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MEMO/07/446

Brussels, 6 November 2007

Key findings of the progress reports on Kosovo[1] and the potential candidate countries: Albania, Bosnia and Herzegovina, Montenegro, Serbia

Albania

Albania signed a Stabilisation and Association Agreement (SAA) with the EU on 12 June 2006. An Interim Agreement has entered into force and SAA ratification by the Member States is ongoing.

Political criteria

Albania has made some progress on democracy and the rule of law. Some progress has also been achieved regarding human rights and the protection of minorities, and in strengthening property rights. Albania has continued to play a positive role in maintaining regional stability and has contributed to the conclusion of the regional free trade agreement, CEFTA.

However, democratic culture and in particular constructive dialogue between parties needs to be developed to enable the political system to function effectively and transparently. It is important for Albania to complete the long overdue electoral and judicial reforms which are currently being discussed. Corruption remains widespread.

Economic criteria

Albania has made progress towards establishing a functioning market economy. Further considerable reform efforts are needed to enable it to cope over the long term with competitive pressures and market forces within the Union. The level of registered unemployment, though still high, continued to decline. Privatisation gained new momentum in 2007.

However, external deficits widened further, mainly due to difficulties in the energy sector. Shortages of qualified staff and poor infrastructure - including energy supply - hold back the development of a private sector that can make sustained contribution to the country's economic development.

European standards

Albania has made progress in aligning its legislation, policies and capacity with European standards and is implementing its Interim Agreement trade commitments. In some areas, such as customs, competition and fighting organised crime, progress made in previous years has been sustained.

In other areas, however, such as energy, transport and intellectual property rights, progress has remained limited.

Bosnia and Herzegovina

Negotiations on a Stabilisation and Association Agreement (SAA) with Bosnia and Herzegovina began in 2005. Discussions on the technical content of the foreseen Agreement were completed in December 2006. The conclusion of the SAA, however, depends on Bosnia and Herzegovina meeting four conditions: achievement of police reform in accordance with the EU's three principles[2], full co-operation with the International Criminal Tribunal for the former Yugoslavia (ICTY), public broadcasting reform, and public administration reform.

Political criteria

As regards the political criteria, Bosnia and Herzegovina's progress has slowed down. Some progress has been made in the area of public administration, but significant further efforts are needed. Co-operation with the International Criminal Tribunal for the former Yugoslavia (ICTY) has improved and is now at a generally satisfactory level. The country participates actively in regional co-operation and has agreed to the regional free trade agreement (CEFTA).

However, Bosnia and Herzegovina's political leaders failed achieve police reform. Lack of progress on this and other important issues is seriously delaying the conclusion of the SAA, as well as reforms in general. Full co-operation with the ICTY remains necessary.

Economic criteria

Bosnia and Herzegovina has made little further progress towards establishing a functioning market economy. The persistence of very high unemployment remains a major cause of concern. Major reforms are needed to enable it to cope over the long term with competitive pressure and market forces within the Union.

Economic growth remained high and accelerated. Inflation has been reduced. FDI increased significantly in 2007 and helped financing the external deficit. Price competitiveness was to a large extent preserved.

However, weak domestic consensus on the fundamentals of economic policy led to a slow-down of reforms both at entity and other levels of government. Significant structural rigidities hamper the functioning of the labour market. The public sector remains large.

European Standards

Bosnia and Herzegovina has made limited progress in aligning its legislation and policies with European standards. In areas such as, competition, transport, energy, education, visa management and asylum, some progress has been made.

In other areas, however, such as movement of persons, social policies and employment, little has been achieved.

Montenegro

A Stabilisation and Association Agreement (SAA) with Montenegro was signed on 15 October 2007. It provides a framework for further economic, political and institutional development, provided that the agreement is properly implemented.

Political criteria

Montenegro has made good progress in establishing the necessary legal framework and institutions following independence. In October, Parliament adopted a constitution broadly in line with European standards. It has continued making progress in administrative and legal reform. The main political parties adopted a declaration on the basic constitutional principles of rule of law committing that these principles would be incorporated into the Constitution. This allowed the admission of the country to the Council of Europe. There has been progress in establishing the necessary framework for respecting human rights and protection of minorities. Montenegro is committed to regional cooperation in South-East Europe and ratified the CEFTA agreement.

However, judicial reform is just beginning. Corruption is widespread. Public administration has to be significantly strengthened. The conditions of refugees and displaced persons, including Roma, give cause for concern.

Economic criteria

Montenegro has made further progress towards establishing a functioning market economy, though at a slower pace. Major reforms are needed to enable it to cope over the long term with competitive pressure and market forces within the Union.

Macroeconomic stability improved. The rapid economic growth helped create jobs while inflation remained subdued. Large foreign direct investments supported economic activity. A prudent fiscal policy was pursued, resulting in a continued budget surplus. Trade openness and the alignment process with WTO rules supported further economic integration with the EU.

However, there are still some risks to macroeconomic stability. Energy prices increased substantially. The very high growth of consumer credit and of asset prices signalled widening macroeconomic and financial imbalances. Though unemployment declined, it remained high. Increasing labour costs continued to erode the country's competitiveness.

European standards

The country has made some progress in alignment with European standards and in strengthening its administrative capacity, leading to the signature of the SAA with the EU. Good progress was achieved in areas such as customs and taxation, competition, public procurement, free movement of capital, and agriculture.

However, progress remained limited in social and employment policies, energy, environment as well as justice, freedom and security. Montenegro needs to continue to improve its legal, political and administrative capacity to ensure a successful implementation of the SAA.

The Commission has decided to establish its Delegation in Podgorica with the aim to have it operational by end-2007.

