by Katinka Barysch

Now that Kosovo’s independence party is over, the hard work begins. Despite the efforts of the UN and the EU, the institutions of government remain fragile, corruption is rife, and organised crime is a problem. Although growth has picked up, the economy remains in a woeful state. Kosovars like to blame poverty and joblessness on politics. Many hope that, now that the status question has finally been settled, money will start flowing in, creating growth and jobs.

This may be true as far as official assistance is concerned: as an independent country, Kosovo hopes to be able to borrow from the IMF, the World Bank and other financial institutions. More aid will also be forthcoming, since the international community cannot afford to see Kosovo fail. The European Commission and the World Bank are planning to convene a donors conference over the next couple of months. The Commission expects the Europeans to drum up €2 billion, and the Americans say they will contribute $400 million.

However, the Europeans are also aware of the risk of turning Kosovo into an aid-dependent protectorate. Since 1999, the EU and its member-states have already given €2.6 billion to Kosovo. A lot of that went into rebuilding houses and roads after the 1998-99 conflict. But it has failed to build a viable economy. Even today, perhaps 20 per cent of Kosovo’s GDP directly depend on foreign aid.

Kosovo’s economic problems are not only the result of the sanctions of the 1990s and the 1998-99 conflict: when it was still part of Yugoslavia, Kosovo already relied on big transfers from Belgrade, and unemployment was much higher than in other parts of the federation. But in the 1990s the economy basically collapsed. And despite signs of recovery in recent years, the challenges remain huge.

Official unemployment stands at around 40 per cent. And even if black market activities and subsistence agriculture are taken into account, there are more Kosovars on the dole than in a job. Unemployment is particularly high among those under 25, who make up half of Kosovo’s 2 million people. Around half a million Kosovars have left to work in the EU, many of them illegally.

Of those who stayed at home, more than a third live below the poverty line, and social services only reach a tiny share of them. There are no industries to speak off, and little to export apart from scrap metal. The current-account deficit amounts to 50 per cent of GDP (although that is inflated by the big international presence). Although the EU claims that it has invested €400 million into the power sector alone, regular electricity blackouts remain the biggest problem for local businesses.

The news is not all bad: GDP growth has picked up despite a gradual reduction in international aid; household incomes have been rising; tax revenue has started to recover, and privatisation has provided the budget with an independent source of cash; and almost all children now go to school, at least some of the time.

Some foreign companies have started to look at the mining and power sectors: Kosovo sits on Europe’s second largest deposits of brown coal, and it also has sizeable resources of lead, zinc and nickel. Building up these sectors for exports would reduce the external deficit and bring in foreign exchange. But since energy and mining are capital rather than labour intensive industries, they will not create many jobs. The resolution of status alone will not be enough to attract foreign investment into other manufacturing sectors and services. Kosovo will need a more open and transparent business environment, an efficient state administration and skilled workers. Despite the EU’s help and promise of eventual accession, such reforms will take years.

The World Bank says that even with 6 per cent annual growth (twice what Kosovo manages at the moment), it would take ten years to cut unemployment by half, from 40 to 20 per cent. Persistent unemployment, in particular among the young, will fuel frustration, which would be bad for political peace.

There are two things that the EU could do to help Kosovo’s economy now, apart from giving money and advice. Both will be controversial. First, it should help the farm sector, which is where most Kosovars work. It is hugely inefficient but has potential for quick improvements. With EU farm aid and better market access, Kosovo could start selling fruit, vegetables and meat abroad. Second, the EU should keep its labour markets open: one in five Kosovo households relies on remittances from abroad, and they probably contribute more to Kosovo’s economy than all foreign aid put together.

Katinka Barysch is deputy director of the Centre for European Reform.

by Katinka Barysch

Political turmoil is nothing new in Turkey. After six years of unusual stability, tensions have mounted since early 2007. The army threatened to topple the AKP government in case it made Abdullah Gul president. Gul did become president, and the AKP emerged strengthened from an early election. Now the chief prosecutor has pushed a case in front of the constitutional court that threatens to ban the AKP because of its alleged anti-secular activities, most notably ending the ban on women wearing headscarves in universities.

