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Growth plan

Olivér Várhelyi, European Commissioner For Neighbourhood And Enlargement

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We believe that, with this new model, we can integrate the Western Balkans into our Single Market faster, even prior to full EU membership. According to our calculations, this plan has the potential to double the economy of the Western Balkans in the next 10 years.

The doors of the European Union are open to Western Balkan countries, but “there are no fixed timelines” for the next enlargement, says Olivér Várhelyi, European Commissioner for Enlargement, in this interview for Connecting the Region. He emphasises that everything depends on the pace of reforms and economic development. The latest initiative to accelerate the EU integration of the region, proposed by the European Commission, involves a €6 billion package, comprising €2 billion in non-repayable grants and €4 billion in favourable loans.

Commissioner Várhelyi, how is the new plan to accelerate economic growth in the Western Balkans advancing, and how much progress has already been made?

― From the outset, Enlargement has been a geopolitical priority for this European Commission. In today’s world, it is universally understood that the Enlargement policy of the European Union is crucial for long-term peace, security, stability and prosperity in our neighbourhood.

As the European Union is preparing to accelerate the enlargement process from an institutional perspective, ensuring the rule of law is upheld and that public administration and democratic institutions are well-equipped, we have introduced a new plan to facilitate tangible integration on the ground as early as possible.

The new Growth Plan for the Western Balkans, launched on 8th November, aims to expedite the accession of Western Balkan nations into the EU while they implement the necessary legislative and institutional reforms. This plan assists them in narrowing the socio-economic gap between the region and the EU by the end of this decade.

Incorporating the Growth Facility into the assistance under IPA III will result in the Western Balkans receiving a similar level of aid per inhabitant as the average offered through cohesion policy in the EU

We believe this new approach can fast-track the Western Balkans’ integration into the EU’s Single Market even before full membership. According to our estimates, this plan holds the potential to double the Western Balkans’ economy in the next decade.

The release of funds will be contingent upon the delivery of country-specific Reform Agendas. Each Western Balkan partner will be invited to prepare a Reform Agenda, drawing from existing recommendations, including those from the annual Enlargement Package and the conclusions of the Economic and Financial Dialogue. These Reform Agendas will be based on the countries’ Economic Reform Programmes (ERP). The implementation of the Reform Agenda is slated to take place between 2024 and 2027 and will undergo consultation, assessment, and adoption by the Commission. We have identified seven priority areas for accessing the EU Single Market where we can immediately commence work. However, this list is open-ended and flexible, depending on our partners’ priorities.

Secondly, our objective is to enhance economic integration within the Western Balkan region through the Common Regional Market, aligned with EU rules and standards. Such economic integration could potentially contribute an additional one-third to the region’s GDP.

Thirdly, the Reform Agendas, set within the framework of the Growth Plan, will assist our Western Balkan partners in expediting fundamental reforms. These encompass reforms related to the rule of law, democracy, and socio-economic aspects. These reforms are crucial for the swift implementation of the Growth Plan, attracting private investments and fostering sustainable economic growth.

Fourthly, recognising the substantial investments required for these reforms, we have proposed adding a financial assistance package to the Growth Plan. This assistance is intended to expedite reforms through a Reform and Growth Facility for the Western Balkans. The proposal entails a €6 billion package, consisting of €2 billion in non-repayable grants and €4 billion in favourable loans. Incorporating the Growth Facility into the assistance provided under IPA III will result in the Western Balkans receiving a similar level of aid per inhabitant as the average offered through cohesion policy in the EU. The ultimate goal is to support the region in achieving its full economic and social development potential in comparison to EU Member States.

The Growth Plan will complement and reinforce existing support under the €30 billion Economic and Investment Plan for the Western Balkans.

You’ve previously mentioned that you see this investment plan, worth 30 billion euros, as an “investment in peace, security, and prosperity on our continent.” Could you single out some of the “54 flagship projects” of this future investment programme?

― Three years after the adoption of the Economic and Investment Plan worth €30 billion in 2020, we are pleased to announce that we have successfully mobilised more than half of the allocated funds. To date, we have secured over € 16 billion in investments, including over € 4 billion in grant financing. This investment has been directed towards 54 flagship projects spanning sustainable transport, clean energy, environmental initiatives, climate action, human capital development, digital advancements and private sector growth.

