Towards Stabibility and Prosperity: Economy and Employement in the Western Balkans

20 October 2006

Name: Towards Stabibility and Prosperity: Economy and Employement in the Western Balkans
Date: 24 June 2006
Location: Belgrade
Organised by: The European Forum for Democracy and Solidarity
In Cooperation with: Friedrich Ebert Stiftung office Belgrade
Labour Party/ Westminster Foundation for Democracy
Alfred Mozer Stichting

Background
Since the settlement of the conflicts of the 1990s, the Western Balkan states have been engaged in a stabilisation and reform process that improved the economic climate in the region. This process is stimulated by the European Union (EU), which considers it a priority to promote the development of peace, stability, prosperity, and freedom in the region. The EU encourages domestic reform processes through the Stabilisation and Association Process. Stabilisation and Association Agreements, already in place with the former Yugoslav Republic of Macedonia and Croatia, are currently being negotiated with Serbia and Montenegro and Bosnia and Herzegovina, and Albania reached agreement few weeks before the conference.

Lack of political stability may also affect the prospects for economic growth. In this respect, major developments such as the status negotiations on Kosovo, the referendum on independence in Montenegro and the constitutional reforms in Bosnia-Herzegovina play an important role in shaping the economic outlook of the region.

Despite the reforms that have brought the region closer to European standards, still many challenges lie ahead. The economic transition implied changes in the basic functioning of the economies in the region and caused an increase of unemployment. According to figures of the Worldbank (2005) unemployment rates in the Western Balkan states lie between 10 and 22 percent, except for Macedonia which has 30 percent, while other figures show a high figure particularly as well for Kosovo (up to 50 percent). Women and youth account for a disproportionately high share of the unemployed.

The fight against unemployment and poverty has always been one of the core issues addressed by social democrats. In this respect, social democratic forces in the Western Balkans and in the EU ought to play a decisive role in solving urgent socio-economic questions in the region.

Report
On 24 June the European Forum organised a conference of social democratic parties and
foundations in Belgrade, which aimed to:

gain insight into the socio-economic situation in the Western Balkans
assess the economic implications of the Stabilisation and Association Process and other major political developments in the region
discuss the role of social democrats in the region, as well as the EU, in solving urgent socio-economic issuesstrengthen contacts between social democratic parties and foundations from the EU and the region
discuss the different approaches of combating unemployment in Europe and sharing best-practices.

Opening
Jan Marinus Wiersma, (Vice-President of the PES Group) opened the morning session on behalf of the European Forum. He noted that progress had been made in the region and summed up the main challenges ahead, one of them being the status negotiations of Kosovo. However, despite these highly sensitive topics that are addressed constantly in the press and politics he noted that the topics of the day – economy and employment – are also very important to address, as people are faced with it in their everyday live. Jan Marinus Wiersma identified six key-areas, which should be addressed to boost economic growth in the region:

Reform of institutions in order to create a good climate for international investment
Make sure that growth is a profit to everybody
Invest in infrastructure
Invest in education
Create free trade zones in the region
Privatisation

Wiersma stressed that the Socialist Group in the European parliament sticks to the membership promise that was made to the countries that are in the Stabilisation and Association process.

Economy and employment in Serbia: current policies and challenges ahead
Radmila Katic representing Slobodan Lalović, the Minister of Labour, Employment, and Social Policy presented a wide range of statistics showing the progress that was made in Serbia. However, she had to admit that Serbia does not have a strong competitive position yet. Another problem is that the economic growth does not result in less unemployment. In the opinion of the Minister the main solution lies in education, as many people on the labour market are not qualified. Other plans to reduce unemployment, at the moment being implemented, are the creation of employment support on the local level and the broadening of a network of employment agencies.

Slavoljub Lukovic (Secretary United Branch of Trade Union “Nezavisnost”), stressed the importance of involvement of social partners in searching for solutions. He recognised the need for privatisation as a price to pay for a better future. However, in his view, besides the free market, it is also necessary to create a sustainable and socially just system.

