As the global crisis deepens, the economic outlook for the region of southeast Europe darkens. How are countries in the Balkans affected by and reacting to the global financial riptide? The crisis resistance of countries in the region has not been tested before on such a scale. Their institutional arrangements remain distinctly fragile. Confronting the crises will require bold and coordinated policy initiatives, sustained international support and the recognition of its social implications.
The global financial and economic crises mean tough times ahead in all hemispheres. The crises will not detour the Balkans. The downturn is proving a major test for political and economic institutions that have little to no experience with such a magnitude of challenges. Much is at stake for the region’s short to medium-term outlook. The economies in the Balkans are facing a serious stress test against the unfavourable backdrop of plummeting economic activity, increasing fiscal problems and worries about the health of their banking sectors.
We assumed that these countries had reached, even passed the ‘point of no return’. The recent events oblige us to reconsider the foundations of this assumption. What happens when the fundamentals around them are changing under the weight of the crises? When is the tipping point reached that economic instability in the Balkans risks translating into political instability? The economic outlook has deteriorated so drastically that resolving the crises will require bold policy initiatives, sustained international support and the recognition of its social implications.
The political fallout from the economic crisis is yet to be decided. The end game will play out in front of us. The political calendar in the Balkans for 2009/10 is filled with presidential and parliamentary elections. They will offer ample opportunities for disenfranchised electorates to use the ballot box as a means of political punishment. Hence, when considering remedies on a case-by-case basis the authorities must seek to incorporate the broader regional picture.
The international crisis response to the worsening economic conditions in the Balkans is a work in progress and subject to a division of labor. In light of the challenges posed, the EU is learning to cooperate with IFIs in the region at an unprecedented scale. The EU and the EIB can bring forms of smart intervention and financial leverage to the negotiating table that complement other IFI’s own sets of expertise and conditionalities.