How to become a periphery? The case of Serbia from Yugoslavia’s disintegration to its “European integration”

ALEKSANDAR MATKOVIĆ

How to become a periphery? 

The case of Serbia from Yugoslavia’s disintegration to its “European integration”

 


To begin with, it is by no means an evident statement to say or imply that Serbia is becoming a periphery, as the title of this paper might suggest. Namely, isn’t Serbia already at the periphery – or to be more precise – at the semi-periphery? Contrary to what might be told, it is none of the above. Rather, with regards to the European economy, it is still becoming a peripheral state in the fullest sense of the word. How is this so and how do we explain it? In order to answer this, we must first answer the simple question of what constitutes a periphery: and in order to fully analyze the position of a country such as Serbia in the core and periphery divide, we must not take this divide simply as given, but question it through the structural relations that this country has with other countries or bodies, such as the EU.


Although this might seem simple at first glance, the stakes are actually much higher: they concern the question of how basic economic indicators such as the budget deficits or structural deficits or the debt to GDP ratio function, what do they represent and how were they made – what are their origins and what must one do in order to counter them. This is not an apolitical question or a question devoid of ideology. On the contrary, it is one of the most central objects of liberal ideology. And if we stick to this usual liberal ideology, we wouldn’t get too far: this ideology states that the debts and deficits of one country are the problem of that country and that country alone, period.  We know this ideology exemplified all too well in the public attacks on the „lazy Greeks“ by Merkel and more often than not that of the German press as well. But we must not forget that this does not end in the press, but is part of the European economic policies such as the The Treaty on Stability, Coordination and Governance – TSCG (2012) (and its more famous 3rd clause known as the Fiscal Compact) which limits budget deficits to 3% and structural deficits to a strict 0.5% of GDP[1].  This is a criterion which the peripheral states have not and cannot fulfill (but then again, neither could Germany and France in recent years, and were even the first to breach it). So, if we stick to this ideology, we end up in an empiricism which takes these core and periphery relations as granted. Only once we have questioned these relations and followed through their effects, only then would we be able to analyze the inner form of a peripheral state such as Serbia and debunk a few myths along the way, as well.

Hence, all of the above are exactly the reasons why we need to abandon the idea of a „neoliberalism in one country“ and focus on how it is imposed in it by looking at a more general picture. This implies rejecting the notions such as „catch-up industrialization“ (since it is clear that no industrialization is currently taking place in the peripheries) or ideologies such as that of a „Europe with two speeds“ which explain debts and deficits as properties of single states. On the contrary, these debts and deficits are not a cause but a consequence of the core and periphery divide. Budget deficits and debts must be derived from the core periphery relation and not the other way around. Because, to be a periphery means not merely holding a strict and dominant or even subjugated position (depending on where you are), but involves a process through which the state form of a country and its inner content are transformed so as to be more suitable to an international division of labor.

THE CREDIT STRUCTURE

First, in order to analyze the relation between Serbia’s state towards the European Union, one must not follow the so often mentioned chapters of European integration or the like, but instead focus first on the credit structure of Serbia’s debts and then on the import and export agreements that regulate the trade between these two entities. These are the two most important pillars which determine the inner form of a peripheral state with regards to the European economy. We shall later see how this entails changes in the inner content of the state through the reconceptualization of its sovereignty as well as its inner content in terms of its tax policies (which effects different parts of the population) and its legal policies (which effect different aspects of labor power governance, its production and reproduction).