Milos Jevtic (International Secretary of the Democratic Party) said that it is impossible to avoid to say that it is a crucial year for Serbia. The independence of Montenegro, the co-operation with the International Criminal Tribunal for the Former Yugoslavia, the status negotiations on Kosovo – all have their impact on economy and employment. In his view there is a lack of harmonisation of laws and a dysfunctional slow administration. Also it is important to build a good company infrastructure to attract Foreign Direct Investment (FDI). He expressed his hope that the next government will be of a social democratic signature so future privatisation can be carried out with attention for the social component.

Olga Knezevic (Member of Presidency League of Social Democrats of Vojvodina) explained the situation in the local town of Kikinda, a place in Vojvodina where the Radicals are in power. Since 2003 privatisation started in the town and many people lost their jobs. In her view, unemployment is one of the main reasons for people to vote for the Radicals. She explained that it is very hard to set up small businesses as the tax registration is blocking this. Also she noted that the people in Kikinda are not ready to take their fate in their own hands as they have an industrial mentality. She noted that there should be more possibilities for foreign companies to make Greenfield investments as the factories that are privatised are too run down to be interesting for foreign investors.

Meho Omerovic (Member of Parliament Social Democratic Party of Serbia) criticised the numbers and figures the Ministry presented and said that stability is needed to improve the situation in Serbia. He also said that privatisation is carried out in the wrong way as the workers are not involved and the living standards are going down. In his view corruption in the ministries and populist measures aimed a short term results harm the social and economic development of the country.

After the panellists finished their speeches a lively discussion took place. Heinrich Sassenfeld (Friedrich Ebert Stiftung Belgrade) wondered what the government can do to support small and medium sized companies, that have the highest employment impacts while Natasa Milojevic (International Secretary of the SDP) and Ivan Canovic (President of Youth of SDP) emphasised the importance of education. Katic replied that only investments will lead to more workplaces and said it is needed to bring all parties together to work in a positive way on the challenges that lie ahead.

Rob van de Water (Party of European Socialists) asked the panelists what would be the economic consequences of the independence of Montenegro and possibly also Kosovo in the future. Arben Ahmeti (Socialist Party of Albania) said that is impossible for the government to create jobs as the government shrinks. He pledged to increase possibilities for private education. Hannes Swoboda (Vice-President of the PES Group) said that good conditions for incentives for the private sector must be created. Only privatization, which is carried out in a transparent way, can be conducive to real economic growth in his view.

Regional cooperation in the Western Balkans and the Stability Pact
Vlatko Sekulovic (Serbian Deputy Minister for International Economic Relations) started his speech by saying that the region is doing well. Productivity and foreign trade is growing as a result of a system of free trade zones, established with help of the Stabilisation and Association process. In his view, the CEFTA agreements can be broadened, also including intelligence property rights and investments. He called for the need of a system for settlements of disputes between countries and to change the Stability Pact into a regional council that co-ordinate issues that are now defined in work groups. Instruments that foster investments in the region are necessary in his opinion, especially in the field of small and middle sized companies and rural development. Sekulovic cited a Worldbank report which ranked Serbia number one when it comes to speed of reforms. In his view the biggest challenge for the region is the increased tendency to protectionism.

Nina Stevanovic from the Social Democratic Party of Bosnia and Herzegovina explained that though economic growth in Bosnia is high, unemployment is too. Many people are working in the grey-economy and this is also a problem because it is difficult to reach those people with employment policies. The main problem of Bosnia’s economy in her view is the complex structure of the Bosnian state. Privatisation measures are not harmonised on the state level. Another problem is the immobility of people. According to Stevanovic, the only way to solve all these problems is European integration.

Jasmin Komic (Member of the Alliance of Social Democrats and Deputy Mayor of Banja Luka) illustrated the problem of regional co-operation by telling that trucks and cars have to wait for more than an hour at the border. Easier cross-border traffic and more regional co-operation is essential to fight against trafficking and organised crime. In his view, privatisation was carried out correctly in Bosnia-Herzegovina. As a member of the negotiations team for the Stabilisation and Association Agreements he reported that the talks go smoothly and can be concluded the end of the year. Before that essential reforms in the field of police and broadcasting must take place.

