European Stability Initiative - ESI - 21 October 2017, 21:19
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Near Bovecr, Slovenia. Photo: Alan Grant
Near Bovec, Slovenia. Photo: Alan Grant

Slovenia, historically the most prosperous republic of former Yugoslavia, emerged virtually unscathed from its 10-day war of independence in 1991. Its economy having enjoyed robust growth since its 1 May 2004 accession to the EU, Slovenia's GDP per capita has already reached about 80 percent of the EU-27 average, ahead of Portugal and all other new members from Central and Eastern Europe.

Compared to the states of Central and Eastern Europe, not to mention the Western Balkans, Slovenia started from a good position. However, the process of EU accession has played a major part in Slovenia's internal transformation during the past 15 years.

But not everything went smoothly. It took Slovenia longer than any of the other Central European candidates to sign an association agreement with the EU. Its gradual approach to transition to a market economy, meanwhile, was criticized by many outsiders.

Looking back at the past two decades, however, it is hard not to consider Slovenia one of the outstanding examples of successful Europeanisation and reform. In 2008 Slovenia became the first of the new EU member states to take over the EU Presidency.

 

Difficult beginning: The long and stony path to an association agreement

Already in 1989, before the break-up of socialist Yugoslavia, Slovenia adopted a political and economic programme called "Europe 1992" and started conducting studies on how to prepare for new relations with Europe.

After independence Slovenia was allowed to rely, to a large extent, on the privileges, including preferential access to EC markets, of the 1980 EC-Yugoslavia co-operation agreement. A co-operation agreement between Slovenia and the EU was concluded in April 1993.

The next logical step would have been to start negotiations on an association agreement (or Europe Agreement, as it was then called), but this proved to be difficult, largely because of problems with neighbouring Italy. Bojko Bucar and Irena Brinar provide an illustrative account of these complications:

"Italy as a neighbouring state recognised Slovenia as an independent state together with most of the countries of the EU (on 15 January 1992). However, it immediately raised the issue of the status of the Italian minority in Slovenia. Italy's diplomatic activities and allegations, all reports of international observer missions notwithstanding, resulted in the fact that Slovenia became a member of the [Council of Europe] as late as 14 May 1993, almost a year after it had been admitted to the UN. In the meantime, in August 1992, Italy recognised Slovenia's right to succession to all relevant treaties (some 50 in number) that had been concluded between Italy and Yugoslavia. Among them was the Treaty of Rome (1983), an agreement on compensation for the expropriated Italian property in the border area.

"But after the political situation in Italy changed and the right-centre government of Silvio Berlusconi and Gianfranco Fini came to power (10 May 1994), Italy refused to honour this contract and demanded the return of property in kind. Since Slovenia refused to accept this claim and insisted on the respect of international law, Italy vetoed negotiations on the Europe Agreement. It claimed that Slovenian legislation was not in accord with European legislation as regards the purchase of land by foreigners. It was of little help for Slovenia to argue that an obligation to sell land to foreigners is relevant only after a state becomes a member of the EU (according to the principle of the free movement of capital) or that no similar demands have been made to other countries which had signed Europe Agreements.

For Slovenia it now became a demand by the EU, not Italy alone, to change its legislation. The EU considered the dispute a bilateral matter and would not jeopardise relations with one of its important members. The Slovenian government hat to make a declaration that before signing the Europe Agreement it would initiate a change of the Constitution allowing for the purchase of land by foreigners, and that the amendment to the Constitution would become effective before the end of the ratification process.

This allowed for the continuation of the negotiating process and even initialling the wording of the Europe Agreement on 15 June 1995. Yet Italy again vetoed the signing of the agreement until Annex XIII to the Europe Agreement had been added. Thereby Slovenia consented that after the treaty would enter into force, EU nationals who at any time legally and continuously had had a permanent residence for three years on the present territory of the Republic of Slovenia could, subject to reciprocity, acquire title to land."[1]

The change of the Italian political landscape, leading first to technical government under Lamberto Dini and then to a centre-left government under Romano Prodi, produced immediate improvements in bilateral relations. A Europe Agreement was finally signed on 10 June 1996, four and a half years after Czechoslovakia, Hungary and Poland and more than three years after Bulgaria and Romania. It finally entered into force on 1 February 1999.

 

Pushing hard: application and negotiations

The last of the CEE-10 countries to have signed a Europe Agreement, Slovenia also had the least time between the signing of its accession agreement and the submission of its membership application. While the Visegrad Four had had several years between these two key dates, Slovenia had to apply directly after signing the Europe Agreement. In fact, it did so the very same day (and two and a half years before the Europe Agreement actually entered into force).

It turned out to be the right decision. The European Commission's autumn 1997 opinion on Slovenia's application for EU membership – delivered at the same time as to the nine other applicants from Central and Eastern Europe – credited Slovenia with having a stable democracy and meeting the political and economic criteria for membership. It pointed out, at the same time, that Slovenia would have to make considerable efforts to be able to adopt and implement the acquis, particularly in areas like the internal market, environment, employment, social affairs and energy.

