Just North of Greece

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The focus on the crisis over Greece has eclipsed important geopolitical and geo-economic developments in the neighboring Balkans region. South Eastern Europe and the Adriatic Sea have become a crucial area of transit for trade between Europe and Asia. And China is positioning itself as an important player in the Balkans.
by Michael Liebig


In view of the current hysteria over the “Greek crisis”, it’s appropriate to have look at the larger picture: During March and April 2010, while the near-term “default” of Eurozone PIIGS (Portugal, Italy, Ireland, Greece and Spain) or even the “breakup” of the whole Eurozone was allegedly looming, the United States government quietly sold treasury bills worth $509 billion with yields of less than 3%. For the year 2010, public debt in the USA will be 10.1% of GDP, 11.8% in Britain 11.8%, and 6.6% for the 16 Eurozone countries. (source: Thorsten Schulte, Silberjunge, 2010/16). These figures speak for themselves.

Immanuel Wallerstein noted in his May 1, 2010 commentary:

“There is a certain Schadenfreude among U.S. politicians about Europe’s difficulties. What may however save Europe from any implosion is precisely the ever-increasing threat of the implosion of the United States. Europe and the United States are on a seesaw, on which as one goes up the other goes down.”

The speculative “war of aggression” against the Eurozone, as the head of the German Financial Supervisory Agency (Bafin), Jochen Sanio, put it on May 5, has a quite sobering geopolitical and geo-economic background. Sanio did not further specify who the perpetrators of the speculative attack were, even though it is rather obvious that they are primarily Anglo-American financial speculators. They are doing it to reap profits for themselves, but they are doing it within a very specific geopolitical and geo-economic context.

As Southern Europe is the prime victim of the current destabilization operation, it’s useful to have a look at a neighboring region: South Eastern Europe, for which the lessons learned from Greece’s real woes – as opposed to their exploitation for other ends – are quite relevant.

Tito’s Ambivalent Heritage

Thirty years ago, on May 4, 1980, Josip Broz Tito died. He had been the leader of Yugoslavia a for 35 years. Tito was a communist and a dictator, but he created an unique variation of communism with many liberal features. And he created an unique geopolitical niche for Yugoslavia, following his break with Stalin in 1948. After Stalin’s death in 1953, Tito cultivated good relations with both Moscow and the Warsaw Pact countries, and the NATO bloc, which generously rewarded Yugoslavia’s independent stance. In September 1961, shortly after the Berlin Wall was erected, the Non-Allied Movement was formally constituted in Belgrade by Tito, India’s Nehru, Egypt’s Nasser and Indonesia’s Sukarno.

In a way, Tito was Yugoslavia. He held this multinational and multi-religious state of the “Southern Slavs” together, consisting of Serbia, Croatia, Slovenia, Macedonia, Montenegro, Bosnia-Herzegovina, and the non-Slavic Albanians in Kosovo and Hungarians in Vojvodina. (The ethnic Italians and Germans were expelled after World War II). In keeping Yugoslavia together, Tito used brute force, skillful balancing of national interests and his personal charisma.

After his death, the various nationalities began to drift apart, significantly driven by the diversity in economic development. Economically, Slovenia and Croatia were well ahead of the “rest,” but felt disadvantaged by Serbia, Yugoslavia’s political and administrative center, and the need to subsidize the poor southern regions. The end of the Cold War meant that Yugoslavia not only lost its privileged geopolitical position, but its markets in the former East Bloc and easy access to Western credits. By 1992, Yugoslavia was gone – broken apart in bloody wars.

Today, in 2010, Croatia, Serbia, Slovenia, Macedonia, Montenegro are independent states. Bosnia-Herzegovina and Kosovo are de facto “international protectorates” – and will remain so for the foreseeable future. Slovenia is a member of the European Union and Croatia will join the EU within the next few years.