First, the credits. The level of Serbian monetary sovereignty is determined by the large level of the euroization of its credit structure. Following the isolation of the nineties and the withdrawal of foreign capital from the country, the high credit dependency of growth had resulted in a fall in the value of the domestic currency the middle of the first decade of the new millennium. During the year 2000, Serbia had overvalued its currency, i.e. it had over-estimated the exchange value of the dinar, which meant that GDP was de facto less than the value it had been assigned (and which sparked harsh debate in the Serbian public over the validity of this and several other economic indicators being misconstrued and used for ideological purposes). In the meantime, domestic banks were closed or forced to bankrupt in the early 2000’s, after which there has been a “banking tsunami”[2] (Caterine Samary)  and an onslaught of foreign crediting institutions. However, the credit market suddenly “slowed down” following the Lehman Brothers market crash in 2008 and the European crisis afterwards. On a more local level, the Basel agreements which regulate European banks were also partly responsible for capital withdrawal from peripheral banks, as they had to increase the amount of passive capital (such as the case with the Basel III agreement), thereby decreasing the availability of commercial and other credits. This meant that the Serbian state has gradually had to turn to the accumulation of interests after the dissolution of Yugoslavia, i.e. after it lost its domestic banks and privatized its local industry with disastrous results[3]. This led to the rise of an ever increasing public debt component in GDP. Thanks to this, the share of the public debt in GDP increased even more after 2008, reaching 58.1%  in September 2013 (This was in addition to another negative relationship, that of the already indebted GDP towards the foreign debt – which was marked at 85.9%). Therefore, half of the domestic product was obtained thanks to credits, which became more and more difficult to procure, followed by the practice of creating new debts in order to pay off the old ones. But now, thanks to the linking of credits to the euro, Serbia has – like other countries in the periphery outside of the European monetary zone – come to be dependent on its fluctuations. Three quarters of Serbian credits are denominated or indexed in foreign currencies, of which 48% is in euros, with 24.65% in dollars, whilst only 21.1% is in Serbian dinars (most of it in variable interest rates). This means that monetary sovereignty has been weakening up to the point where it is currently literally impossible for the Serbian economy to carry out devaluations and manage itself with its own monetary politics in that way. Today this state of affairs has continued this weakening trend: if you factor in the already bad debt and GDP of 85.9%, and include the foreign currency savings which in essence represent banks’ foreign currency demands, then that relation goes well beyond 100% of GDP. But the main point is this: weakened monetary sovereignty and an abundance of foreign credits went hand in hand as the first implied an ever increasing reliance on the latter. These credits are now infamous for being spent outside the productive sector, thus increasing opening door for another debt cycle. Also, in 2010 Serbia began issuing Eurobonds, which could almost exclusively be blamed for further worsening the debt to GDP ratio. According to the Fiscal advice, the public debt in 2014 was by the end of September at the 22,6 billion, or 68,2% GDP, and continues to gravitate around that amount due to the fluctuations of the euro, but was also increased several times by 1 and 2 billion euros respectively, due to Eurobond emissions. By this month, it will have surpassed the 23 billion euro mark and will amount to about 70% GDP. On the other side, the debt ceiling by Serbian laws is set at 45% which brings up the question of why we haven’t been bankrupt yet – this is exactly like the Greek scenario, where the debts are reprogrammed ad infinitum without any calls for a bankruptcy. We will get into that later.

But now, if we look at the creditor side – apart from old creditors such as the Paris club and the London club (which were crediting even Yugoslavia before its ultimate dissolution) and new ones which do not fit into the European periphery framework (such as the United Arab Emirates) – there stands out the pivotal role of the IMF. The IMF has an important history when it comes to the peripherization of this part of the Balkans, and this is mostly because the International Monetary Fund’s relationship with the European periphery in the past was dependent simultaneously on the global finance system and on the political understanding of Yugoslav socialism at that time. I won’t go much into detail, but it is important to denote that the politics of the fund developed in two waves: as we know, the IMF was created together with the Bretton Woods’ and World Bank during the 1920s as an instrument for policing world finances. After the Bretton Woods’ banking system fell apart the IMF ceased playing a role as mute regulator for the survival of a system of world currencies and took on a stronger role. In short, since the breakdown of the Bretton Woods’ system of fixed exchange rates, world currencies have no longer been fixed to the dollar, but to one another instead. It was only after this change that the IMF – which outlived this system in which it was created – could change its politics towards various countries including the Balkans. In the case of Yugoslav socialism the IMF was able to take on a more active role, placing conditions on the centralization of the economy of Serbia inside Yugoslavia through a system of credits, which occurred following the end of American aid to Yugoslavia during the fifties. According to the words of Michel Camdessus, one of the directors of the fund at that time, after the fall of Bretton Woods’ system, the IMF “carried out a quiet revolution“ and gradual expansion into the socialist Balkans[4]. Today in Serbia the IMF continues in the same vein: the structure of credit arrangements is conditional on changes to the budget and political demands. For example, the economic and political programs of the Serbian government for 2014 were the subject of a meeting with the IMF conducted from 1-7 October 2013. At that time a report was released in which Serbia’s problems were stated as including a budget deficit of 7.5%, a high level of unemployment – at least 25%, quick growth in the level of public debt in GDP (according to data from the Ministry of Finance, at the end of September 2013 that percentage was around 58.1%)[5].

Now, all of these assume that this deficits and indicators are the consequence of Serbia’s own policies, which as we have seen, could only partly be true. They are not self-induced phenomena. Rather, the reverse is true: their emergence and development was a of a transition from socialism to liberal capitalism which was conditioned not only by the IMF but also by the euroized credit structure. Of course, this would be impossible without the local elites and rulling liberal parties whose role was crucial after the break-up of the SFRY. In brief, the succesion of rulling parties acting in the name of the market mean that they had to do away with the productive sector in the long term, since it was mostly composed of state owned enterprises and thus had to be privatized and sold. The fate of this move was, as we know, massive deindustrialization.

