Serbia’s Metamorphosis: From “Bandit” to “Decent”

April 23, 2013
By Elizabeth Pond

There are many things you could say about the European Union-brokered agreement on broad principles that the Serbian and Kosovar foes struck at long last this past weekend. That it is historic—the definitive end to the nasty Balkan wars of the 1990s and to the Serbs’ hegemonial aspirations. That its example should now help stabilize this still dysfunctional region. That it is a rarity in a world in which hot conflicts often go underground to sizzle on or morph, at best, into frozen conflicts.

That in retrospect, it justifies NATO’s first-ever military intervention, on behalf of the civilians who were the chief targets and victims in the Balkan bloodshed as the Cold War ended and Yugoslavia splintered. That it also justifies the EU’s long-standing offer to share its own prosperity and security with all European nations that carry out democratic reforms.

But most of all—since intervening foreigners can never impose post-conflict reconciliation without local partners who desire resolution—you would have to admire the stunning transformation of the ultranationalist parties over the past half year. Two decades ago they egged on strongman Slobodan Milosevic as Serb military forces occupied half of Croatia and two-thirds of Bosnia, and at Srebrenica committed Europe’s worst atrocity since World War II. Many of their adherents celebrated the murder of moderate Serbian Premier Zoran Djindjic in 2003, then helped to hide Srebrenica commander Ratko Mladic for 16 years before he was finally captured and extradited to the Balkan war-crimes tribunal at The Hague in 2011.

Yet today these same parties, now running the government in Belgrade for the first time, have suddenly renounced their claim to operational sovereignty over the 90 percent Albanian-majority Kosovo that seceded from Serbia in 2008. Premier Ivica Dacic now declares that a new era of friendship is opening with the West that the ultranationalists so long despised. Serbia is to be rewarded by getting a target date for starting negotiations to join the European Union.

What caused this abrupt shift of mindset?

The metamorphosis is most easily explained, perhaps, by tracing the meteoric political career of Aleksandar Vucic, Serbia’s first deputy premier and head of the Progressive Party that now holds the most seats in parliament.

Back in the 1990s, while he was still in his 20s, Vucic became Milosevic’s hatchet man for the media. At that point, he was a member of the fanatical Radical Party that claimed far more neighboring territory for Greater Serbia than Milosevic himself did. The Radical leader, Vojislav Seselj, formed his own militia to speed the Serb conquest of Bosnian territory—and is now standing trial for war crimes at The Hague.

Part of what Vucic stoutly defended in his term as government Information Minister was Milosevic’s brutal suppression of the huge Albanian majority in the Serbian province of Kosovo in 1999 during the decade’s last Balkan war. Milosevic’s heavily armed security forces killed more than 10,000 Albanians and forcibly expelled more than 60 percent of the Albanian population from their homes, often discouraging their return by throwing dead livestock into wells to poison the water. NATO intervened a second time in the Balkans, bombed key targets in Serbia to prevent any worse “ethnic cleansing,” then turned over interim administration of Kosovo to a United Nations mission, while keeping NATO-led peacekeepers in the province.

The one pocket that Belgrade continued to control on the ground in Kosovo was the north tip bordering Serbia, where ethnic Serbs form a local majority. There Belgrade maintained control through illegal security “parallel structures”—that is, parallel to the legal structures authorized for this international protectorate under UN Security Council Resolution 1244. Serbian police and intelligence agents in the north tip shut the bi-ethnic Kosovar police out and protected both collaborative Serb and Albanian smugglers. Serb locals allied with the Radicals and other Belgrade extremists in sporadic violence against international civil servants and peacekeepers—all at a cost to Belgrade’s budget that surpassed its annual windfall from the EU to help prospective candidates prepare for accession talks.

With overwhelming popular backing, Milosevic’s Socialists and the Radicals, under deputy leader Tomislav Nikolic and (by then) Secretary-General Aleksandar Vucic, declared Kosovo an eternal Serb patrimony; denounced America and the European Union; and lionized General Mladic, whose troops had massacred some 8,000 unarmed Bosniak (Muslim) boys and men at Srebrenica. The prevailing mood in Belgrade combined contempt for the “anti-Serb” West, an assertion of Serb political exceptionalism and right to lead other Balkan ethnicities, and inat—”malevolent, vengeful, and obstinate defiance,” as writer Aleksa Djilas defines it.