Arben Ahmeti of the Socialist Party of Albania proudly announced that Albania signed the Stabilisation and Association Agreement two weeks ago. He said that for fostering economic growth no new instruments are needed as the World Trade Organisation offers the right ones. The key to economic growth in his view are property reforms which enable it that companies can actually own the land they are operating on. In addition, the borders should be more open and investment in infrastructure is needed. According to Ahmeti we should not be afraid of privatisation as it can create jobs. In Albania, he fears instability as a consequence of the new Berisha government. The administration is highly politicised as only 6 percent of the staff remained in position after the change of government.

After the panel discussion the other participants entered the discussion. Axel Sotiris Wallden from PASOK noted that progress is being made with signing agreements but implementation is far from what is should be. Regional integration and liberalisation creates winners and losers and he stressed the importance of addressing the problems based on the principle of solidarity. Hannes Swoboda wondered if Albania could develop a tourist sector and questioned privatisations that are taking place step by step. Grigor Gradev from the European Trade Union Institute noted that first the states must function well and only after that the market can develop. For the Albanian case he saw that the winners of the previous round of reforms are the loosers of the next round. Main problem according to him is the negative image of the region, which scares away FDI. Komic stressed the importance of local economies and Stevanovic said that people should be better informed about European integration.

Vlatko Sekulovic concluded the session by summarizing the session in four points:

Dismantling of customs barriers is key to economic growth in the region
Investments in infrastructure and measures that foster small and medium size companies are needed
Privatisation of the entire economy should be carried out as soon as possible
The image of the region is already changing for the better, especially if you take in consideration the starting point.

The role of the European Union in bringing about economic reforms in the Western Balkan region
In his keynote speech Hannes Swoboda distinguished two tracks that need to be developed in the region: economic and values. Also he dismantled the idea that European enlargement is some sort of philanthropy and said that it is mainly happening because it is the self-interest of the European Union to have a stability and the possibility to increase investments.

When it comes to privatisation Swoboda urged to be pragmatic and to adept the process to your own situation. This means sometimes it is good to go step by step, and sometimes to go fast. He once more stressed that the Socialist Group attaches great importance to the roadmap to the EU. However, the pace and progress of European integration depends on the respective countries themselves.

Hannes Swoboda propagated a mixed economy, in which both competition policy and a social plan find its place. It is also possible to learn from other social models in Europe, like the Socialist Group did when they proposed to follow the Nordic model. In this way a business friendly climate in which workers feel at home can be created.

According to Swoboda the Lissabon process is also relevant for the region, as it offers extra possibilities for training and education and ways to exchange ideas. In his view the region should not loose any time as China is attracting the investments that could be interesting for the Balkan countries too. He concluded by saying that the EU has to offer money, markets, advice, and a roadmap.

Oliver Dulic (Head of the European Integration Committee of the Serbian Parliament, Democratic Party) said Serbia needs the EU for financial assistance and also to help to alternate the image of the region in the member states. In addition he stressed the importance of visa policy liberalisation, as young people should be able to travel and broaden their horizon.

Josip Juratovic (Croatian Member of Parliament from the German SPD) told that though Germany is co-operating with Serbia, for example in the field of parliamentary co-operation, Germany is not really working on the regional problems because it has too many problems of its own. He stressed that the EU can help, but in the end the problems have to be solved in the region on the ground, taking into account cultural traditions. He stressed the importance of social dialogue and involvement of the trade unions. The ideal example in the region according to him is Slovenia. The key to success in this country was the focus on small and medium sized companies in his view.

After the panel discussion the debate focused more on the problems of EU enlargement. Axel Sotiris Wallden said that the discussion on the lack of absorption capacity of the EU without the new Constitution is also relevant for the Balkan countries and urged them to take part in this debate. Also Arjen Berkvens (Secretary General of the European Forum and Director of the Alfred Mozer Stichting) stressed that the enlargement critiques in the Netherlands and other countries are very strong and should not be underestimated. Oliver Dulic ensured that the people in the region are very well aware of the problems within the EU.

Economic challenges in Europe and social democratic answers: jobs, jobs, jobs!
The last panel of the day was introduced by Judith Shapiro (London School of Economics)
who noted that jobless growth is like social dynamite. In her view unemployment is
never acceptable and always something should be done about it. According to her the fact that many people are employed in the grey sector is a symptom that something is wrong as informal economies are a survival method. Deregulation of labour markets only does not work. There is a double obligation, according to Shapiro: there is an obligation to work and to provide work.

