Newsletter 1/2010 - Guest Commentator

Erhan Türbedar
South East European Studies Coordinator, Economic Policy Research Foundation of Turkey (TEPAV)

Effects of global economic downturn on South East Europe

The South East European countries, following the painful period of transformation of the 1990s, enjoyed an average growth rate of over 5% in the first eight years of 2000s. Hence, the global economic downturn in 2009 caught the region off guard. The crisis not only pushed South East Europe into an economic contraction but also had a negative impact on bilateral relations of the region’s countries. Deepening economic cooperation among the South East European countries may well be a new beginning for the region.

The main economic effects of the global financial crisis on South East Europe were seen in increased unemployment and deepened fears among the people of losing jobs. Unemployment has been a serious problem in South East Europe all along. In 2007, for example, the joblessness rate was 43% in Kosovo, 35.2% in The Former Yugoslav Republic of Macedonia, 30% in Montenegro and 29% in Bosnia and Herzegovina. Industrial production contracted considerably because of the global financial slump and exports steadily dwindled. The loans given to the private sector showed a downward trend, the flow of remittances from the Diaspora faltered and direct foreign investment diminished as against the previous years. According to the estimates of the European Bank for Reconstruction and Development, direct foreign investments in 2009 in Albania, Bosnia and Herzegovina, Bulgaria, The Former Yugoslav Republic of Macedonia, Montenegro, Romania and Serbia were almost half of the total of 2007, which was $27.74 billion.

The unfavorable reflections onto South East Europe of the global economic meltdown were also seen in other areas. The Western Balkans countries slanted for full EU membership were obliged to slow down their reform movements. The EU, committed to fighting the fallout from the economic slump, clean forgot about the Western Balkans. As a result, the peace process and efforts to resolve the existing disputes all but came to a standstill. Given the overall impact of the global economic crisis, it would not be exaggeration to say that the worst victims of the global slump turned out to be the Western Balkan countries.

South East European countries are divided into two sub-groups in terms of the economic rules under implementation. The first group is comprised of Greece, Bulgaria and Romania, all EU members. It is the EU rules and regulations which are implemented in the markets of these three countries. That is to say that doing business in Greece, Bulgaria and Romania is contingent on attaining different standards and getting specific permissions. All this may constitute a barrier standing in the way of development of regional trade and economic relations, until all countries from the region become EU members. Albania, Bosnia and Herzegovina, Croatia, Montenegro, Kosovo, The Former Yugoslav Republic of Macedonia and Serbia make up the second group. This second group, save for Albania, were under the roof of the same state until the beginning of 1990s. The same regulations, laws and standards were used in their markets. Therefore, conditions in the second group of countries in terms of developing economic cooperation seem to be more favorable than in the others.

CEFTA 2006 is the biggest gain scored in the Western Balkans in terms of economic cooperation. Apart from this, the EU has concluded the Energy Community Treaty with Western Balkans states, and work is underway for the signing of a Transport Community Treaty. However, non-tariff obstacles are a serious stumbling block to the further liberalization of trade in the Western Balkan states. On the other hand, as this convenient legal and institutional framework has not yet been translated into life, there are some solid difficulties in the Western Balkan states’ cooperation in energy and transportation. The Chambers of Trade and Industry in the Western Balkan countries can play a leading role in the settlement of these problems. The thing is that the Chambers of Trade and Industry have to devise a way of increasing their influence over national governments, regional initiatives and EU institutions.

The industries of the Western Balkan states are far from meeting the import demands of the EU. However, conditions are much better for catering to intra-region demands. The Chambers of Trade and Industry can also spearhead and encourage the manufacturing of industrial products at the regional level. If the number of companies materializing the various stages of production in different countries of South East Europe increases, investments and industrial production may also be improved. As economic relations deepen in this way in the Western Balkan states, bilateral relations can also be placed on sounder foundations.

Erhan Türbedar of Turkey specialized in economic transformation process in the Balkans and is currently carrying out his post-graduate studies with the thesis on the transport policies in the Balkan countries. Türbedar has been conducting academic studies on the Balkans in different think-tanks for ten years and currently works as a Balkan Studies Coordinator at TEPAV.


Erhan Türbedar is the South East European Studies Coordinator at the Economic Policy Research Foundation of Turkey. (Photo /courtesy of Mr Türbedar)

Erhan Türbedar is the South East European Studies Coordinator at the Economic Policy Research Foundation of Turkey. (Photo /courtesy of Mr Türbedar)