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As Virus Slows EU Expansion, Aspirants’ Economies Can Still Win

As Virus Slows EU Expansion, Aspirants’ Economies Can Still Win

(Bloomberg) -- The coronavirus pandemic may be putting European Union enlargement on the back burner, but aspirant Balkan nations could get a welcome dose of economic integration in the meantime.

The six hopefuls in the continent’s south are ideally placed to become a supplier base for European companies seeking to reduce their reliance on China, according to the European Bank for Reconstruction and Development. The London-based lender plans to provide 1.7 billion euros ($1.8 billion) of financing in 2020 as the process plays out.

The extent of the supply-chain shift -- know as “near-shoring” -- will depend on “how nationalistic or integrated we’ll still be,” Zsuzsanna Hargitai, the EBRD’s head for the Western Balkans, said this week in an interview. Industries including automotive parts, food packaging, textiles and medical equipment could benefit, she said.

As Virus Slows EU Expansion, Aspirants’ Economies Can Still Win

It’s a sentiment already being voiced by governments. “This crisis has shown us how dependent we all are on China,” Romanian Economy Minister Virgil Popescu said last month in an interview.

Deep recessions will, of course, have to be overcome first.

EU leaders held a summit Wednesday that focused on recession-fighting, rather than future expansion. While Albania, Bosnia-Herzegovina, Serbia, Montenegro, North Macedonia and Kosovo all want to join the world’s largest trading bloc, they’ve been disappointed by what they consider a lack of enthusiasm in Brussels. A decision to start accession talks with Albania and North Macedonia was taken in March, but the process will take years.

As the EU wavers -- with some members worried about adherence to democratic norms -- China and Russia have both sought to bolster their footprint.

The region already offers low-cost workers and geographic proximity, though the quality of logistics remains sub-par. As well as crisis-response measures, EBRD funding this year will go toward improving infrastructure.

A Green Deal the EU is devising for the western Balkans as part of its accession process could add to the region’s allure. A levy on carbon will provide a “very strong incentive” to switch away from coal and toward renewable energy, according to Hargitai.

“This carbon tax will be a major issue and it will have an impact on near-shoring,” she said. “Albania is good with it. They have no coal so companies will be near-shoring to Albania because the country won’t be hit by the carbon tax.”

©2020 Bloomberg L.P.