IMPORT/EXPORT AGREEMENTS

Once the credit structure is analyzed we may turn to the import/export agreements. As was mentioned, another important mark for a peripheral positioning of Serbia within the EU economy were the import/export agreements. They were pivotal for the introduction of the market principle into a former socialist economy since they implied the so called „liberalization of trade“ – a gradual cancelation of taxes on certain products and industrial sectors. In 2006 Serbia signed one such agreement on the free trade between countries of Central Europe – CEFTA – by which certain goods were made tax-free, industrial products in particular. It operated on a Balkan level and regulated the exchange between peripheral countries. But, in 2008 Serbia also signed the Stabilization and Association Agreement (SAA)[6], by which it had obliged itself to two things: to adjust its legislative system in compliance with the European one and to gradually cancel out any taxes on trade with the EU countries: the average tax rate for imported products would be 0,99%. The trade of goods from different industries would be liberalized gradually during the following years, with the automobile industry being the last one to do so; according to this agreement, public enterprises may not regulate customs tax from now on or influence the import/export processes in any way. Furthermore, this agreement also implies that Serbia will open up its housing market in 2014 to foreigners (which made Serbia the only country to do so before joining the EU at this stage). This was the content of the agreement[7]. Hence, while CEFTA was concerned with the level of periphery, the SAA deals with its relation to the EU. Of course, under this liberalization, it is not hard to recognize that the facilitating of import/export processes entails stopping any protection for domestic producers. This only further widens the gap between the core and the periphery. Because, the products which foreign producers distribute on the local market are often more „competitive“ than domestic ones. This is only made easier by the aforementioned agreements between Serbia and the EU which cancel out any taxes on imports. Thus the demand for domestic products and hence domestic production is weakened. The „liberalization of trade’ doesn’t imply better conditions for domestic producers, but on the contrary, only better condition for the trade itself.

BECOMING A PERIPHERY: THE INNER FORM OF THE PERIPHERAL STATE AS A CONSEQUENCE OF INTERNATIONAL RELATIONS

Having in mind the origins and content of Serbia’s relations with the European Union we may now return to the question stated at the beginning of this paper: how does one become a periphery? What consequences does that imply for its internal state structure? It might be argued that the changes that took place in Serbia actually brought about a model form of the peripheral state which produces a status quo in its internal policies (thereby actually ending or banning political opposition or even politics in general –this is contrary to the “corruption myth” that is so often presented in order to explain the chaotic economy of the Balkan states. Although it does hold some value, it cannot be used as a causal explanation nor a structural one, for that matter). In this sense, most of the legal and even fiscal policies are determined by its peripheral role. In the case of the European Union, this is done so as to counter the lack of a fiscal union – and most of the policies done in peripheral country at least partly depend on a general level on the fiscal needs of the union and its internal market. In the case of Serbia, this role is not new but has however changed since the Yugoslav times as most of the socialist heritage such as free education, free healthcare and recently labor laws had to be restructured and removed.  What is happening now might once again invoke a short quote from Catherine Samary, according to whom Yugoslavia was once an attempt to break away from the periphery, and that after its dissolution, a process of neo-peripherization occurred[8]. In this sense it might be argued that this processes left their internal marks on the form of the state. First, after 2008 austerity measures were introduced in the form of pay and pension cuts, pension fund reforms and so on. Secondly, these went hand in hand with an increase in tax and excises, especially the VAT increase from 8% and 18% to 10% and 20% respectively. And is no secret that most of the Serbian budget is filled by VAT, around 2/3 of it. Third, as austerity measures opened up room for a wider change and soon legal changes followed as well. We have mentioned some of them in the section on import/export agreements. But one of the most important of these changes, and one of the most important topics for the Serbian left in the last two years were the labor law reforms. Here we may recall the section on the IMF and its role here: it actually influenced, supported and in part coordinated these and several other reforms so as to produce a more “flexible” labor market and to remove the social security clauses which the old laws, no matter how bad, still had. Now no compensation is given for workers being lay-off, or for those who are sick and neither for women who are pregnant and not to mention extra hours and the like, as the workweek is increased and so on. This sparked massive protests thiss summer in Serbia with over 10 000 unions and workers and leftist NGOs gathered in Belgrade in summer 2014[9]. It is interesting that these same policies have also been introduced and passed at the very same time in Croatia, thus only proving that lowering wage labor in face of austerity only stimulates the race to the bottom, and not the race for competitiveness. The only struggle they induce is not a competitive struggle, but as you might have expected – a class struggle. Thus, the internal reorganization of the state is a direct consequence of the core/periphery relation explained above.