Serbia

Serbia made significant progress in the Stabilisation and Association Agreement (SAA) negotiations. In June 2007 Serbia met the conditions and resumed SAA negotiations, which had been previously suspended in May 2006. Technically, the negotiations have been finalised. However, the conclusion of the Agreement continues to depend on full cooperation with the International Criminal Tribunal for the former Yugoslavia, which should lead to the arrest and transfer of all remaining fugitives to The Hague.

Political criteria

Serbia has made some progress in addressing political criteria. The new constitution entered into force in November 2006. A constitutional law has also been adopted. Parliamentary elections took place in January 2007, in accordance with international standards. However, the period until the formation of a new government in May 2007 highlighted sharp political divisions. This led to a slow-down in the pace of reforms. The new government has made efforts to step up the reform process Civilian oversight of the military has improved. Serbia has played a positive role in improving regional co-operation.

Serbia participated in discussions under the auspices of the UN Secretary General's Envoy for Kosovo on the future status of Kosovo and continues to do so under the auspices of the international troika.

However, judicial reform is lagging behind and a new legal framework is pending. Corruption is widespread. Enforcement of human rights, including women's, children and Roma rights needs to be improved. Ethnic tensions still exist. Serbia must now achieve full co-operation with the ICTY. It should lead to the arrest and transfer of all remaining indictees to the Hague Tribunal in order to formally conclude the SAA negotiations. Serbia also needs to show a more constructive approach towards the participation of Kosovo under UNSCR 1244 in regional cooperation and other fora.

Economic criteria

Serbia has made some progress towards establishing a functioning market economy. Further reform efforts must be pursued to enable Serbia to cope in the medium term with the competitive pressures and market forces within the Union.

The broad economic policy essentials have overall been maintained. The economy continued to expand strongly. Foreign capital inflows remained significant. Inflation declined, the budget remained in surplus and expenditures were directed towards investment. Foreign trade and investment continued to grow and economic integration with the EU has advanced.

However, unemployment remains very high. Further progress in privatisation is needed and a competitive and dynamic private sector has not yet been fully established. Fiscal policy became less tight. The lack of flexibility in the labour market and high social security contributions remain an obstacle for job creation, just like bureaucratic requirements and complex legislation.

European standards

The SAA negotiations have shown that Serbia has the administrative capacity to progress towards the EU. Serbia is well placed to implement a future SAA. Good progress was achieved in areas such as free movement of goods, customs and taxation, Industry and SME, agriculture and visa facilitation.

However progress has been limited in areas like information society and media, financial control and money laundering.

Kosovo (under UN Security Council Resolution 1244)

Kosovo's institutional arrangements are governed by United Nations Security Council Resolution (UNSCR) 1244 establishing an interim international civilian administration (UNMIK). The constitutional framework divides responsibilities between UNMIK and the provisional institutions of self-government (PISG), pending a final settlement.

Political criteria

Despite negotiations on the status, overall stability is being maintained. The provisional institutions of self-government have fulfilled their core roles in their area of competence. The assembly has participated more actively in the legislative process with improved law making capacity and a better administration. Coordination within the government has improved.

Kosovo participated in discussions under the auspices of the UN Secretary General's Envoy for Kosovo on the future status of Kosovo and continues to do so under the auspices of the international troika.

However, the status issue has continued to dominate Kosovo's politics. UNMIK still bears ultimate legislative and executive responsibility. Relations between Kosovo Albanians and Kosovo Serbs remained strained. Strengthening the rule of law, anti-corruption policy, enforcement of human rights and the fight against organised crime and enhancing the dialogue between the communities represent major challenges. Corruption remains widespread.

Economic criteria

Kosovo has made little progress towards establishing a functioning market economy. Further considerable reform efforts must be pursued to enable it to cope over the long term with competitive pressure and market forces within the Union.

Overall, economic policies remained broadly sound and market-oriented. Inflation was low, and the price level of domestic goods and services fell. Privatisation of formerly socially owned enterprises accelerated significantly although much remains to be done. The financial sector further expanded and consolidated in a context of increased foreign ownership.

However, growth was relatively modest and unemployment very high. Inadequate implementation of the rule of law, status related uncertainties and fiscal risks continued to affect the functioning of market mechanisms and the business climate. Economic policy co-ordination remained weak making it difficult to ensure a policy consensus and to respect policy commitments.

European standards

Kosovo has made further progress in approximating its legislation and policies with European standards. In some areas, such as customs and free movement of goods, progress made in previous years has been sustained.

However, little progress has been made on the effective implementation and enforcement of legislation. More efforts are needed to create the administrative capacity that will ensure further approximation and implementation of European standards, in particular in fighting organised crime, protecting the external borders and boundary, taxation and energy.

EU Financial Assistance under the Instrument for Pre-Accession Assistance (IPA)[3] for the potential candidate countries

Pre-acc. Assistance envelopes, in Є Million
2007
2008
2009
2010
2011
Total
2007-2011
Albania
61.0
70.7
81.2
93.2
95.0
401.1
Bosnia and Herzegovina
62.1
74.8
89.1
106.0
108.1
440.1
Montenegro
31.4
32.6
33.3
34.0
34.7
166.0
Serbia
189.7
190.9
194.8
198.7
202.7
976.8
Kosovo *
68.3
124.7
66.1
67.3
68.7
395.1
Total
412.5
493.7
464.5
499.2
509.2
2379.1


[1] Under UN Security Council Resolution 1244

[2] All legislative and budgetary competence must be vested at State level, no political interference in operational police work and police areas defined according to technical criteria

[3] MEMO/06/410 frequently asked questions on IPA


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