As an example, Serbia has reaped significant benefits from this funding package, with 13 flagship projects implemented in the country. Notably, this support includes the construction of Railway Corridor X in Serbia, facilitating high-speed connections of up to 200 km/h between Belgrade and Niš, thus improving the flow of passengers and freight across the nation.

Another noteworthy project is the construction of a new facility for the University Children’s Hospital Tiršova 2 in Belgrade. This development will introduce innovative diagnostic and treatment technologies, more advanced patient monitoring capabilities and novel therapeutic diagnostic approaches.

The Growth Plan will complement and reinforce existing support under the €30 billion Economic and Investment Plan for the Western Balkans

Moreover, our initiatives extend to energy infrastructure, such as the Trans-Balkan Electricity Corridor, which connects the electricity transmission systems of Serbia, Bosnia and Herzegovina, and Montenegro with Croatia, Hungary, Romania and Italy. Additionally, we provide blended financial support to aid the energy transition of micro, small and medium-sized enterprises in the region, contributing to improved connectivity.

Beyond Serbia, we are actively implementing infrastructure investments in the other five Western Balkan partner countries. Notable projects include the approval of solar photovoltaic power plants in Oslomej and Bitola, North Macedonia, as well as Pristina, Kosovo. In Bosnia and Herzegovina and Montenegro, we are investing in the construction of Corridor Vc and the rehabilitation of Montenegro – Serbia rail interconnection respectively. Furthermore, in Albania, we have approved a green transport project that will establish Tirana’s first electric bus rapid transport system, addressing high levels of air pollution and traffic congestion.

My message to all partners involved in these infrastructure projects is that we need to speed up the implementation process, so citizens in the region can benefit from these investments in their daily lives.

Part of the funding will be provided in the form of an EU donation to the countries of the Western Balkans. Do you consider that there are enough investors interested in investing in the Western Balkans, and do you know which companies this relates to generally?

― The European Union holds the distinction of being the largest investor and trading partner of the Western Balkans. With the introduction of the new Growth Plan, our objective is to draw the region closer to the EU markets, enticing an even greater number of EU companies to engage in business and investment activities within the region.

The reforms associated with the proposed Reform and Growth Facility are designed not only to enhance the investment climate but also to provide a compelling incentive for Western Balkan partners to expedite the alignment of their legislation and standards with those of the EU. This alignment is critical to attracting foreign investments in key sectors, such as transportation, digital infrastructure and energy. The next steps involve the European Parliament and the Council scrutinising the proposal for the Facility as part of the MMF mid-term review package. We eagerly anticipate engaging in discussions with the European Parliament and the Council of the EU regarding the Facility, with the hope of potentially disbursing funds as early as next summer.

It is crucial to emphasise that a minimum of €3 billion, comprising €2 billion in grants and €1 billion in favourable loans, from the New Growth Plan for the Western Balkans will be allocated to investments through the Western Balkans Investment Framework (WBIF).

The WBIF is a well-established and efficient platform for assessing projects. Through the WBIF, we can assess the readiness of projects and expedite the implementation of flagship projects that were identified in collaboration with beneficiary economies during the preparation of the Economic and Investment Plan (EIP). Additionally, the WBIF provides a mechanism for regularly updating and discussing new project proposals within the framework of ongoing dialogue.

The WBIF represents a collaborative effort involving the EU, financial institutions, bilateral donors (EU member states and Norway), and beneficiaries. Its primary objective is to enhance harmonisation and cooperation in investment initiatives aimed at advancing the socio-economic development of the Western Balkans, while also contributing to the region’s European perspective.

You’ve mentioned the creation of a “greener region” as one of the goals that will be the focus of this investment package. What specifically does that entail?

― When we unveiled the € 30 billion Economic and Investment Plan in 2020, we introduced our vision of a more environmentally conscious Western Balkans within the framework of this document.

In the Green Agenda for the Western Balkans, we have emphasised five key areas where our efforts have been promptly initiated: (1) Climate action, encompassing decarbonisation and energy security; (2) Circular economy, addressing issues such as waste management and recycling; (3) Biodiversity; (4) Combating air, water and soil pollution; (5) Sustainable food systems and rural areas. Within these pillars, we have outlined over 50 initiatives that we support in these areas. One of the most significant initiatives is the Clean Energy Transition.