So far, only Slovenia has been doing rather well both politically and economically. Croatia has made much slower progress in overcoming the economic decline of the 1990s “war decade”; and it has been badly afflicted by mafia-like political and business structures. It seems that after the October 2008 mafia murder of Ivo Pukanic, the publisher of the Croatian weekly Nacional, things have been changing. The sudden “resignation” of Croatian Prime Minister Ivo Sanander in July 2009 is being seen as indication that the mafia-like structures have been pushed into the defensive. Croatian President Stipe Mesic (2000-10) and his successor Ivo Josipovic have not only significantly contributed to stabilize the internal political situation in Croatia, but opened up the pathway of reconciliation with the other states of former Yugoslavia.

The rapprochement between Croatia and Serbia is going well; in March 2010, Josipovic and Serbian President Boris Tadic held friendly talks in the Croatian Adria resort Opatjia. In April, Josipovic went to Sarajevo and apologized for Croatian misconduct towards Bosnia-Herzegovina during the 1990s. Reconciliation is not only important in political, but in economic terms. The successor states of former Yugoslavia are each others natural trading partners. Economic reconvalescence in the Balkans will decisively depend on regional economic cooperation.

With the end of the Cold War, the breakup of Yugoslavia, and the “Yugoslav wars,” the Yugoslavian successor states also lost their previously privileged geopolitical position. The Balkans became marginalized – both in geopolitical and geo-economic terms. The Balkans was Europe’s “periphery” and the word “Balkans” regained its pejorative connotation. Instead, Central Eastern Europe – Poland, the Czech Republic, Hungary and Slovakia – became the focus of economic development in Europe.

China Enters the Scene

But now, after two decades of marginalization, things seem to change in South Eastern Europe. While the EU remains the prime factor of geopolitical influence in the Balkans, new actors are arriving on the scene.

The first indicator for the geopolitical de-marginalization was the energy issue. The Balkans is vital transit space for two new natural gas pipelines – South Stream and Nabucco – linking Russia (and eventually the Near East and Iran) with Western Europe. The pipelines will cross Bulgaria, Serbia, Croatia, Hungary and Slovenia. It has been argued that South Stream and Nabucco are redundant, but in reality EU demand for natural gas will necessitate both pipelines, even if the gas routes through Ukraine are regaining their previous significance due to the recent Russia-Ukraine rapprochement.

In March 2010, Russia and Croatia signed an agreement on the Croatian section of South Stream. The signing had been delayed due to Russian worries about the construction of a vast LNG terminal near the Croatian port of Rijeka, which will bring liquefied gas from the Near East and North Africa to Europe. But Russia needs the Croatian transit route to get its gas to Austria and Italy and Croatia needs Russian gas for its own consumption.

And then there is China. Following the BRIC summit in Yekaterinburg, Chinese President Hu Jintao paid a visit to Zagreb in June 2009. The visit indicated that China values highly its relations with Croatia, its largest trading partner in South Eastern Europe. President Mesic told Hu that Croatia should become China’s “gateway” to Eastern and South Eastern Europe. And its seems that this will indeed happen.

In April 2010, the weekly Nacional reported that China is offering a multi-billion investment in the Croatian port of Rijeka, the biggest port in the Adriatic Sea. The port has rail and highway connections to Southern Germany, Austria, Slovakia and Hungary and is is transit point for goods from these countries to destinations on the Middle East and Asia. And in reverse, Rijeka is the transit point for goods from particularly Asia to the above mentioned countries. As the volume of trade between China and the countries of South/Central Eastern Europe has been sharply rising in recent years, Chinese investment in the port of Rijeka would make perfect sense.