Several conclusions stem out from this. The first one is that which I mentioned at the beginning: why Serbia is not YET a peripheral state in the full sense or even a semi-peripheral state for that matter. Firstly, it should be clear, although it often is not so, that the semi-periphery was coined as a term denoting former colonies which have gained independence and sovereignty but are still dependent economically on their former colonizers[10]. This could apply to a Serbia from the beginning of the 20th century, but now things are a bit more complex. The so called transition from a socialist to a market economy only degraded any independency that this former Yugoslav republic may have had. Today Serbia lies outside even the European periphery – because to be on the periphery within the EU and outside the EU are two different thing – and it does so in a structural manner: as a country outside of the EU, Serbia doesn’t have access to mechanisms for relieving public debt which countries in the EU have. In contrast to many countries on the edge of the EU, Serbia is located on the periphery of the periphery: there are no kinds of bail-out funds such as the European Stability Mechanism, or programs for buying bonds from the European Central Bank, nor any kind of political instrument which would improve the crisis position of peripheral states[11]. This is so despite the fact that Serbia has several agreements with the EU including the ones mentioned here. This is one of the many contradictions of the process of eurointegration. Contrary to the ideology that represents these “integration” processes as a form of salvation for the Balkan states, the process of their liberalization was not only a process of their eurointegration but also a process of their peripherization. It is a process that proves beyond doubt one thing that is contrary to the ideology of transition so often present in Serbia. This in fact is the realization that the periphery does not lay behind us, but instead, if not counter-acted upon, may only prove to be ahead of us.


*This article is a revised version of a talk given at the University of Warsaw at the „Crisis and Restistance in Central Eastern Europe“ conference, and a talk given at The Green European Foundation Cooperation and Development Network conference in Belgrade, both delivered in winter 2014, and later published in CDN.

[1] http://www.european-council.europa.eu/media/639235/st00tscg26_en12.pdf

[2] Catherine Samary, Capitalist crisis: Towards a Western/Eastern Europe Banking and Social Tsunami http://www.europe-solidaire.org/spip.php?article13710

[3] There were two waves of privatization, and two models: one would transfer the socially owned enterprise to a state owned enterprise and then proceed to the privatization, while the latter, carried out mostly during the new millenia, focused on giving the property to the workers and employees of an enterprise by letting them buy the stocks of a company. This however brough about new contradictions since the workers could never be competitive enough in front of a foreign investor or the local party of mafia backed buyers. This led to legal issues with the state such as in the with the Jugoremedija drug factory in Zrenjanin, to cite a famous example (and whose workers are still struggling after more than a decade of fight).

[4] Boughton, M. James, Silent Revolution: The International Monetary Fund 1979–1989, International Monetary Fund, 2001.

[5] http://www.imf.org/external/lang/serbian/np/sec/pr/2013/pr13395s.pdf The report suggested the following agreed-upon solution: an ambitious fiscal consolidation, the introduction of austerity measures under the banner of creating a good climate for business, the curbing of fund earnings in the public sector, the removal of state subventions, the introduction of drastic measures for income payments and above all, the dismantling of social enterprises. It is obvious from a quick glance that the fund’s politics is in the spirit of the so-called “10 commandments of neoliberalism” (Williamson). Carrying out these demands requires ruining what is left of the socialist heritage of Serbia. The Fund makes that message clear – the dismantling of social enterprises and the revoking of privileges relating to work regulations are the demands on which they insist.

 

[6] http://www.seio.gov.rs/upload/documents/sporazumi_sa_eu/ssp_prevod_sa_anexima.pdf (In Serbian, on the website of the government)

[7] SAA

[8] Catherine Samary: Ten Theses on the Neo-Peripheralization of the Balkans Through NATO and EU Extension in the Context of a Systemic Global Capitalist Crisis, http://pglobal.org/news/268/ 12. 12. 2012.

[9] For more, see my reports covering the often violent introduction of these laws in Serbia: http://www.criticatac.ro/lefteast/struggling-against-serbias-new-labour-law-part-2/

[10] The term is used slightly differently in world-systems theories from Wallerstein to Samin and others, but it is still more confusing than clarifying to apply it to the case of Serbia as it could not be used to explained the massive deindustrialization processes that took place at the same time as the liberalization of the country.

[11] For more on this, see: William Bartlett, European Super-Periphery http://www.academic-foresights.com/European_Super-Periphery.html  22. 12

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