It is crucial to emphasise that a minimum of €3 billion (€2 billion in grants and €1 billion in favourable loans) from the New Growth Plan will be allocated to investments through the WBIF

Coal remains a fundamental component of the energy sector in the Western Balkans, accounting for approximately 70% of electricity generation in the region, and in some countries as much as 97%. Transitioning from coal to natural gas, the region could immediately reduce its emissions levels by 65%. We are all in agreement that it’s imperative to develop cleaner energy sources, enhance regional energy security, improve availability and address persistent challenges related to air and environmental pollution, which also affect public health. While these investments are costly, we are committed to providing financial support to facilitate the implementation of the region’s green agenda.

What do you consider as the key takeaways of the recent Tirana summit that brought together leaders of the EU and Western Balkan countries?

― The recent Berlin Process Summit in Tirana provided an opportunity to discuss progress on the Common Regional Market, including the implementation of the three regional mobility agreements signed last year in Berlin, as well as the recent voluntary reduction of roaming charges between the region and the EU, along with supporting new agreements. We have also been supportive of the opening of a new College of Europe campus in Tirana, which clearly signifies our backing for the EU path of the Western Balkans.

Our recent Growth Plan for the Western Balkans acknowledges the significance of regional integration among the Western Balkan countries, which includes the implementation of the Common Regional Market.

According to a conservative estimate by the World Bank, the Common Regional Market has the potential to add approximately another onethird to the GDP of the Western Balkan economies over time. Since it is based on the adoption and implementation of EU standards, it serves as a stepping-stone to the EU Single Market.

Therefore, we are convinced that a well-functioning Common Regional Market consisting of 18 million people could be a game changer for the Western Balkans. The region has the potential to become a genuine investment hub, particularly for investors seeking to streamline their supply chains to the EU market. The current market fragmentation and the prospect of dealing with multiple customs regimes deter many investors.

What would you highlight as the most significant impression from the latest European Commission annual report on the progress of Western Balkan countries?

― More than ever, EU enlargement policy represents a geostrategic investment in the long-term peace, stability, prosperity and security of our continent. The renewed momentum of the enlargement process presents opportunities that our Western Balkan partners must capitalise on.

The Growth Plan will complement and reinforce existing support under the €30 billion Economic and Investment Plan for the Western Balkans

Taking into account the reform efforts undertaken by Bosnia and Herzegovina since being granted candidate status, the Commission has recommended the initiation of EU accession negotiations once the necessary level of compliance with the membership criteria is attained. We are intensifying and enhancing our support for and collaboration with the Western Balkans through the Growth Plan, aimed at fostering socio-economic convergence with the EU and expediting the EU accession process.

Which of the Western Balkan nations will commence new accession negotiation chapters with the EU by the conclusion of 2023?

― The Commission presented the screening reports for the “fundamentals cluster” for North Macedonia and Albania to the Council in July of this year. We anticipate a prompt continuation of the process with the goal of commencing negotiations on this cluster by the year’s end. The Commission maintains its assessment that Serbia has met the opening benchmarks for cluster 3 (competitiveness and inclusive growth); nevertheless, the decision lies within the purview of the Member States. In the case of Montenegro, which has already initiated negotiations for all chapters, further progress in the accession talks will hinge on reforms related to the rule of law, specifically meeting the interim benchmarks delineated in Chapters 23 and 24.

Statements suggesting potential timelines for future EU enlargement garner significant attention in candidate countries. In light of this, what is your perspective on the recent mention of 2030 as a possible year for some of the region’s candidate countries to attain full EU membership?

― The accession process is fundamentally merit-based and contingent upon the progress made by each individual country. It is not bound by fixed deadlines, but rather hinges on the implementation of necessary reforms and the development of a robust economy. The Growth Plan for the Western Balkans that we have put forth offers a substantial opportunity to enhance the region’s preparedness by the close of this decade.

The criteria for EU membership are uniform and clearly outlined in the EU Treaties. Countries that meet these requisite conditions can join, making it unnecessary to await a specific date. However, based on our projections, by 2030 the region should receive a level of support akin to what our Cohesion and Structural Fund countries currently enjoy.

In light of this new approach, we are creating the potential for enlargement to become a reality. Our Western Balkan partners could position themselves for EU membership by the year 2030.

OBJECTIVE

Our objective is to enhance economic integration within the Western Balkan region through the Common Regional Market, aligned with EU rules and standards.

SUPPORT

By 2030, the region should receive a level of support akin to what our Cohesion and Structural Fund countries currently enjoy

MESSAGE

We need to speed up the implementation process, so citizens in the region can benefit from these investments in their daily lives.

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