AFTER THE CRISIS

By Vladimir Gligorov

Social and political effects of a crisis usually lag behind it. For, political instability make a bad situation even worse, while social situation aggravates gradually as unemployment rate grows higher and higher, sources of incomes fewer and fewer, and social expenses bigger and bigger. And yet, social and political effects differ in their nature and can differ in practice: political changes can produce countercyclical effects and social tensions procyclic. This calls for an explanation.

In democracies, crises result in political changes. The purpose of these changes is to renew legitimacy of regimes, which can use so reaffirmed confidence in them to solve some problems that seemed impossible to solve before a crisis and before political changes. For their part, social tensions may produce procyclic effects, given that they emerge from various social strata's unwillingness to take upon themselves the responsibility for the crisis-related expenses and those of the post-crisis period. The crisis itself or, to put it precisely, its development depends on the readiness for political changes and the capacity to safeguard social stability and ensure cooperation. How do things stand in the Balkans in this context?

Probably it makes sense to start from Montenegro where early parliamentary elections were held at the very beginning of the crisis. Also, all political dilemmas about the country's course to Europe and NATO membership were solved. This made it possible to have a number of problems solved, all of which had be caused or burdened by the economic and financial crisis - from the safeguard of the liquidity of the banking system to the restructuring of the Aluminum Combine. The former government's procyclic fiscal policy also turned to be most helpful - the former government was accumulating budgetary surpluses when the times were good. So, enough money was left to maintain public expenditure and positively influence the overall demand. Of course, Montenegro shall still have to face social challenges, particularly if the economy fails to resume growth.

Similar political adjustments took place in Croatia as its prime minister resigned and thus made it possible for his successors to take some unpopular economic steps but also to express readiness for a compromise with Slovenia over border dispute. The latter contributed to Slovenia's stability, which is far from being insignificant for Croatia itself. This opened EU door to Croatia. This is most important for maintaining stability in the post-crisis period, to all appearances a tough one for Croatia. And mostly because the Croatian government is faced with the reforms that imply reduced expenditure and increased saving. Moreover, correction of the exchange rate is a most unpopular measure, while paying off the debts of both private and public sector is unavoidable. What is still unknown are the proportions of inevitable social tensions the government will be capable of coping with without being overthrown.

A natural post-crisis course should be similar to the one in Greece, where the opposition took upon itself the responsibility for all accumulated problems. Since the proportions of these problems are huge, it is obvious that only a new government the legitimacy of which stems from its electoral results could request all social strata - but mostly middle and working class - to shoulder the costs of fiscal adjustments and all other structural reforms. The necessity for a similar change in Croatia should not be ruled out - otherwise, social dissatisfaction, additionally fueled by big corruption scandals, could make it impossible to carry out the necessary reforms.

Other Balkan countries are facing the problems that are not so typical. Developments in Rumania clearly how big an obstacle political instability can be and how much it hinders the public to effectuate political changes that would strengthen the regime's legitimacy and its mandate for coping with the effects of the crisis. Therefore, changes may easily come only after serious social tensions and problems. The situation in Bulgaria is a different story. In Bulgaria, the crisis and political responsibility have put an end - at least for the time being - to the pre-crisis tendency for the worrisome rise of popularity of populist parties and populists in general. Its extremely difficult economic situation is not that unbearable just because - like in Montenegro - the government had accumulated funds when the times were good and is now in the position to take care of social problems.

As for Serbia, it has given up any political response to the crises, except for having replaced parliamentary system with a presidential one. Citizens do not trust their government, but the President of the Republic plays on the fact that he won the elections only a year ago and, at the same time, leads the biggest party of the ruling coalition to maintain political stability. It goes without saying that that's not enough for social stability. That's why the Serbian government opted for a kind of Keynesian economic policy for coping with the crisis and its effects. The problem is that such a policy is not sustainable in the mid run because of the state's limited borrowing capacity and limited devaluation of local currency. Given the obligations taken and popular expectations, there is no telling about social tolerance once the inevitable fiscal adjustments are made and serious problems pop out in the real sector. Besides, the crisis is not used for the settlement of postponed problems, notably those in the relations with neighboring countries. It is quite possible, therefore, that social dissatisfaction will grow in parallel with sinking popularity of the Democratic Party - and that means that political changes will take place in unfavorable circumstances.

As for Bosnia-Herzegovina, it is hard to expect the upcoming elections to bring about the necessary political changes. Given the country's institutional frame the country can hardly pursue a policy other than the one that compensates the absence of political stability and legitimacy in general with nationalism and social subsidies. The nature of the system itself is best mirrored in the fact that cooperation cannot be developed and petrified problems solved even at the times of the big crisis. Everybody knows, more or less, that the necessary decisions will have to be made once again from the outside or at least with the assistance of foreign factors - either neighboring countries or, only logically, the European Union and the United States of America.

The only uncertainty at this point is whether or not the crisis and the tough post-crisis period would encourage the governments of Macedonia and Greece to come to terms. It's hard to tell exactly what's disputable in the dispute in question. However, it is in the best interest of both countries to settle the dispute now when their respective governments enjoy sufficient legitimacy and public support. There is also no telling whether any progress has been made, though the European Union had postponed accession negotiations with Macedonia for six months only, thus pressurizing the parties in conflict to intensively work towards a solution. Both parties will need a significant assistance from the European Union - therefore, both should be most concerned with its good will. From the economic point of view, Macedonia will be facing an aggravated social situation unless its economy recovers. The source of that recovery is hard to detect at this point. However, membership of NATO and the beginning of negotiations with the European Union would be most helpful in this regard.

Albania is probably in the best situation now. Only Albania and Kosovo will be registering economic growth in 2010. This is to be ascribed to two facts: stable inflow of individual payments from abroad and multilateral investments. The biggest uncertainty of all relates to the future inflow of individual payments from abroad. They used to be very stable in the past. But this crisis is not an ordinary one. But Albania - the same as Montenegro - managed to the level of investment not only from multilateral but also from private sources. Should the interest in the investments in infrastructure, energy and tourism survive, the Albanian economy could relatively smoothly exit the crisis.

Finally, Kosovo's economy is rather protected from the crisis due to its autarchy and reliance on stable sources of financing from abroad. Political legitimacy will still mostly depend on the quality of people and parties in power - and, judging by all, the general public does not exactly hold them in high esteem. On the other hand, social stability is based on the system of relations that do not rely much on the state. With this in mind, one should not expect either the regime or the public to manifest more readiness for making concessions in the dispute with Serbia. And this hardly contributes to Serbia's readiness for normalization of its relations with Kosovo. If properly formulated, the ruling of the International Court of Justice could contribute to such normalization.

All these political and social problems and the difficulties to have them solved will leave major consequences on the post-crisis economic development. Without political will - legitimized in the elections - for radical reforms of the elements of economic policy and implementation of structural reforms, economic recovery might take longer than necessary. Also, no progress will be made in regional relations and in the relations with the European Union without readiness for settlement of domestic and bilateral political problems. As for social situation, it will be bad because public expenditure will decrease and debts paid off.