Economic challenges of Serbias accession to the EU CEU CENS - - PowerPoint PPT Presentation

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, Montenegrin 0.12%

RO BG RS ME 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

• National currency, the

dinar, has depreciated significantly vs. the euro since 2001 (60>120)

• Export elasticity to

depreciation is 0.51- 0.56; but imports are on the constant rise as well

10,000 20,000 30,000 40,000 50,000 60,000 70,000 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 20,000 40,000 60,000 80,000 100,000 120,000 04 05 06 07 08 09 10 11 12 13 14 M_SMTK0 M_SMTK1 M_SMTK2 M_SMTK3 M_SMTK4 M_SMTK5 M_SMTK6 M_SMTK7 M_SMTK8 M_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
• n 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?

1000 2000 3000 4000 5000 6000 7000 8000 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

AL BA RS MK XK ME YU

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
• n EUR in relation to
• ther currencies

(r=0.87)

• NBS not interested
• Elimination of currency

risk seen as main benefit; loss of monetary policy as largest cost

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