EU, China dispute over influence in Montenegro over road project
VIENNA / BRUSSELS – The European Union will not shoulder the billion-dollar debt Montenegro owes China for a highway yet to be built, a move that adds a wrinkle to the struggle for influence in the Balkans.
Montenegro, a small country of less than a million inhabitants and a NATO member that has a coastline on the Adriatic Sea, is seen as one of the pioneers to join the 27-member bloc, which seeks to strengthen its geopolitical influence by increasing its rivalry with countries in the east, including China and Russia.
Montenegro appealed for help last month, with Deputy Prime Minister Dritan Abazovic asking the EU to refinance the loan or risk losing influence to China.
That appeal was dismissed this week when the EU’s executive arm, the European Commission, said it would not repay third party loans. However, he said he could provide assistance in other ways, including helping to provide liquidity for part of the road project through his economic and investment plan for the Western Balkans.
A spokesperson for the commission said the bloc was concerned about the impact of Chinese influence in the region.
“The EU is concerned about the socio-economic and financial effects that some Chinese investments may have,” the spokesman said on Monday. “There is a risk of macroeconomic imbalances and debt dependence.”
The difficult debt situation stems from a project to build a 165 km highway connecting the port city of Bar to Serbia. The construction of the first part began in 2015.
The fast lane was to generate economic vitality. But the project has sparked criticism of the financial feasibility of such a large-scale project in a country of just 620,000 inhabitants. European lenders had hesitated to finance the project.
China stepped in when the state-backed Export-Import Bank covered most of the construction costs of the first part with a dollar-denominated loan. The debt carried an interest rate of 2% with a 20-year repayment schedule softened by a six-year grace period, according to Reuters.
The postponement has expired, however, and Montenegro will have to start repaying the loan by the end of this year. In the event that Montenegro fails to make a payment, China reserves the right to take back the land and assets in accordance with the agreement reached by the previous Montenegrin government.
Thanks to Chinese financing, Montenegro’s public debt is said to have climbed to more than 90% of gross domestic product last year. The coronavirus pandemic has dealt a heavy blow to the basic tourism industry, putting the country in a desperate position to repay its debt.
The road project itself has been plagued with massive delays and the completion date is uncertain.
The Balkans remain a powder keg of competing interests between the complex mix of ethnic and religious groups. This is made worse by the entanglement of the EU, China, the US and Russia.
The EU is in talks with the Balkan countries, such as North Macedonia and Albania, to join them in the common market. Brussels is also helping democratization and anti-corruption efforts in the hope of bringing these nations to its side.
Montenegro shares deep ties with the EU. Not only is the country one of the closest geographically to the EU among the Balkans, but the country has essentially adopted the euro as its default currency.
In 2017, Montenegro joined NATO. The move has drawn the ire of Russia, which wants to maintain its influence in the Balkans, mainly through the supply of energy. Last year, Serbia and Kosovo agreed to normalize economic relations under a deal brokered by the United States
China, meanwhile, is expanding its influence in the Balkans through its Belt and Road Infrastructure Initiative. This effort is underlined by the support for the development of a high-speed rail network linking the Serbian capital of Belgrade to the Hungarian capital of Budapest.
Serbia has adopted Chinese-made coronavirus vaccines. President Aleksandar Vucic called China a “friend” of Serbia’s needs. If a Balkan country falls victim to one of China’s debt traps, it risks undermining the EU’s willingness to expand its reach.