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Montenegro – A cause for concern

“Last week’s Council conclusions on Montenegro’s Economic Reform Programme and the European Commission’s Economic Forecast on Montenegro both underscore, once again, the urgent need for the Montenegrin government to implement real and meaningful reforms, writes Matthias Menke, and to settle the many outstanding international disputes if it wants to safeguard the country’s financial stability and economic future.

Commissioner Hahn has stressed the need for fiscal and budgetary consolidation in Montenegro, the lack of which poses a grave threat to the fundamentals of the Montenegrin economy.

Only last month the European Parliament’s Stabilisation and Association Parliamentary Committee called on Montenegro to improve the business environment and notably expressed its concern about legal and judicial uncertainties including contract enforcement, “which may entail risks for economic actors and discourage foreign investments”. It was just such judicial uncertainties that saw CEAC ((Central European Aluminum Company) stripped of its investments at the hands of the Montenegrin government.

The new round of contingent liabilities referred to in the Commission’s progress report of 2014 are still very present due to a number of unresolved issues, including, as the European Commission Economic Forecast on Montenegro referenced, the numerous cases around the KAP smelter. The government’s intransigence and unwillingness to address these issues with foreign investors has led to numerous international arbitration proceedings against the state of Montenegro totalling almost €1bn, nearly one third of the country’s GDP, including the numerous cases CEAC  has taken.

Should the arbitration courts find in favour in just some of these cases, this would pose an existential threat to the Montenegrin economy. The Montenegrin government has repeatedly sought plaudits for its programme of reform legislation. But enacting legislation means nothing if that legislation is not enforced. Commissioner Hahn is right to emphasise that Montenegro needs not just legislative reform but more importantly needs to deliver improvements on the ground.

His comments are a clear warning the Montenegrin government that it really does need to make meaningful reforms, not just be seen to reform, if it wants to further progress towards EU membership. It should be deeply worrying for the Montenegrin government that, according to a recent Balkans Barometer, a full 60% of its population is either indifferent to or has a negative view of the country’s ambition of joining the EU. This is likely a reflection of the Montenegrin citizen’s direct experience on the ground, where the rule of law is not respected and much-touted reforms are not implemented.

Why would the man and woman in the street have a positive view of their country’s eventual EU accession when they see that the path to EU is not delivering the improvements in their daily lives it was promised to? That disillusionment is reflected in the 63% of Montenegrins who, somewhat jadedly, think that the country’s main motivation for joining the EU is that it would be “good for business”. It will come as a crushing blow to its citizens if the Montenegrin government’s inability to implement real and meaningful reform means that not even business benefit as investors flee a country that has demonstrated time and again its utter disregard for the rule of law.”

Dr Matthias Menke is External Counsel for CEAC

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