So far, the EU has tried to stay out of Turkey’s battle between the mildly Islamist AKP and the increasingly desperate secular establishment. But last week Olli Rehn said that the court case was a mistake. Both he and Javier Solana have indicated that if the constitutional court banned the AKP, the accession negotiations would be off – or at least that is how the Turkish press have interpreted their statements.

A number of the people I spoke to during a Turkey visit last week were unhappy about the EU apparently taking sides. They say that Turkey’s West European friends underestimate the threat of creeping Islamisation. They worry about what Commission President Barroso will say when he arrives for his first official visit to Turkey this week.

The AKP and its supporters have a point when they say that this case is political and therefore merits a political response. They say that the 160-page indictment is based more on past statements by AKP politicians than on their actions. Yet not one of the 11 constitutional judges voted against accepting the case. To many, this indicates that the outcome is a foregone conclusion.

The AKP would not be the first party to be banned for allegedly violating the constitution: 24 have been shut down since the 1960s, including the AKP’s predecessors. But the circumstances have changed. The AKP has built up an impressive track record of reforms and modernisation during its seven years in office. It is popular enough to rule without a coalition partner. If it were closed down, it would reappear in a different guise and probably win another election. However, its top leadership, including Prime Minister Erdogan and President Gul, would most likely be banned from politics for years. For an organisation as hierarchical as the AKP this is hardly an acceptable outcome.

Instead, the government is thinking about pushing through a constitutional amendment that would make it harder to ban political parties. AKP leaders refer to the Council of Europe, which has said that only parties that support violence should be outlawed. The AKP does not have quite enough votes in parliament to change the constitution. It would need some support from the opposition, which would come at a hefty price. Alternatively, the AKP could put any amendment to a referendum, which it would presumably win.

Such a strategy may work, in the sense that it would prevent a ‘judicial coup’ against the government. But it would hardly assuage the concerns of those who suspect the AKP of using democracy as a means to pursue a hidden agenda of Islamisation.

That is why the European Stability Initiative – in a scary report about Turkey’s ‘deep state’ released last week – is calling on the government not to amend the old constitution but adopt an entirely new, more modern one. The ESI is right that a move to make it harder to ban parties would be more acceptable if it was part of a wider reform package.

It is also true that Turkey needs a new constitution: the current one dates back to the last military coup in 1982. However, the draft that legal experts wrote for the AKP last year has disappeared from view. Promises of a nation-wide debate have so far remained unfulfilled. Instead, the AKP has started doing constitutional change ‘a la carte’, especially by ending the headscarf ban. That was a mistake. But a constitution that was hastily adopted in an attempt to ensure the AKP’s political survival would lack legitimacy. Turkey first needs a wider debate about individual rights and a suitable systems of checks and balances. Constitutional change is simply too important for the future stability of Turkey to be rushed (see also
More than just a debate about the headscarf, article by Katinka Barysch, Financial Times, 7 November 2007).

There are other steps the AKP can take to bolster its reformist credentials; and it is taking some already. Erdogan now talks more about the government’s commitment to EU accession than he has done in a long time. After years of delay, a group of MPs has finally submitted amendments to the controversial article 301, under which the likes of Orhan Pamuk have been prosecuted. There is much more that the AKP could do, from liberalising rules for other religions to promoting women’s rights and making it easier for smaller parties get funding and parliamentary representation.

Barroso and other EU politicians should explain to Turkey that, unfortunately, the EU cannot offer an easy way out of the current dilemma. But that whatever the AKP decides to do would be more acceptable if the AKP restarted the modernisation and EU accession efforts that it has been neglecting over the last two years.

Katinka Barysch is deputy director of the Centre for European Reform.

by Tomas Valasek

On July 21st, Serbian security agents hauled Radovan Karadzic off a bus in Belgrade and took him into custody. The long-wanted wartime leader of the Bosnian Serbs now awaits extradition to the International War Crimes Tribunal (ICTY) in The Hague, where he stands accused of crimes against humanity for his role in the 1992-95 Bosnia war. My conversations with analysts, journalists and diplomats in Belgrade this week suggest that his arrest could signal the beginning of Serbia’s full reconciliation with its role in the Yugoslav wars. It also opens the door to improved relations with the EU. However, Serbia’s application for EU membership will remain on hold until Belgrade and Brussels can agree on a better way of co-operating over Kosovo.

