The Balkans’ Lingering Reconciliation Trials

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As notorious war criminal Mladic was found guilty on almost all counts and sentenced to life for his ethnic extermination campaign during the 1990s, Serbia and Croatia continue to struggle with post-independence legacies of heavy state ownership and political infighting but insist they have opened fresh economic policy and EU convergence chapters to enter the foreign investor mainstream. In Belgrade, which was bombed by Western coalition forces due to Mladic’s actions, the ruling SNS party led by President Vucic, with a technocrat government and a declared lesbian prime minister, remains popular although it is behind in surveys for the mayor’s race in the capital which may be scheduled simultaneously with parliamentary elections. The IMF program is on track with a 1 percent fiscal surplus set this year although civil servant wages and infrastructure spending will rise in 2018. The central bank is on hold with dinar stability around 125/euro and may hike rates soon reflecting global trends. Growth should pick up from the current 2 percent on further consumption and export recovery and FDI drawn in part from privatization sales. The 3 percent pace in Croatia is slightly higher aided by a tourism boom, with international visitors up 12 percent on an annual basis. The sector provides one-tenth of employment and has diverted arrivals from less secure Southern Europe and North Africa competitors. The collapse of retail conglomerate Agrokor, now under officially-directed restructuring, dampened consumption but EU cohesion funds helped fill the gap. The budget shortfall will be under 1 percent allowing exit from Brussels’ excess deficit procedure, but public debt is 80 percent of GDP and unions expect a 15 percent salary increase. A cabinet reshuffle kept the ruling HDDZ party in charge with a slim majority after the junior partner was ousted, but new elections could be called especially if the Agrokor workout stumbles.

Bulgaria assumes the EU presidency in 2018 after completing a major motorway as an aid recipient as it continues with low absorption and anti-corruption marks. A fiscal deficit is expected on higher pension and social security outlays, without intent to tap sovereign debt markets for financing. The currency board remains sacrosanct and property markets have bounced off the bottom again interesting foreign buyers and tenants. Romania’s breakneck 7 percent expansion has provoked warnings about consumption-driven stimulus, with the 3 percent-plus fiscal hole due to trigger European Commission monitoring. The current account balance has also worsened, and the central bank tweaked the interest rate corridor after 5 percent inflation, and may proceed with benchmark hikes into next year especially if political risks persist. The ruling party head has again been indicted for fraud, and his moves to drop the case through legislative maneuvers invited large street protests. A search for scapegoats has stirred nationalist anti-immigrant sentiment observers fear may drift toward levels in Hungary and Poland. In the former billionaire Soros fired back on the “lie campaign” mounted by the Orban government, and in the latter a “pure Polish blood” march organized with Law and Justice Party backing drew international condemnation for World War II era references. However their stock markets were up over 35 percent into November, with monetary accommodation and solid West Europe export demand redressing the outcry.