Serbs Selling on Black Market Spurn EU Entry Sales Pitch

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A street vendor stands besides his display of used goods for sale on a road in Belgrade. Close

A street vendor stands besides his display of used goods for sale on a road in Belgrade.

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A street vendor stands besides his display of used goods for sale on a road in Belgrade.

Marija Vasic’s degree from Belgrade University does her no good in her current occupation: hawking rolling papers on a cobblestoned Belgrade street alongside sellers offering bootleg handbags and watches.

The 33-year-old sports administration graduate doesn’t think Serbia’s drive to join the European Union will do her any good either. Vasic still struggles to eke out a living and subsidize her parents’ $139 monthly income, 13 years after strongman Slobodan Milosevic’s ouster promised Serbs they would enjoy better lives.

“If the EU was so good, why isn’t Switzerland a member, too?” she quipped as customers sauntered by looking for deals among the products spread on blankets and car hoods in the capital. “Why don’t they just go ahead and leave us alone?”

Serbs are increasingly skeptical that the price the largest ex-Yugoslav republic is forced to pay to join the EU -- ceding Serbia’s claim on Kosovo, opening the economy to cost-conscious western companies and slashing state social spending -- is too high. Support for the EU is at a record-low 41 percent, polls show, after Premier Ivica Dacic agreed on April 19 to the EU’s terms of giving the breakaway province of Kosovo more autonomy.

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A vendor displays a bag of smuggled tobacco for sale on the black market in Belgrade. Close

A vendor displays a bag of smuggled tobacco for sale on the black market in Belgrade.

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Photographer: Oliver Bunic/Bloomberg

A vendor displays a bag of smuggled tobacco for sale on the black market in Belgrade.

The country is mired in its second recession in three years while one in four are jobless. Per-capita gross domestic product was $4,943 at the end of last year, compared with $41,512 in Germany and $22,192 in Slovenia, Serbia’s former Yugoslav partner, according to the International Monetary Fund.

In response, citizens are flocking to the $12 billion black market. It accounts for about a third of the $37 billion economy, said Milojko Arsic, chief macroeconomist at the Belgrade-based Foundation for the Advancement of Economics and the author of a report on Serbia’s shadow economy.

‘Overwhelming’ Dissatisfaction

“Dissatisfaction is overwhelming and people are dissatisfied with low living standards,” said Svetlana Logar, a sociologist and researcher at the Belgrade-based pollster Ipsos Strategic Marketing, in an interview. “Such sentiment can be dangerous for this government.”

Serbian support for EU membership, which confers such benefits as tariff-free trade and the right to work in any member nation, fell to the lowest level since sentiment began being measured in 2002, according to TNS Medium Gallup Serbia. That was two years after the late Milosevic’s ouster and compares with a record 72 percent in December 2003.

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A man stands beside the open trunk of his car filled with smuggled goods including cigarretes and food stuffs, to be sold on the black market in Belgrade. Close

A man stands beside the open trunk of his car filled with smuggled goods including... Read More

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Photographer: Oliver Bunic/Bloomberg

A man stands beside the open trunk of his car filled with smuggled goods including cigarretes and food stuffs, to be sold on the black market in Belgrade.

In addition, favor for EU entry dropped 8 percentage points over the last six months of 2012 and 36 percent of respondents were “negative or very negative” about the EU, 5 percentage points more than in June, according to the Dec. 14-21 survey, the latest to ask the question. It polled 1,006 adult Serbian citizens and had a margin of error of 3.55 percentage points.

Government Defense

The government has deflected Serbian distrust and anger over EU demands defending the decision in interviews following the agreement. Dacic says he will press on with integration, which promises to open up billions of euros of financing and raise investor confidence in the country’s stability. Still, other governments in the past year, including neighboring Bulgaria’s, have fallen after popular pressure against policies that have prompted street protests.