Slovenia was invited to start negotiations at the Luxembourg European Council in December 1997, together with Poland, Hungary, the Czech Republic, Estonia and Cyprus.

Slovenia was well prepared for the negotiations. Between 1994 and 1996 it had prepared a "Strategy for Economic Development of Slovenia", a "Strategy of International Economic Relations" (SIERS) and a "Strategy for increasing Competitiveness Capabilities of Slovenian Industry". It was largely on the basis of these last two documents that the government drafted its "Strategy for Accession to the European Union" in 1998. As Janez Potocnik, Slovenia's chief negotiator for membership, pointed out in an article written together with Jaime Garcia Lombardero:

"In its earlier stages the negotiating process could [..] more appropriately be called a process of adjustment. In that period, at least in Slovenia's case, the real negotiations took place within the country, with respect to its preparation to undertake the necessary changes not only in principle, but also despite interferences with the existing division of economic and political power."[2]

These "internal negotiations" were crucial for efficient and fast progress during the talks.

"Slovenia succeeded in reaching an adequate level of political consensus and support to allow the process to proceed efficiently and in a quite undisturbed manner. Slovenia's favourable starting position, reflected largely in its relatively high level of development compared with the other candidate countries, as well as its small size, which allowed it adequate flexibility, helped Slovenia become on of the most successful candidates in the process of adjustment."[3]

Even in a country which had already reached a high living standard and had carried out a wide-reaching reform process during the 1990s, the accession process had an important impact on reforms.

"Just as, on the one hand, a successful transition was thus seen as a precondition for accession, so too, on the other, the accession process itself speeded Slovenia's transition. The process helped Slovenia overcome certain obstacles – such as monopolistic firms and entrenched political interests – to necessary change. It established greater order and stability in the economy and society as a whole and contributed to the improved competitiveness of all economic agents – individuals, companies and the state itself."[4]

 

Slovenia's own way

Slovenia's transition is usually described as having followed a gradual approach (as opposed to the shock therapy approach implemented in Poland). Some expected this to lead to difficulties. As András Inotai and Peter Stanovnik pointed out:

"The repeated delays in privatization, the slow and selective inflow of foreign capital, the weaknesses in the banking sector, and the country's high production costs compared with the Czech Republic, Hungary, Poland and Slovakia noticeably narrowed Slovenia's competitive advantages in the second half of the 1990s."[5]

In 1999, the World Bank reported:

"Slovenia's economy still suffers from persistent structural weaknesses. The large share of the State in the economy, the limited role of the financial sector in resource intermediation, and the low share of the private sector in manufacturing and infrastructure, have all resulted in lower growth relative to other leading economies in Central and Eastern Europe (CEE). The country's public financed are coming under increasing pressure from high and rising social security expenditures, mainly pension and health expenditures as well as from relatively high public sector wage increases in the early years of the transition."[6]

In the same report, however, the WB praised Slovenia for having moved quickly to establish macroeconomic stability and to launch a systemic transformation of its economy – this, despite the disruption of trade flows and the wars in the Yugoslav successor states.

Slovenia, which never had to conclude a stand-by arrangement with the IMF, developed very well. GDP per capita hovered around US$ 10,000 from 1995 to 2001, the highest among the transition countries, rising to nearly US$ 27,000 in 2008. In a single decade, exports more than doubled, reaching more than US$ 29 billion in 2008. Unemployment declined slowly but steadily, from 14.5 percent in 1998 to below 6 percent in 2009.[7]

Total public debt always remained under 30 percent throughout this period, less than half of the Eurozone limit of 60 percent. Since 2002 the budget deficit has not exceeded the 3 percent target. Since 2005 it remains below 2 percent. In 2007 Slovenia became the first of the new EU members to join the Eurozone.

16 September 2009


[1]Bojko Bucar, Irena Brinar, "Slovenia – Political Transformation and European Integration", in: Anselm Skuhra (ed.), The Eastern Enlargement of the European Union. Efforts and Obstacles on the Way to Membership, Studienverlag, 2005, pp. 96-97.

[2]Janez Potocnik and Jaime Garcia Lombardero, "Slovenia's Road to Membership in the European Union", in: Mojmir Mrak, Matija Rojec and Carlos Silva-Jáuregui (eds), Slovenia. From Yugoslavia to the European Union, World Bank, 2004, p. 375.

[3]Ibid., p. 375.

[4]Ibid., p. 368.

[5]András Inotai and Peter Stanovnik, "EU Membership: Rationale, Costs, and Benefits ", in: Mojmir Mrak, Matija Rojec and Carlos Silva-Jáuregui, "Slovenia – From Yugoslavia to the European Union", World Bank, 2004, p. 355.

[6]World Bank, Slovenia. Economic Transformation and EU Accession, Volume II: Main Report, 1999, p. 1.

[7]Sources for this and the following paragraph: Statistical Office of the Republic of Slovenia and Deutsche Bank Research.


© European Stability Initiative - ESI 2017
21 October 2017, 21:19