For half a decade after 2003—when first post-Milosevic Premier Zoran Djindjic was assassinated just after he proposed to let Kosovo go and move on to rebuilding war-warped Serbia—the chauvinists set the political agenda in Belgrade. It consisted of only one issue: reinstatement of Serbian rule over all of Kosovo or, as a fallback, partition that would cede its north tip to Belgrade. Centrist pro-Europe governments squeaked through two national elections only by avowing that they too sought a restoration of Kosovo to Serbia—and blandly maintaining that Serbia could both keep Kosovo and gain EU membership.

The first crack in the hardline front came in 2008, as Ivica Dacic, the Socialists’ post-Milosevic leader (and today’s premier), joined a coalition with the centrist Democratic Party and softened his earlier militancy. Shortly thereafter, Kosovo seceded from Serbia unilaterally to assert a “supervised” independence under EU tutelage and a new constitution that gave generous minority protection to Serbs, including local decentralization and a guaranteed parliamentary representation higher than their 8 percent of the population would warrant. Belgrade refused to recognize Kosovo’s existence as an independent state and blocked it from participating in regional governmental conferences.

By late 2008, the two top Radical officials on the ground in Belgrade, fed up with being micromanaged by Seselj from his cell at The Hague, made another breach in the hardliner consensus. Nikolic and Vucic, taking the bulk of senior Radicals with them, quit the party and formed a new Progressive Party. They quietly stopped demonizing the EU, and by last year’s spring elections, they adopted the centrists’ piety that regaining Kosovo and striving for eventual EU membership were indeed compatible.

Western diplomats were skeptical of the volte-face. In the mouths of the Progressives, the new formula sounded suspiciously as if they hoped not to budge on Kosovo, while still persuading the EU to grant Belgrade its longed-for target date to start negotiations on EU accession. The pinpointing of a date for talks, the EU again made clear, was contingent on “normalization” of Serb-Kosovo relations.

In any event, in the May 2012 elections the Progressives won both the presidency, which Nikolic now holds, and a plurality in parliament, where Vucic is caucus leader. In July the Progressives formed a coalition government with Milosevic’s old Socialists, the third-largest parliamentary party, and set their priority as EU accession.

Still, ambiguity remained. President Nikolic promptly offended Croats by declaring Croatia’s Vukovar, the site of one of the earliest atrocities committed by Serbs in 1991, a Serb town. Serbs north of the Ibar River in Kosovo continued to put up barriers to keep out Kosovo-licensed cars and even official EU vehicles. Trucks loaded with fuel and cigarettes continued to evade both Serbian and Kosovar customs by roaring down the half dozen illegal asphalt roads that local Serbs had built to shuttle contraband back and forth across the Serbia-Kosovo line.

Yet as the wary EU-sponsored “dialogue” between the Serbian and Kosovar premiers proceeded in 2013, Dacic and Vucic made more forthcoming proposals than their centrist Serbian predecessors had ever dared float, tried hard to win support for them from resistant party colleagues—and attracted an increasing number of death threats. They began letting Kosovar officials attend regional conferences, and stopped walking out of these meetings themselves. Most fundamentally, they shifted the dominant narrative away from the Serbs’ founding myth of the 1389 battle against Turks at Kosovo to pragmatic contemporary economics.

Thus, instead of stressing the inviolability of Serbia’s sovereignty over the holy land it possessed before the Ottoman Empire ruled it for half a millennium, they redefined the duty of Serbia’s seven million to their roughly 60,000 compatriots in northern Kosovo away from reunification to ensuring simply that these Serbs could live a better life. This took the form of promoting Serb localities’ self-government and forming an “association” of Serb municipalities, both of which were allowed under the Kosovo constitution.

