China is building a highway through the mountains for Montenegro. But the small country can no longer service the loan from Beijing – and asked the EU for help. Now banks are to step in.
Munich / Podgorica / Brussels – Opponents called it the “road to nowhere”, the government at the time saw it as an important infrastructure project: a motorway built with Chinese help through impassable terrain in Montenegro. The construction through the mountains of the Balkans is delayed, but the loan from a Chinese bank for the equivalent of 832 million euros for the 41-kilometer stretch of motorway is due now. But damp Montenegro cannot pay. And so a story emerged that is exemplary of the EU’s dilemma in the Western Balkans.
Because the new government of Montenegro had asked the EU in the spring for help with the loan payment agreed by its predecessors. But Brussels refused. In a phone call between President Xi Jinping and his counterpart Milo Đukanović, China * announced that the repayment would be postponed until the end of 2022. Đukanović had pushed the project as prime minister back then. He wanted to build a 180-kilometer motorway from the port town of Bar on the Adriatic to Boljare on the border with Serbia. From there the road should continue to Belgrade. The section project we are talking about started in 2014 and is being implemented by the China Road and Bridge Corporation; The state-owned Chinese Export-Import Bank provided 85 percent of the financing.
The EU * did not see itself as responsible for the credit – and in general not for debts of candidate countries like Montenegro to third countries. Brussels only promised Podgorica a continuation of the cooperation and general financial support – without details. Now, however, western credit institutions have apparently stepped into the breach. Finance Minister Milojko Spajić told the English-language newspaper on Friday (July 9th) Balkan News, Montenegro had reached an agreement with two banks from the USA and an institute from France on debt rescheduling. The loan will be converted from US dollars to euros and interest rates will be reduced from two to 0.8 percent. On Wednesday, Minister of Economic Affairs Jakov Milatović told the Reuters news agency that a deal “with European and American banks” was only weeks away. The two ministers have not yet named any names – nothing is official yet. Converting it to euros would reduce currency risk and the lower interest rate would reduce the cost to the land.
Montenegro: Dilemma for the EU due to China projects in the Western Balkans
If Western banks take on the matter now, Brussels can take a deep breath. Because the situation had put the EU in a bind. On the one hand, Brussels does not want to send false debt incentives – or promote projects that are considered to be wrong. On the other hand, however, the EU must be interested in a positive image in a region in which Russia and China are also striving for influence. Ultimately, the question is: principles or realpolitik? In the past few weeks there had been reports that Brussels was negotiating with the German Kreditbank für Wiederaufbau (KfW), the French state development banks and the Italian state lender CDP to find a solution for Montenegro.
“The rescheduling negotiations show that the EU needs flexible solutions to counter China’s presence in the Balkans,” commented Mercator Institute for China Studies (Merics) the processes in Berlin. Involvement in a project that the EU itself had declared redundant and harmful to the environment during the planning phase “would mean that the EU deviates from its own standards.” At the same time, however, the EU must tackle the “false general perception that it is falling behind Beijing in terms of support and commitment to the region.” That sounds difficult. It is.
“China mainly uses spaces in which the EU is absent,” Merics researcher Jacob Mardell had already stated in the spring. This includes precisely the “construction of motorways for which North Macedonia and Montenegro had unsuccessfully applied for money from European partners.” After the no from Brussels, they turned to China. The Western Balkans remain a peripheral zone of Europe, which is increasingly being targeted by external powers, said Mardell. “And their interests do not necessarily always coincide with those of the EU.” In addition to China, this also applies to Russia, which is also very active in the region.
Montenegro: High debts from motorway project with China
Like several of its neighboring countries, Montenegro is conducting accession negotiations with the EU. The small country has been a NATO member since 2017. It only has around 680,000 inhabitants and is famous for its spectacular mountain landscape and rugged coastline. Photos from the motorway construction site show high stilt bridges over deep valleys, in which the typical white accommodations for Chinese workers stand.
The loan for the motorway project caused Montenegro’s debts to skyrocket. Because of the corona crisis, the country’s economy, which is heavily influenced by tourism, shrank by 15 percent in 2020. Montenegro’s external debt in 2020 was after a current one Study by the European Council for Foreign Relations (ECFR) at 91.6 percent of its economic output. 16.7 percent of this debt was accounted for by China – 51.6 percent, however, on euro bonds. So the EU is still the largest donor of Montenegro – and not the People’s Republic.
China: Infrastructure projects for EU accession candidates in the Western Balkans
China sees the Western Balkans, which includes Montenegro, North Macedonia and Serbia, as well as Albania, Bosnia and Kosovo, as the target region for its New Silk Road. Beijing has invested billions in the region, mainly in Serbia and through low-interest loans in infrastructure and energy. China also sold corona vaccine in the region – Montenegro even received corona vaccine doses as a donation from Beijing in the spring. If China, like Russia, increases its influence in these countries, it could complicate the eastward expansion of the EU.
The situation is complicated anyway. Many of the candidate countries have problems with lack of transparency and corruption, including Montenegro. Prime Minister Zdravko Krivokapić, in office since December, said in an interview with Reuters that his greatest challenge was to establish a rule of law in Montenegro that had been entangled in the grip of criminals and corruption for many years. “There is international organized crime in Montenegro, and as a small country we cannot solve this problem on our own,” said Krivokapić – actually a great opportunity for Brussels. For the first time in decades, Montenegro is in a democratic transition, according to the former professor of engineering, towards a Euro-Atlantic future modeled on Luxembourg.
China: First image scratches due to criticism of Silk Road projects
At the same time, China’s image in the region is getting scratched. Some of the Silk Road projects are lagging behind the plans – including the motorway in Montenegro. The project company justifies this – not entirely implausible – with extremely difficult geographical conditions. There is also criticism of the lack of environmental standards or the legality of some Silk Road projects, for example in Serbia. Montenegro also launched an investigation into the China Road and Bridge Corporation in March. During the construction of the motorway, environmental damage in the valley should be Tara River, which is a UNESCO World Heritage Site.
Meanwhile, the EU provided one in December 2020 Investment plan for the Western Balkans which provides a good 582 million euros for infrastructure projects, including 130 million euros as grants. The funded projects also include a planned railway line in Montenegro. The total amount of the EU investment plan for the entire Western Balkans is, however, well below the Chinese loan amount for the 41 kilometers of motorway in Montenegro alone, which once again illustrates the enormous dimensions of this project – and makes the stomach ache in Brussels understandable. *Merkur.de is an offer from IPPEN.MEDIA (ck)