The dinar is trading at its strongest in 13 months, according to data compiled by Bloomberg. The currency was at 110.4184 against the euro at 9:42 a.m. in Belgrade, up 0.45 percent from the previous close. Yields on the 10-year benchmark Eurobond fell to the lowest since Jan. 31 on April 24, Bloomberg data show.

If Serbia hadn’t signed the Kosovo accord, “people would say that we destroyed Serbia’s European path,” Dacic said on RTS national television on April 24. “This agreement is not about Kosovo, it’s about the biological survival of the Serbian people because we have become small, weak and powerless.”

Serb Protests

Under the agreement between Dacic and Kosovar Prime Minister Hashim Thaci, the mostly Muslim former province will allow the local Serb community to choose its own police commander and judges. Kosovo will have an unhindered path to pursue its own EU aspirations, while Serbia continues to disapprove of Kosovo’s membership in the United Nations.

Over the April 20-21 weekend, hundreds of Serb opposition voters protested in Belgrade with anti-government banners that said “You betrayed Kosovo.” Demonstrations continued into the week as EU enlargement chief Stefan Fule said the European Commission may decide on June 25 on a start date for accession talks.

“Asking a Serbian if he chooses the EU over Kosovo is the same as asking him to choose whether he wants his left or right leg amputated,” said Marko Blagojevic, program director at the Belgrade-based Center for Free Elections and Democracy, explaining the popular anger to the EU-sponsored agreement.

Kosovo Recognition

The Serb government and main political parties have refused to acknowledge Kosovo’s 2008 declaration of independence, even though it has been recognized by more than 90 nations, including the U.S. and 22 of the EU’s 27 countries. The EU says Serbia’s chances are linked directly to a political settlement with Kosovo, which it considers to be the cradle of Serbian culture.

“It is crucial now that the political leadership and general public in both Serbia and Kosovo support the agreement and actively help to implement it,” the EU’s Fule said April 19 in Brussels.

Nationalist Serb politicians and church leaders joined to condemn the government’s conciliation moves.

“The government has entirely betrayed the Serbian people and will eventually abolish the Serbian state in Kosovo,” said Vojislav Kostunica, the head of the Democratic Party of Serbia and a former prime minister. The Serbian Orthodox Church called the accord a “surrender” of Serbia’s “most important territory.”

‘Nothing Good’

Danijela Jokic, 39, who lost her corporate job last September and now hawks discount cosmetics in a Quonset hut set up at the Belgrade makeshift market in downtown Belgrade, says she’s angry as well.

The government is more willing to accommodate the EU than to help citizens who are suffering from cost-cutting measures designed to bring Serbia’s fiscal policy in line with EU requirements, she says.

“The EU won’t bring us anything good,” said Jokic. “The government certainly shouldn’t be accepting this deal with Kosovo. They are supposed to give up something and get nothing?”

Deficit Cuts

Dacic’s Cabinet has pledged to cut the budget deficit to 3.6 percent of economic output this year from 6.7 percent in 2012 by holding back public sector wages and reducing subsidies to state companies. By contrast, the Fiscal Council, a three- member body appointed by Parliament to oversee compliance with the rules, sees the deficit as high as 4.5 percent.

The Finance Ministry said today that it will execute the early repayment of $400 million in debt to the London Club of creditors tomorrow, creating a savings of $13 million in interest payments. Serbia owes $860 million to the club, which wrote down 62 percent of the Balkan nation’s debt in 2004.

Image Problem

“A country’s image is quite important for investors,” said Filippos Karamanolis, the head of Eurobank AD, the Serbian unit of Greece’s Eurobank SA, in an interview at a March economic forum in central Serbia. “People know very little about Serbia. They know about bombings.”

At the Belgrade market, business is brisk for 70-year-old Bora Leskovcanin, who peeked over piles of potatoes, carrots and lettuce being sold for less than the local grocery story is offering.

“The EU keeps on blackmailing us,” said Leskovcanin, who said he is disappointed by government talks with Kosovo. “We should look at Russia, China and India for partners. That’s where our markets are.”

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net; James M. Gomez in Prague at jagomez@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net

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