In parallel, the two leaders emphasized Serbia’s own need to escape from the economic stagnation of the previous quarter century by pursuing EU accession now and implementing the rule-of-law and anti-crime reforms this course requires. They knew well that the rival Croats, who pioneered this option when they cut their own corresponding losses in Bosnia a decade ago, now have a per capita GDP 70 percent higher than Serbia’s and will reap the reward of joining the EU this coming July. Serbia, by contrast, has never recovered its pre-wars GDP of 1989, has 26 percent unemployment, and suffers a brain drain of young people that has shrunk the country’s population in the past decade by 5 percent.

Most dramatically, Dacic and Vucic rehabilitated the memory of the extremists’ nemesis, Zoran Djindjic, the man who sent Milosevic to The Hague to stand trial for war crimes. On the 10th anniversary of the assassination last month, Dacic lauded his predecessor and declared that in the decade since his death, Serbs have been deceived by the lie that Kosovo still belongs to Serbia. They now have to face the reality that Kosovo is in practice no longer theirs, he said bluntly. What he did not add was that he and Vucic were now seeking the very compromise that Serbia probably could have achieved under Djindjic in 2003.

Once the premier and his first deputy made the basic decision to cut the Kosovo “ball and chain” on Serbia’s modernization, as one Serb observer put it, the two pressed ahead with negotiations in Brussels under the mediation of Catherine Ashton, head of the fledgling EU foreign service. The risky aim was to reach a quick statement of general principles in good faith and let this drive later negotiations on details of implementation.

The tactic made sense, especially since the window of opportunity was short. Dacic and Vucic needed to capitalize fast on their 2012 electoral victory before public opinion soured on them as it had soured on the centrists during a generation of stagnation and graft. They needed to show voters results, and this meant one thing—getting from the EU that fixed date to begin accession negotiations, catch up with Croatia’s long head start, and gain the benefits not only of EU grants and soft loans, but also EU institutional and business expertise.

For the EU—which seemed startled by the manifest power of its conditionality in requiring normalization of Serbia-Kosovo relations before specifying a date for opening talks—the window of opportunity would close on April 22, 2013. This was the scheduled day for the European Commission to forward its recommendation on relations with Serbia to EU foreign ministers and to the next EU summit in June. If no deal were reached by then, the Commission told Belgrade, the campaign would start for Germany’s general election in September, and decisions on starting Serbian accession talks would have to be postponed for another two years.

With this pressure, Serbia’s Premier Ivica Dacic and Kosovo’s Premier Hashim Thaci initialed their 15-point deal by April 19. In the artful language of the agreement the Serbian government never says it recognizes the state of Kosovo, and Dacic and Vucic vow they will never do so. They further defend their compromise by telling critics that they won the broadest autonomy possible for the “association of Serb majority municipalities” that will now be set up in the north—including the right to have a majority of Kosovo Serb judges on the Mitrovica District Court, to nominate the regional Kosovo Serb police commander, and to have Kosovo Serb policemen deployed in numbers proportional to the ethnic Serb population in their precincts.

In addition, Belgrade has asked NATO for and received an oral promise from Secretary-General Anders Fogh Rasmussen, to keep the embryo Kosovo army out of north Kosovo territory for a number of years, except in cases of natural catastrophe and with NATO’s permission. Dacic claims that this promise gives Serbs in north Kosovo unprecedented safety.

Not surprisingly, Kosovo Premier Hashim Thaci’s interpretation of the deal differs from Belgrade’s. He argues that by accepting that Serb policemen north of the Ibar River will operate under Kosovo law and will be paid only by the Kosovo Police (and not by the Belgrade government, as happened clandestinely in the past), Belgrade has implicitly accepted Kosovo independence. He draws the same conclusion from the Serbian agreement that in the north the local judiciary and elections too will follow Kosovo law.

On this point Patriarch Irinej of the Serbian Orthodox Church agrees with Thaci—and is incensed. Citing his “holy duty,” he has pled with the Belgrade government not to “cede, betray or sell Kosovo and Metohija, the historic Old Serbia, under any conditions.” His rejection of the compact has been echoed by marchers in Belgrade who shouted “treason” as they passed the presidential offices, and by several thousand Serbs who gathered in north Kosovo to announce formation of their own “Autonomous Province of Kosovo-Metohija,” apparently on the pattern of the Republika Srpska in Bosnia.

