of Milosevic’s Serbia. However, the photograph turned out to be far more solemn than the history of this initiative.

The main official goal of the Pact is to “secure lasting peace, prosperity and stability for South Eastern Europe; foster effective regional cooperation; and give firm European anchorage to the region.” All members of the Stability Pact have committed themselves to making an effort to achieve these goals of stability, economic development, anti-corruption and human rights protection. Specifically, the primary goal of the Pact was to symbolically remind Serbia of its isolation from the world and to emphasize that it could become a member of this elite regional club only if Milosevic was dismissed.

However, now that Milosevic is in the Hague, the very reasons for the existence of the Stability Pact, originally a German idea, have vanished: in the post-Milosevic era, the inclusion of the Federal Republic of Yugoslavia was inevitable, and the FRY became a member of the Pact in October of 2000.

The entire financial operation, however, soon met serious difficulties. Although at first glance, one might think that the Pact has assembled substantial funds, a closer examination of the way this money has been distributed among the Balkan countries reveals the funding to be nothing more than scraps. Another peculiar outcome is the fact that the assembled money remains unspent to this day. By the year 2000, it was officially proclaimed that Bosnia and Herzegovina, the organizers of the first summit of this Pact, had not received the 1,5 million euros promised as compensation for its costs. One after another, other failures ensued. By the end of last year the EU had replaced the head of the Pact once, to little effect.

Perhaps the fate of this whole initiative was determined from the outset, when the controversial German politician Bodo Hombach was appointed as its head. Hombach, one of Gerhard Schroeder’s closest associates, was generally thought to be the key player in his electoral campaign. He was also a magnet for controversy, which eventually cost him his appointment as the Pact’s coordinator.

Hombach’s term in Brussels did not go through without controversies. He had a famous confrontation with Chris Patten, the Secretary of the European Comission, which set off a tradition of conflicts between the Stability Pact and the European Comission. This is likely to lead to the termination of the Pact itself. Hombach’s successor, Busek, has recently warned the public that Paris is actively working for the termination of the Pact, since they see no reason for its existence.

As Busek stated in an interview given to Deutsche Welle: «Expectations were too high…In Serbia we wanted to build a bridge on the Danube River near Novi Sad. A Danube committee had to hold a session first, and then the European comission had to reach a suitable conclusion. After this, we had problems with the Serbian Ministry of Transport, since they still have officials loyal to the previous system there.

And the mayor of Novi Sad objected, because he was earning profits from every lorry that crossed the pontoon bridge. The European Union and the Americans, on the other hand, made the financing of the bridge conditional on the extradition of those indicted for war crimes to the Hague. Such an attitude is understandable, but can sometimes be counter-productive», stated Busek.

The resistance to the Pact also comes from «within»: the Stability Pact has become an Instability Pact of a sort, since it appears as though its only goal is to segregate the Balkan countries by grouping them together and away from the European Union. Some countries have realized this and have begun circumventing the Pact by negotiating separate contracts with the EU.

Other significant objections come from progressive economic circles, as well as from the so-called civil sector (see: http://www.bankwatch.org/issues/balkan/ngosdeclaration.html.) Ivona Malbasic of CEE Balkanwatch (www.balkanwatch.org) has warned that foreign investments in Central Eastern Europe may not be the way forward. . Indeed, the importance of economic recovery in post-conflict countries goes without question, but the ways in which reconstruction will be carried out is far more controversial. Thus far, investments in damaged infrastructure – primarily roads, railways, waterways, electricity grid, and pipelines – are seen as the most important aspects of economic recovery.

Large loans destined for the infrastructure sector will worsen debt problems in the Balkans. If these projects do not bring the expected economic benefits, it is unlikely that governments will be able to pay them back.

This is especially true in the case of highway construction. Bearing in mind the difficult economic situation following years of conflict and instability in the region, building such an expensive mode of transport is not feasible. Rail is more suitable, for both passenger and freight transport. Railways are cheaper to build, and they will bring long term benefits by providing jobs for the local population. On the other hand, highways built by international companies will not bring revenues to local governments. Moreover, all these investments – or “assistance” in the terminology of the IFIs (International Financial Institutions) – are loans, which means that countries will have to repay them with interest. If a certain investment does not bring profits, governments will be forced to take out further loans, likely under worse conditions.

There is a real danger that the Balkans could become highly dependent on this international “assistance.” Such a scenario which will not ultimately create self-sustainable economies, which was a major goal of the Stability Pact. On the contrary, Balkan countries will likely fall into debt traps similar to those in the developing world. The Bosnian example has proven how quickly millions of dollars can be wasted. In addition, infrastructure projects planned for the Balkans were designed so as to connect Greece with the other members of the EU. Little attention has been given to the local population’s needs.

Extensive infrastructure projects, such as highways or pipelines, will have a tremendous impact on the environment. Therefore, it is of crucial importance to promote reconstruction that will bring benefits to local populations with minimum impact on the environment. One of the main goals of the Pact is to reduce poverty in the region. For instance, unemployment in Bosnia and Herzegovina is 55%, in Serbia 40-50% and around 35% in Macedonia.

Poverty has grown throughout the region, and limited economic resources only contribute to violence and social tensions. Privatization is resulting in the loss of jobs. The experience of the Central European Countries has shown that transition to a so-called market economy has only brought forth new opportunities for the new elite, while eroding established social support structures such as health care, housing and education. The majority of the population throughout the CEE region has not reaped any benefits from the so-called market economy.

Needless to say, institutions such as the World Bank have also lead the transition process in Russia, where there is little evidence of successfully implemented changes. The majority of the people remain poor while corruption is still as high as it was in the early 90’s, while wealth continues its flight out of the country.

The obvious question that arises is why the IFIs continue to offer the same modes of “assistance,” when it is obvious that giving money to highly corrupted governments will not improve the life of the poor who need help the most. The history of the failure of the Balkan Stability Pact shows the future of similar initiatives in the region. Their goal is evidently not the reduction of poverty, but to maneuvre space for political and strategic manipulation in the «conflict region». The most conspicuous effect on local economies is that, in accordance with the practice of so-called market economic transition in Eastern Europe, millions of dollars will end up in the private accounts of the new elite.

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