Economic challenges of Serbia’s accession to the EU CEU CENS – Budapest, May 17, 2015 Miloš Erić meric@fefa.edu.rs
The Entire Western Balkans… • In terms of population, measures up to Romania alone • Serbia is similar to Bulgaria • Serbian population would constitute 1.4% of the “EU30” population, RO BG RS ME Montenegrin 0.12% MK BA XK AL
Snapshot of the Serbian economy • Economic contribution from Serbian accession would be considerably smaller – only 0.26% of EU’s nominal GDP • Serbian economy by sector: – Agriculture 8% – Industry 32% – Services 60% • Almost 24% of the labor force is in agriculture
Trade • Despite political indecisiveness, Serbian economy is clearly focused on the EU – Export: Italy, Germany, Bosnia, Russia, Romania – Import: Germany, Russia, Italy, China, Hungary • Regional markets are where Serbia performs with a surplus; largest deficits with Russia (gas and oil), China (everything else) • Largest exporter (and importer) is FIAT Chrysler Automobiles Serbia
Trade 120,000 • National currency, the 100,000 80,000 dinar, has depreciated 60,000 significantly vs. the euro 40,000 20,000 since 2001 (60>120) 0 04 05 06 07 08 09 10 11 12 13 14 M_SMTK0 M_SMTK1 M_SMTK2 • Export elasticity to M_SMTK3 M_SMTK4 M_SMTK5 M_SMTK6 M_SMTK7 M_SMTK8 M_SMTK9 70,000 60,000 depreciation is 0.51- 50,000 40,000 0.56; but imports are on 30,000 20,000 the constant rise as well 10,000 0 04 05 06 07 08 09 10 11 12 13 14 X_SMTK0 X_SMTK1 X_SMTK2 X_SMTK3 X_SMTK4 X_SMTK5 X_SMTK6 X_SMTK7 X_SMTK8 X_SMTK9
Trade Deficit • Trade deficit has been “a way of life” for more than two decades – often covered by remittances and privatization incomes • Coverage of imports by exports has been on the rise since 2004 – from 0.26 to 0.72 • Economic crisis reduced disposable income since 2009 and “helped” improve this indicator • Average net wage 380 euro
Burden on the EU budget • Serbia would be on the very bottom of “EU30” GDP per capita list, thus obviously a net receiver of funds from the EU budget • Currently, Serbia receives cca 200 million euro through IPA funds p/a • As EU member state, it would be eligible to receive around 2 billion, but would also have to contribute 0.3 billion • This is 1.4% of the current EU annual budget
Burden on stability • EU is looking to avoid “another Cyprus” or other problems it faced in 2004 and particularly in 2007 • Coupled with lessened absorption capacity and disinterest in enlargement, WB states do not seem to be ideal candidates • Most of these countries have experienced armed conflict or grave instability in the last two decades, or both • Should EU press for these issues to be solved prior to EU membership?
Why is stability so important? AL BA RS MK XK ME YU 8000 7000 6000 5000 4000 3000 2000 1000 0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
EU as a conflict deterrent • Western Balkans have lost hundreds of billions euro as a direct result of armed conflicts; avoiding this would have been a major economic benefit • Lack of stability has driven foreign investors away from the region – Considerably less FDI than EU neighbors – Crisis has hit hard and has W shape – Public debt on the rise (29% of GDP in 2008, 70%+ today) – Corruption and uncertainty; rule of law weak
Accession challenges • As in all enlargement cases, environment will take time and money • Key issues are political, not economic • Maastricht criteria tough, but not unattainable in mid term • Joining the common market will have major impact in agriculture, protected both ways • SAA being successfully implemented
Is there a benefit for the EU? • EU has invested into destroyed infrastructure, peacekeeping, aid • Access to WB markets wasn’t essential • Accession of Romania and Bulgaria to the EU and the location of Greece has made a “hole” in the EU territory – Impact on Trans European networks – Transportation costs and times • Stability in the Balkans – where Serbia is by far the largest country – could be highly beneficial for the EU as well in the long term
Unofficial eurization in Serbia • Formal eurization not considered (anymore), primarily due to warnings from the EC • Many examples in the WB region – Full eurization in ME, XK – Pegged currencies in BG, BA • Very high rate of unofficial dollarization in Serbia – above 70% • 98% of term deposits in foreign currency, more than 90% in euro
Costs and benefits of eurizing Serbia • RSD highly dependent on EUR in relation to .08 other currencies .04 (r=0.87) .00 • NBS not interested -.04 • Elimination of currency -.08 risk seen as main benefit; loss of -.12 monetary policy as -.16 2005 2006 2007 2008 2009 2010 2011 2012 2013 largest cost PEUR PRSD
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