The Chinese are reportedly also interested in investing the Southern Croatian port of Ploce, which is the principal port for Bosnia-Herzgovina. This country, more of a confederation of its Bosnian-Serb and Muslim-Croat parts, is still a de-facto EU “protectorate” – 15 years after the signing of the Dayton Accords. The “Office of the High Representative”. currently headed by an Austrian diplomat, is still the supreme power in Bosnia. Economic development is still abysmal. An important factor for catalyzing Bosnia’s economic development is the Ploce-Sarajevo-Bosanski Brod highway – continuing through Croatia to Hungary to Budapest. It seems that the Chinese do recognize the potential of this transportation corridor from the southern Adriatic coast to Central Eastern Europe.

In Serbia, China is modernizing coal power plants, building a bridge over Danube in Belgrade and investing the Serbian auto industry. When Serbian President Tadic visited China in August 2009, an agreement on “strategic partnership” was concluded between the two countries.

The Chinese are known for long-term strategic thinking. They seem to understand that South/Central Eastern Europe does have a promising economic development potential. The Balkans has become China’s prime investment area for infrastructure projects in Europe. And, for these infrastructure projects in the Balkans, Chinese banks are offering soft credit conditions, usually at half the interest rate of European banks.

New Geo-Economic Realities

It seems that Europeans are slowly waking up to the fact that in their Balkans “backyard” new actors begin to exercise major influence. The Frankfurter Allgemeine Zeitung (Febr. 19, 2010) carried a lengthy article, titled “Chinese Billions for the Balkans”, which stated: “Slowly, but successfully, China is becoming a Big Player in the Region”.

If Chinese are waking up Europe as to the importance of the Balkans, that should be welcomed. Soon the Indians, the Gulf states or Turkey, the latter particularly in respect to Bosnia-Herzegovina, might play a similar catalyzing role in the Balkans. First of all, precisely because the still wide-spread economic underdevelopment, the Balkans offers enormous economic opportunities provided a long-range perspective in adopted. The economic progress made in Central Eastern Europe over the past two decades was essentially based on a skilled labor force and high educational levels. These preconditions for economic development do exist in South Eastern Europe as well. The Balkans is ready and capable to make up for the time lost during the “Yugoslav Wars”. It could catch up with Eastern Central Europe.

For the economic development in the Balkans, much can be learned from the mistakes made in Greece. For the past three decades since joining the EU, Greece developed a modern infrastructure mostly due to EU funding. After joining the Eurozone, Greece had unprecedented access to cheap credit – and made use of it without much inhibition. The core problem was that neither public nor private borrowers used much of the credit for long-term productive investments. Greece relied on revenues from tourism and shipping, but didn’t invest in industry and technology-vectored small/medium-sized enterprises. An overblown state bureaucracy was nurtured. And a kind of arms race with Turkey was allowed to absorb vast state funds.

Of course, recognizing these facts is not meant to exculpate European bankers and Anglo-American speculators. The issue here are lessons to be learned for Greece itself, and its neighbors in the Balkans regions. The more so, as the Balkan states have been in a much more disadvantageous position for the past two decades, compared to Greece.

But there are vast opportunities for all South Eastern Europe, including Greece, due to shifts in the global economic landscape. Until very recently, the Balkans was seen as Europe’s “periphery” – a kind of “cul de sac”.

In reality, the Balkans is at the crossroads if overland lines of communication to Eastern Europe, Russia and Central Asia as well as Turkey and the Middle East. Moreover, with the rise of the Asian economic powerhouses, the Mediterranean Sea has regained crucial importance for Asian-European sea-borne trade. The ports of the Northern Adriatic Sea are the transit points best located for shipping goods between Europe and Asia. It’s worth looking at a map to realize how close Munich, Vienna, Bratislava or Budapest are to the Adriatic Sea. And, when it comes to trade with Asia, even for Prague, Krakow in Southern Poland or Lviv in Western Ukraine, the Adriatic Sea is the nearest maritime connection.

Thirty years after the death of Tito, the Balkans are slowly regaining a privileged geopolitical position. It’s no longer in between military and ideological power blocs, but in between global economic power houses. And that’s a good setting economic development in the Balkans.

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