Balkan Economic Recovery Is at Risk From Greek Woes, Mirow Says

The Balkans remains at risk from Greece’s sovereign debt crisis as the region’s recovery is weaker than elsewhere in eastern Europe, said European Bank for Reconstruction and Development President Thomas Mirow.

Greece, which asked the European Union and the International Monetary Fund for financial aid last year, is seeing its borrowing costs surge on investors’ concern that it may need to restructure its debt. Those concerns may impact banks operating in the Balkans and the EBRD, along with the IMF, will work to prevent the contagion, Mirow said.

For the rest of the Balkans, “I would say it is a potential risk and it needs to be mitigated and contained,” Mirow said in an interview in Kiev yesterday. “We have been quite active, especially in the regard to the financial sector, as subsidiaries of Greek banks play an important role in these countries.”

The EBRD, which was established after the fall of communism to help nations in eastern Europe and the former Soviet Union in the transition to a market economy, forecast the Balkans to expand 1.9 percent this year, half the pace of the rest of central and eastern Europe.

In the region, Slovenia, Romania and Bulgaria are already members of the EU, with Croatia the next in line to join the world’s largest trading bloc. All former Yugoslav nations want to eventually become EU members.

“To start with Romania and Bulgaria, they are very slow to return to growth and that means that they take quite longer than others to recover from the crisis,” said Mirow.

Bosnia Mess

Bosnia & Herzegovina, the scene of the worst fighting during the disintegration of Yugoslavia in the 1990s, is suffering the worst, he said.

Bosnia still doesn’t have a central government after October general elections. Serbs, Croats and Muslims have failed to agree as each nation seeks a dominant position in the landlocked Balkan country.

“There is insufficient will between nations to cooperate in a way that would make Bosnia & Herzegovina a stable and attractive environment for private investments,” Mirow said.

In neighboring Serbia, the most populous of the former Yugoslav republics, the pro-European governments of past years have helped in some areas, though there is a long way to go.

“Serbia is a country that for some years had quite a pro- European majority, but it is struggling in many respects at the same time,” he said. “Western Balkans remain a difficult area and inclusion into more European perspective still has some issues and problems.”

‘Good Signal’

Croatia, which faces elections by the end of the year, aims to wrap up EU entry talks by the end of June as the Adriatic nation struggles to overhaul its judiciary and bolster the economic recovery.

Serbia hopes to win EU candidate status this year. Mirow said the accession of Croatia into the EU would be a “good signal” for the rest of the Balkans.

“The European Union has also drawn lessons from premature accession agreements that do not take into consideration sufficiently, for instance, the situation of the legal system and judiciary,” Mirow said. “I hope they will be accomplished, but I cannot predict it.”

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net Boris Cerni in Ljubljana, Slovenia, at bcerni@bloomberg.net

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net

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