In her view active labour market policies should not be the main focus of governments, however the need to create an investment climate should. European integration and education are the keys to success, though there are no magic answers. Shapiro noted that people who are provided with special training can also be stigmatised and loose the job they got very quickly again, like happened in Slovenia. Shapiro ended her speech in an optimistic mood saying that the situation in the Western Balkans is not hopeless; certainly not if you think on the progress that has been made by the countries that already joined the EU. Political will to change things are making the difference.

Alfred Pfaller (Director of the Friedrich Ebert Stiftung office in Bucharest) said the main problem of the Western Balkan is the declining workforce because of emigration, aging and unemployment. To solve this he said it is necessary to close the gap between the formal and informal economy. He advised the countries to adopt a Nordic model with social security linked to citizens, instead of a continental model with social security linked to the jobs. In addition he pledged for creating well-paid service jobs in the public sector. To be able to do so high taxations are necessary.

Grigor Gradev (Senior Researcher at the European Trade Union Institute and Coordinator for the SEE Stability Pact at the European Trade Union Confederation) dismantled the myth that Foreign Direct Investment is the main creator of jobs. In his view domestic investments are the basis of new labour markets. Labour unions should make sure that social partners are involved in European (social) policy making. Labour unions have the chance to make directorates that have to be accepted by governments. According to Gradev it should not be forgotten that it are the employers who create the jobs. He pointed out that social policies are not self-evident. For example in the beginning there was no mentioning of the word social in the Stability Pact. Now there is a social initiative.

Helen Goodman (British Labour Party MP) showed with examples from Great Britain that political unsettlements do not necessarily have to mean that economic growth is hampered. She advised the people in the room not to take the most difficult questions first and not to do everything in the same time, She also warned that it would be a bad idea to heavily invest in roads, but pledged for the construction of railways to avoid pollution.

When the discussion was opened for all participants Katic on behalf of the Serbian government questioned the high fees for consultants from the European Union. Helen Goodman stressed the importance of Greenfield investments, but advised the governments to insist on social commitments of the investors. Gradev addressed once more the problems encountered with privatisation pointing out that there are 100 ways of doing it unfair. He proposed that companies that nobody wants to have could be given away and afterwards give some of the profit to the previous owners. Helen Goodman, who said that she was impressed by the openness and honesty of all speakers, concluded the meeting in a positive spirit. She noted this is exactly the mood needed to solve the urgent problems of economy and employment.

Conclusions
The conference can be considered a success. It was clear that amidst the crucial political developments taking place in the region it is highly valuable to discuss economy and employment, since it is in fact the most important topic people are facing on a daily basis. Especially social democrats in the EU and the region have a special task to formulate pragmatic answers to urgent social economic questions.

The conference offered an excellent platform to share experiences and discuss in an open way. Though different insights surfaced, some general conclusion can be made:

Economic growth and reforms in the Western Balkan region do not yet translate into growth of jobs. Social democrats should not accept this and concentrate on fighting unemployment by creating an attractive investment climate.
Privatisation should continue with consideration of local circumstances and social plans to protect the workers who loose their jobs.
Labour unions should be involved in creating socially just economic policies.
Education and training are the key to a labour market that is ready for international competition.
Special attention should be paid to stimulate the growth of small and medium sized companies, as employers are the main creators of jobs.
Regional co-operation and free trade zones are important for strengthening the economic outlook of the Western Balkan region. To strengthen this, customs unions and investments in infrastructure are needed.
Social democrats in the EU and the region remain committed to fulfilling the roadmap to EU integration of the Western Balkan countries. However, both in the EU and the Western Balkans work needs to be done. The EU needs to address absorption capacity problems and try to involve eurosceptic populations, while in the Western Balkans criteria for accession have to be met.

Kirsten Meijer
Project Manager European Forum
30 June 2006

Reactions

EU economy
Posted: Saturday 18 October 2008 - 01:48:29

Hi..
The EU encourages domestic reform processes through the Stabilisation and Association Process. Stabilisation and Association Agreements for the urgent problems of economy and employment.
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Gomez
http://www.sreevyshcorp.in

Gomez

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