As of late November 2007, one issue dominates the Balkans in their entirety: the unresolved issue of the status of Kosovo, the Serbian “province” currently administered by the United Nations. Because Kosovo is coveted by the Serbs for historical reasons and by its ethnic Albanian population seeking independence, the issue has repercussions that reverberate throughout the region and beyond.

The only certainty about the Kosovo question for the moment is that it promises to generate a lot of noise; no one solution will satisfy each party that feels it has an interest in the situation – nor will it prevent Kosovo from re-emerging as a regional sore point in the years or decades to come.

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But there may be another unfortunate effect: that of detracting from the sound economic progress that the western Balkans have made in recent years and their potential in the future. Almost certainly, some investors will hold investments in the region in the immediate term. Others will hold their nerve.

Nationalism and EU accession

“In some respects, it is true that there have been some worrying signs in the Balkans – for example, a trend in a number of countries toward nationalism in some quarters,” one investor into the region tells fDi. “But economically most of them are singing from the same hymn sheet. They’re pursuing liberal economic policies with the aim of accelerating their accession to the EU. Kosovo is not going to change that. It’s an isolated factor, and should be considered in isolation accordingly.”

Not everyone sees things the same way. If one characteristic has remained constant in the Balkans throughout the centuries, it is the interference of greater powers, often pursuing agendas of their own. In modern day Kosovo, both the US, which strongly supports independence for Kosovo, and Russia have a dog in the fight. Russia – for which, in a number of guises and disguises, the notion of pan-Slavic fraternity is an important leitmotif in its regional and international relations – is inclined (strongly) to support Serbia’s position that Kosovo, despite a majority Albanian population, should not be independent.

Secessionist fears

Further down the line, say the Serbs, Kosovo’s independence would trigger secessionist or independence movements elsewhere in the Balkans, and on both sides of the ethnic divide: Rpblika Srpska is already making threats to slough itself of the sovereignty of Bosnia Herzegovina; Macedonia’s ethnic Albanian population may demand greater self-government or even attempt to secede.

Any one of these events would have spill-over effects and potentially destabilise the entire region. Instead of independence, Serbia proposes that Kosovo is granted “substantial autonomy”, suggesting China’s arm’s length relationship with Hong Kong as a possible model. The EU remains largely split on the issue but is desperate to avoid a unilateral declaration of independence by Kosovo.

Corridors of power

A number of factors should be presented to counter the view that Kosovo could reignite violence in the Balkans. Not least of them is that although a multiplicity of desired outcomes coexists in the constituent parts of the former Republic of Yugoslavia, renewed war is not among them.

Serbian president Boris Tadic insists that although he opposes independence for Kosovo (and believes it to be a violation of international law), Serbia “does not want to use violence and will not resort to it”. He says that any response to a declaration of independence will be “in accordance with international law and European standards”.

Nor does the military capacity exist to wage a war on any significant scale (although spontaneous conflicts not instigated by state actors could not be discounted.)

It is an irony, citizens of what was once Yugoslavia often point out, that while Romania and Bulgaria acceded to the EU before them, the Yugoslavian model of socialism had been more entrepreneurial and vastly less restrictive than that of its counterparts in eastern Europe, and provided vocational skills and training of an extremely high standard.

In Serbia, Croatia, Macedonia and Montenegro, there is an awareness of a need to make up for lost time, and commercial life continues apace.

Institutional reforms continue to be made across the region – urged on by the EU, to which each of the constituent parts of the region aspires to accede. Investment by the European Investment Bank and the European Bank for Reconstruction and Development promises to revitalise transport networks, and privatisation of key and strategic industries promises upgrades to infrastructure and new efficiencies in business and industry.

Progress is not consistent across the board. Standards of corporate and public sector governance are variable. In some cases, judiciaries are demonstrating a stubborn resistance to change in some quarters. And the monopolistic activities of a new breed of businessmen also need to be addressed if dynamism is to be maintained within markets.

Transparent transactions

There is a general understanding, though, that failure to succeed in these respects will leave the western Balkans out in the cold. “It is the governance architecture that inhibits development of the market, rather than a lack of desire for change,” one property developer tells fDi. On the issue of corruption, he says that having invested about €200m in the region as a whole, he has “not once been asked to pay a bribe, nor [has he] ever done so”.

In the balance, the regional ramifications of a protracted dispute over the Kosovo question must be weighed against a general willingness to come in from the cold and play a significant part in the global community. Watch this space.