Does this opposition invalidate or jeopardize the whole project to normalize Serbia-Kosovo relations? Ivan Vejvoda doesn’t think so. This veteran of the democratic opposition to Milosevic, one-time senior adviser to Premier Djindjic, and now Vice President for Programs at the German Marshal Fund of the United States, calls the Serbia-Kosovo deal “going through the sound barrier” on the big issue of guaranteeing legitimate Serb autonomy in the north of Kosovo. He expects this example of a modus vivendi to have a beneficial impact on Bosnia and perhaps other Balkan neighbors.

Indeed, in perspective, the striking thing is perhaps that there is so little Serb hostility so far to the course of reconciliation, demystification of the Serb ethos, and sheer normality that Dacic and Vucic have set. In this the lessons of President Richard Nixon’s normalizing of US-China relations in 1972 and bringing the recalcitrant Republican Party with him apply. In Serbia former ultranationalists seem to be far better than moderates in persuading ultranationalist colleagues to endorse a change of course. The Socialist presidency has backed Dacic unanimously. President Tomislav Nikolic, 61, has backed his protégé Vucic, 43, and the Progressive Party’s main board has also supported Vucic by a landslide 377 to 10. Furthermore, the Kosovo Serbs who live south of the Ibar River and have been participating routinely in Kosovar political life since 2008 see no reason why Serbs north of the Ibar can’t do the same.

The best bet probably is that there will be spasmodic violence by local Serbs in north Kosovo before they accept what now looks like future reconciliation between their old country and their new country. Yet this should fade out as their financial sponsors in Belgrade shrink in number and in their access to Serbian government funding. The European vision of reducing the importance of borders altogether should help smooth the adjustment as Serbia now gets its date for starting accession talks and Kosovo starts work on its lower-rung negotiations toward a Stabilization and Association Agreement with the EU.

But the last word on this turning point in history should go to Aleksandar Vucic. He didn’t drop his natural gloom on the eve of the D-Day of  April 22. But he did defy those who sent him death threats by saying that they were wrong to believe that “the bandit Serbia will win over the decent Serbia.” They can’t stop the country, he continued, from “moving toward normal values and the creation of a decent Serbia.”

Elizabeth Pond is a Berlin-based journalist and the author of Endgame in the Balkans.

World Policy Journal
© Elizabeth Pond


Economic Showdown: US ‘Bazooka’ vs. EU Austerity

April 19, 2013
By Elizabeth Pond

Here is a crucial footnote to all the soul-searching in Washington this weekend about what befuddled economists still don’t know about the global financial meltdown. This footnote ignores the overarching macroeconomic and statistical quarrels at the spring meeting of the World Bank and International Monetary Fund and examines instead the conspicuous gulf between the American and the European conventional wisdom about the euro crisis.

In a recent presentation in Berlin, Liaquat Ahamed—investment banker and author of the 2009 bestseller about the four central bankers who “broke the world” during the 1930s depression—flagged the major differences between mainstream economists on the opposite seaboards of the Atlantic. Those in the United States are convinced that their “bazooka” of massive aid for failing banks in 2008 and 2009 did a much better job of stopping financial disaster in their country than the Europeans have done with their too-little-too-late rescues dribbled out in the three agonizing years since then. For proof, they point to IMF forecasts of between 1.5 and 2 per cent growth in 2013 for the United States as against a decline of 0.3 percent for the eurozone.

The Americans are further persuaded that rational economic analysis at this stage suggests the common currency of 17 sovereign European countries—with no matching common fiscal policy—cannot survive the crisis that blindsided this bold 21st-century experiment. And many accuse the “Austerians” like the Germans of mercilessly forcing austerity on already fragile economies and strangling the very growth they need to recover. As an editorial in The New York Times put it recently, “this bitter medicine is killing the patient.”

By contrast, the dominant European policymakers in Berlin think they have muddled through reasonably well so far, and that what is needed now is steel nerves to keep the course. From the beginning, they have seen the European Monetary Union not as some technical tool, but rather as an indispensable part of the whole project of integrating European nations that are too tiny alone to protect their interests in today’s globalized world. They have become accustomed to patching up the imperfect airplane in mid-flight as the sovereign debt crisis morphed into bank solvency crises that in return aggravated sovereign debt and triggered market attacks on bond issues of the EU’s small peripheral members, then threatened even the third- and second-largest eurozone economies in Italy and France.