Karadzic had been hiding in Serbia for much of his 13-year run from the law. There are two schools of thought among local and Western observers in Belgrade on why the Serbian security forces moved to arrest Karadzic. Both assume that Serbia has known for a while that Karadzic had been hiding on its territory, rather than in Bosnia, where he committed his crimes. And both acknowledge that Serbia’s co-operation with the Hague Tribunal has been half-hearted of late.

Belgrade did arrest some accused war criminals, most notably Serbia’s former leader, Slobodan Milosevic. But shortly after Milosevic’s arrest – and largely because of it – elements in the security forces assassinated the then-prime minister Zoran Djindjic. Subsequent governments have been far more cautious. Belgrade would occasionally arrest smaller fish, usually right before important EU summits. This allowed Serbian governments to claim compliance with The Hague’s demands, without really dealing with Serbia’s role in the Yugoslav wars. All along, security forces loyal to the Milosevic regime were allowed to protect the most wanted criminals, like Karadzic and General Ratko Mladic, the wartime commander of the Bosnian Serb military.

So when the news of Karadzic’s arrest broke, some in Belgrade and Brussels – the first school of thought – saw it as a half-hearted attempt to improve Serbia’s image and win kudos with the European Union, which Serbia would like to join as soon as possible. But this time, things may be different. The second school of thought, to which I subscribe, argues that domestic politics played a crucial role in the arrest.

Karadzic’s arrest comes shortly after Serbia voted in what is arguably the most pro-EU government since Djindjic’s assassination. All recent Serbian governments had combined openly pro-Western parties with more nationalist voices, and so does the current coalition. But in this government the roles have been reversed. President Boris Tadic’s party ousted the nationalist prime minister, Vojislav Kostunica, who had been seen in Belgrade as the main obstacle to arrests of Karadzic and Mladic. Pro-EU parties now dominate, and they have gained a tighter control over the security apparatus. Right after forming a government, Tadic removed the head of secret service, who had helped protect indicted war criminals. The arrest of Karadzic came just two days later. People close to Tadic believe that the other remaining ‘big fish’, like Ratko Mladic, will be arrested soon as well.

Tadic won the election on a platform of bringing Serbia into the EU and attracting Western investment, both of which should improve Serbs’ poor living standards. But the EU wanted (and still wants) to see more arrests of war criminals before it moves Serbia’s application forward. No arrests, no EU integration, no foreign investment, no economic recovery. So Tadic decided that there were strong domestic reasons to move forward on the war crimes issue. The arrest of Karadzic, Serbian analysts say, has also helped boost Tadic’s image – he had a reputation for vacillating but this bold step has made him look like a leader. And he seems to have rightly calculated that the Serbian public would support him. There were precious few demonstrators in the streets of Belgrade after Karadzic’s arrest. This, in turn, made the nationalist opposition look out of touch.

On balance, Tadic’s pursuit of war criminals seems genuine. It strengthens his domestic political position, and it improves Serbia’s standing in the eyes of the EU. But Kosovo will continue to plague the Brussels-Belgrade relationship. Serbia is a candidate for EU membership, and it recently signed a new partnership agreement with the EU, the ‘stability and association agreement’, or SAA. But the EU has held up the agreement’s entry into force, in order to pressure Belgrade to apprehend war criminals. The EU also has a second reason for being reluctant to speed up Serbia’s integration process: it wants co-operation from Serbia on Kosovo. And there has been very little progress on the latter point.

Most EU states have recognised an independent Kosovo. But Serbia, even under its current government, remains categorically opposed. Instead, it has effectively divided Kosovo by taking administrative control of the country’s north where much of the population are ethnic Serbs. Belgrade now finances health workers and policemen serving local Serbs in Kosovo. It is also preventing the EU rule of law mission, EULEX, from fully deploying. Tadic has hinted at wanting to improve co-operation with the EU – for example, he is sending back Serbian ambassadors to those EU countries that have recognised Kosovo (Kostunica had recalled them). But more needs to be done; Serbia needs to allow the EU police to operate in all of Kosovo. Until then, its ties with the EU, even after Karadzic’s arrest, will remain strained.

Tomas Valasek is director of foreign policy and defence at the Centre for European Reform