Jan. 20 (Bloomberg) -- Milos Simic remembers huddling in a shelter 15 years ago, fearing for his life, as NATO bombers hammered the capital of Serbia and drove the nation into chaos.
Today, the 37-year-old realtor touts the investment potential of Belgrade, where rundown buildings still bear the scars of the war. A plan to become part of the European Union with Serbia’s former foes in the 1999 U.S.-led assault is the only way to move beyond the bloody past, rekindle trust in the economy and improve wealth for future generations, he says.
“At least I hope my children will have a happier life,” Simic said by phone in Belgrade. “There’s nothing else we as Serbians can choose, but as we get closer to the EU, things like investments will become all the more available.”
Serbs, whose country led Yugoslavia under strongman Slobodan Milosevic before it collapsed, begin official talks tomorrow to join the EU as they struggle to emerge from the effects of two recessions since 2009. The start of negotiations follows years of resistance to EU demands to give up suspected war criminals, renounce its claims on the former province of Kosovo and bring the judiciary into line with EU norms.
Though Prime Minister Ivica Dacic says he wants to achieve membership in the world’s largest trading bloc within six years, Croatia, a former Yugoslav partner that joined in July 2013, needed eight. That compares with the 6 1/2 years it took for Slovenia, the first applicant from the defunct federation to be accepted in 2004.
“The goal is for Serbia to be ready by 2018 for European Union membership and prepared to be accepted by the EU as a member with the start of their next budget cycle in 2020,” Dacic told B92 broadcaster in Belgrade.
While other ex-communist states that joined the EU have seen living standards surge, Serbia has languished at about a third of the EU average over the last decade. At the same time, it has won only half of the foreign direct investment lured by the bloc’s poorest member, Bulgaria.
“Serbia has a different bar to meet,” said Tony Verheijen, the World Bank’s representative in Serbia. “The EU has learned from the experience of letting in countries that didn’t have fully qualified institutions.”
Serbs consider Kosovo, a largely Muslim-majority enclave when it was the focus of the 1999 bombing that toppled Milosevic, as their religious and cultural heartland.
The North Atlantic Treaty Organization pushed Serb troops out of the territory 15 years ago, leading to its 2008 declaration of independence, which Serbia has never officially recognized.
Serbia was also at the center of the 1990s Balkan civil wars, the bloodiest fighting in Europe since World War II. That conflict left 140,000 people killed, 4 million more displaced and led the Yugoslav federation to eventually split into seven separate entities, including Kosovo.
While Milosevic died in custody in March 2006, other leaders are still being tried for war crimes and charges of ethnic cleansing.
With enlargement enthusiasm waning among some EU members since the first expansion into ex-communist Europe in 2004, the Balkan state will face closer scrutiny than previous candidates, particularly over tackling corruption, improving the rule of law and mending ties with Kosovo.
The economy will grow 1.5 percent this year, according to the central bank. The government has stepped up plans to sell state companies, consolidate the deficit by 2016 and renew talks with the International Monetary Fund, which cut off ties in 2012.
Investors have responded to the EU drive by pushing down the yield on the 2021 dollar bond to seven-months, according to data compiled by Bloomberg. The yield fell below 6 percent last week for the first time since June 6, from a record high of 7.469 percent on Sept. 10. It traded at 5.877 percent at 3:11 p.m. in Belgrade today.
Foreign direct investments, which totaled $24 billion from 1994 to 2012, are less than half of what neighboring Bulgaria, the EU’s poorest member, lured in the same period.
Serbia ranked 95th out of 178 countries, between Namibia and Lebanon, according to the 2014 Index of Economic Freedom compiled by the U.S.-based Heritage Foundation. Unlike all 28 EU states, it fell in the “mostly unfree” category, with “widespread” graft, the foundation said in a report.
It will be crucial for Serbia to overhaul its court system, where cases sometimes take as long as 20 years, compared with the EU average of eight months, said Serb EU chief negotiator Tanja Miscevic.
The country is also grappling with ultra-nationalists and organized crime. On March 12, 2003, then-Prime Minister Zoran Djindjic, a pro-westerner who took a stand against the criminal underworld, was gunned down by a sniper in Belgrade.
“Investors need stability,” Nikola Stefanovic, head of the south Balkan arm of the Small Enterprise Assistance Fund, said on Jan. 14 in Vienna. “So even more important than talks is whether Serbia will succeed in implementing reforms, and this is what international investors are watching.”
“Serbia will also have to establish internal and external budget spending controls,” Miscevic said in an interview in her Belgrade office. “It’s related to the rule of law and to the fight against corruption and organized crime. It’s a major problem in the Western Balkans.”
Stung by shortcomings in rule-of-law issues in Bulgaria and Romania, which joined in 2007, the commission says it will halt talks if Serbia doesn’t make progress.
Support for expansion is also waning across the EU, with 52 percent against, compared with 37 percent for enlargement, according to the EU’s Autumn 2013 Eurobarometer survey. The U.K., which supported eastern European countries’ entry in 2004, is now pressing for curbs on migration from the next countries to join.
And while 50 percent of Serbs backed entry in the Eurobarometer poll, anti-accession sentiment still simmers.
It’s not shared by Simic, who was standing in the backyard of his home when NATO jets bombarded Belgrade on March 24, 1999, shaking the ground and sending him sprinting three blocks to a dark air-raid shelter that stank of old clothing and overuse. It proved to be the last military campaign of the long Balkan conflict.
“Obviously it takes time to rebuild and recover,” said Simic. “Serbia can’t be an isolated island in Europe.”
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