Ahamed’s host on stage in Berlin, Wolfgang Ischinger—maestro of the premier Munich Security Conference and former German ambassador to the United States and Britain—presented this alternative European interpretation ofevents. In this view, the determination of German Chancellor Angela Merkel (once she decided that “if the euro fails, Europe fails”) and of European Central Bank President Mario Draghi (who declared last summer that the ECB would rescue the euro, “whatever it takes”) was the equivalent of Washington’s initial bazooka.

The ECB began buying up bonds of heavily indebted euro zone states and forced the yields down to manageable levels. Merkel led quietly from behind Draghi, without lending her name specifically to his action or mounting any public campaign to win over the German taxpayers who would foot a third of the bill for any losses incurred. The volatile markets calmed down. Berlin shifted its prime worry from the euro crisis itself to the risk of complacency by governments that might think the crisis over and postpone drastic but crucial reforms.

As the eurogroup proceeded with bailing out Greece, Ireland, Portugal, Spain, and Cyprus, the Germans not only took the first steps toward a uniform banking union and regulation, but also began injecting the missing fiscal commonality into monetary union by conditionality for rescue that required recipients to commit themselves to monitored austerity and economic structural reforms. As a bonus in the case of Cyprus, the eurogroup even closed down (messily) the tax haven and alleged money laundering on the island and thereby put other European Union tax havens on notice that their days are numbered.

With a political sleight of hand, Merkel moved progressively from opposing any euro zone bailouts—and being confronted as late as last year by disgruntled taxpayers, half of whom wanted their good old 20th-century Deutschmark back—to underwriting the bailout of five indigent states. Yet this month 69 percent of German voters told Forsa/Handelsblatt pollsters they want to keep the euro.

Now that Berlin has made its institutional point, it is in fact softening its rigid insistence on austerity and is agreeing to stretch out already agreed debt repayments to longer terms.

On Friday, Chancellor Merkel summed up her view—and therefore Europe’s view—of success so far. She told the Bild newspaper that Europeans have “succeeded in making it clear to national and international investors how important the euro is to us and how serious we are about this symbol of political unity in Europe. This has stabilized the euro in recent months, although I am not yet satisfied. … [A]ll southern European states have more or less introduced the reforms necessary for them to return to a sound path. These reforms demand painful cuts, and I know that many people are suffering. But the basic fact is that in the long run a country can only live from the growth it generates. Every country needs a competitive economy and an industrial basis, whether large or small. It must be clear to everyone that debt-funded prosperity is no longer possible.”

To German voters—whatever American economists may think—Angela Merkel’s record on the euro looks good as she opens her campaign for the September election.

Elizabeth Pond is a Berlin-based journalist and author.

World Policy Journal
© Elizabeth Pond

Cyprus Crisis: An Island of Reinvention

April 12, 2013
By Elizabeth Pond

Cyprus has reinvented itself a dozen times—six times before the 12th-century Crusaders arrived, three times before the 16th-century Ottoman warriors defeated the Venetians, and twice since Britain gave up its bridge to eastern empire in 1960. There’s no reason why Cyprus can’t pull off the same trick again.

Sure, last week the finance minister had to resign over dubious investment decisions he made as a private banker. This week officials announced that the Cypriots and their banks must ante up an extra €6 billion against their own debts to qualify for the €10 billion bailout their euro zone partners have just promised to save the countryfrom bankruptcy. Cyprus will be selling most of its gold reserves to do so—the first distressed country to resort to this since the Asian financial crisis 15 years ago. And Cyprus’s bubble economy, built on discreet banks that for decades asked no awkward questions about the provenance or tax status of deposits before paying out their high returns, has collapsed.

Yet that shouldn’t stymie the reputed birthplace of Aphrodite; Cypriots are used to starting over.

In modern times, the Mediterranean island’s first reinvention after independence came in the mid-70s, after four years of intercommunal violence, a Greek coup against the initial bi-ethnic government, Turkish military counterinvasion, and partition into the northern third for the minority Turks and the southern two-thirds for the majority Greeks.

At the time the Cypriot economy was one of the poorest in Europe, with nominal per capita incomes of $1,451. To get rich, the Republic of Cyprus in the Greek south turned to tourism, shipping, and, above all, banks. Its offer of a tax and (as was widely reported) laundering haven proved to have a Midas touch. Foreign money poured in as the 1970s oil crisis and then the Lebanese civil war hit the Middle East. It continued to pour in and help Serbian autocrat Slobodan Milosevic evade international sanctions during the 1990s wars of the Yugoslav succession and to give Russia’s wild west capitalist oligarchs a safe hideaway for their wealth.

By 2004 Cyprus was admitted to the European Union after Greece, a European Community member since 1981, threatened to veto the accession of Central European and Baltic states if Athens’ protégé was not given membership simultaneously. With the island still divided, Cyprus’s entry into the club violated the most fundamental EU rule of all—that no candidate could join until it had resolved territorial disputes with neighbors. The experience quickly soured many of the original EU members on further enlargement, especially since the Greek Cypriots—who had sounded conciliatory during the negotiations for EU accession—rejected by a 76 percent majority the United Nations compromise plan to reunite Cyprus once their EU membership was assured. In the same referendum the Cypriot Turks voted 65 percent in favor of the compromise.

By then Greece had already entered the European Monetary Union, in 2001, on the basis of artificially enhanced economic statistics. By 2008 Cyprus too—now with a GDP per capita that in 33 years had soared in nominal terms more than 20 times to reach northern European levels of $31,693—was allowed to join the common euro club, even though its bank deposits had swelled to eight times its GDP in what various commentators would soon be calling a huge Ponzi scheme. When the Socialists unseated the conservative government in snap Greek elections in October 2009, heavily indebted Greece admitted the previous government’s original falsification and triggered the euro zone crisis that continues today.

By last month, Cyprus joined Greece, Ireland, Portugal, and Spain (although Madrid’s handout was labeled something else) in the line-up for euro zone bailouts. Dutch finance minister and Eurogroup President Jeroen Dijsselbloem made it clear that the quid pro quo of “bail-ins,” or a mandatory “wealth tax” on rich depositors in Cypriot banks, would become standard in some degree in future euro zone bailouts, in order to reduce moral hazard. Other global tax havens heeded the warning, which was reinforced by an advocacy group’s leak this month of millions of bank records about thousands of investors. Luxembourg and Austria, the only two EU countries that had hitherto rejected an automatic intra-EU exchange of information about bank deposits and tax cheats, announced they would ease their secrecy rules.

In the meltdown of Cypriot banks and their supporting services, angry Cypriots whose jobs suddenly vanished blamed “Nazis” like German Chancellor Angela Merkel for their misfortune. On the other side, German taxpayers, who have to pay for the Cypriot and earlier bailouts, raised their eyebrows on learning this week from European Central Bank statisticians that the median net wealth is €267,000 per household in Cyprus, but only €51,000 in Germany.

So how might Cyprus reinvent itself this time around?

Well, for a start, it might begin cooperating with its nearest neighbor—Cyprus is 50 miles south of Turkey, but 500 miles east of Greece—to extract natural gas from recently discovered reserves in the waters between (Turkish) Cyprus and Turkey and in the Aphrodite gasfield south of (Greek) Cyprus. The gas could be transported by short pipelines to Turkey and transported from there to Israel, Egypt, and Greece. The Turkish Republic of North Cyprus, whose GDP per capita is only half that of Greek Cyprus but whose economy is growing even as that of the Republic of Cyprus is contracting, could provide consumer impulse to growth on the whole island. Once commercial collaboration began, the Turkish north and Greek south might even revisit the UN’s 2004 compromise plan for reunification.

Gas exploration is still at an early stage, and any projects begun now would not bring in significant revenue until 2018 or 2020.

But if this points the way to a new transformation, what is a wait of a mere five or 10 years for an island that is 12,000 years old?

Elizabeth Pond is a Berlin-based journalist and the author of The Rebirth of Europe.

World Policy Journal
© Elizabeth Pond