The very difficulty of reaching agreement on the Constitutional Charter suggests the problems that it will face in providing the basis for a long-term relationship between Montenegro and Serbia. In key respects, the set-up that has emerged is deeply flawed and suits neither republic. They are likely before long to try again to find a solution that is mutually satisfactory and sustainable. The lesson of the period since November 2001, when Solana began his initiative, is that any durable agreement must reflect the real interests and wishes of the majority of Serbs and Montenegrins.
1. Lack of Legitimacy
The main reason for the difficulties experienced in adopting the Constitutional Charter was the lack of genuine commitment to the Belgrade Agreement from either senior levels of the two governments or their public opinion. As a document that was negotiated under heavy EU pressure, largely in order to prevent Montenegro from holding an independence referendum, it enjoyed real legitimacy in neither republic. In the longer run, any arrangement with Serbia can only be lasting if it is based on genuine Montenegrin consent. Montenegro’s pro-independence governing parties, while asserting that they would work constructively within the new union, have maintained their intention to hold an independence referendum after the stipulated three-year moratorium. In Montenegro’s parliamentary election on 20 October 2002, pro-independence parties increased their majority.
Neither did the Belgrade Agreement satisfy the hopes of many in Serbia to rebuild a functioning state union. With no common currency or central bank and without any budgetary funds of its own, the union is widely seen in Serbia as little more than a shell of a state and a way-station on the road to full separation. Fatigued as a result of the constant arguments with Montenegro, increasing numbers of Serbs question the value of maintaining such a union.
Some leading Belgrade figures, such as the outgoing FRY deputy prime minister, Miroljub Labus, and the central bank governor, Mladjan Dinkic, expressed bitter disappointment with the outcome and with Solana, whom, they asserted, they had expected to exert pressure on Montenegro to accept a greater level of economic integration. In the absence of such meaningful economic integration, both men have said, they see little future for the union and would prefer separation.
While others have not been as blunt as Labus and Dinkic, few have any real commitment to implementing the Belgrade Agreement and making the new constitutional set-up work. For Montenegro’s leaders especially, but for many in Belgrade as well, professions of commitment to the union are mainly for the sake of form, a pretence of good behaviour for the benefit of the EU, which had pressed with such determination for the union’s creation. With either side having the right to conduct an independence referendum after three years, its temporary nature is built in. For the Montenegrin authorities, the overriding strategy was to give joint institutions as little real content as possible, while they wait out the three years. In spite of concessions, notably on the manner of electing the joint parliament, they have largely succeeded. This is recognised by many in Belgrade. The Demo-Christian Party of Serbia, led by Serbian Justice Minister Vladan Batic, has campaigned for independence since the signing of the Belgrade Agreement. The new G17+ party of Labus and Dinkic states that if economic harmonisation with Montenegro does not proceed satisfactorily, Serbia should assert its independence and pursue integration with the EU separately
2. Lack of Functionality
One of the more positive results of the Solana initiative to keep the joint state intact was that it for the first time encouraged the political parties in Serbia and Montenegro to engage on the practical, substantive issues involved in any new arrangement. However, the Belgrade Agreement itself is very brief, and it left the details to be argued over and worked out afterwards. Despite attempts by both governments to reach accommodations, persistent wrangling over key aspects reflects the existence of wide differences over how the new state should function, especially in the economic sphere.
The competencies assigned to the union were designed as a compromise between the desire of the EU and others (such as the IMF) for it to have a single international personality (“one letter box”) and that of the Montenegrin authorities to preserve the highest possible level of domestic autonomy. The agreement was not based on any practical assessment of areas in which it would be more efficient and in the interests of both republics to perform functions in common. Neither did it satisfy the desire of Belgrade leaders for a stronger state. Critics such as Labus and Dinkic complained, with good reason, that a state with so few competencies was hardly worthy of the name.
The result is a hybrid solution, with an expensive administration that has very little to do. The projected cost of the joint state (€850 million in 2003, of which some €50 Million is to be borne by Montenegro) seems not to be balanced by any benefits or economies of scale. The expenses of the Yugoslav federal administration since Montenegro distanced itself had been borne by Serbia. Montenegro now has new financial obligations for the joint state, with little in return. Some, such as for the army and the diplomatic service, would have to be borne by Montenegro anyway. But Montenegro appears to have little interest in carrying out many of these functions jointly. For example, it has stressed that it will maintain its own, distinct diplomatic offices abroad.
The added cost of the new administrative layer seems all the more burdensome for Montenegro when one considers that its government has been (rightly) under international pressure to bring its public finances under control and reduce its worryingly large budget deficit. Yet the same international community is also insisting that Montenegro, for political reasons, take on a share of the financing of a new joint state administration that gives it little and that its leaders and the majority of its citizens did not want.
The new union has an extremely weak centre. There is a unicameral assembly consisting of 126 deputies (91 from Serbia, 35 from Montenegro). Laws must be passed by a majority of deputies from each republic. In the initial two years, as deputies will be delegated by the parliaments of the two republics, the majority in each delegation will in effect directly represent the ruling authorities in each republic. The parliament will thus not be an autonomous legislative body, but rather a forum for rubber-stamping decisions made by consensus between the two republic governments elsewhere.
According to the Charter, after two years there should be direct elections for the joint parliament. This would strengthen its democratic legitimacy; on the other hand it is quite likely – given that this is effectively a “secondary election”, for a level of government with less powers than the more important republican parliaments – that the elections will favour opposition parties. Nevertheless, the need for decisions to be passed by a majority of deputies from each republic would remain, so there would be danger of gridlock if the joint parliament were not prepared to implement the common will of the two republic governments. The Council of Ministers of the union will not play an important role here; it has few competencies and will act more as a coordinating body, with most governmental functions being exercised at republic level or, where joint action is required, by consensus between the republics.
As this is a union of republics of extremely disproportionate size, the potential for Serbia to be held hostage by problems in reaching consensus decisions with tiny Montenegro is likely to breed increasing impatience in Belgrade. Labus and Dinkic have expressed fears that Serbia will pay a price for entering such a dysfunctional union, in terms of slowed reforms and integration with the EU and difficulties in relations with international financial institutions such as the IMF and the World Trade Organisation.
Differences over economic harmonisation already arose during the negotiation of the Belgrade Agreement, as Djukanovic was determined to preserve the autonomy that Montenegro had attained. He won Solana’s acceptance (to the dismay of many in Belgrade) that the two republics would continue to use different currencies and to have separate central banks (the National Bank of Yugoslavia, which already had no role in Montenegro, being transformed into the National Bank of Serbia) and customs administrations. The Constitutional Charter repeats the stipulation in the Belgrade Agreement that the union should have a common market, with free flow of people, goods, services and capital. However, harmonisation was, according to the Belgrade Agreement, supposed to be achieved by both republics harmonising with the EU.
The Serbian finance minister, Bozidar Djelic, and his Montenegrin counterpart, Miroslav Ivanisevic, initially appeared to be finding a common understanding. Their vision of the union was contained in the Economic Action Plan adopted in July 2002. However, despite this apparently positive start, differences over economic harmonisation soon asserted themselves.
Particularly problematic has been the convergence of customs tariffs, for the EU an essential prerequisite before the new state can enter negotiations for a Stabilisation and Association Agreement. Montenegro has much lower tariffs than Serbia – an average of around 3.5 per cent, compared with an average of around 12.5 per cent. Each side argues that convergence near the rates of the other would be harmful to its own economy. Serbia says that it needs high tariffs to protect industries such as textiles and metals, which have not yet gone through restructuring. Montenegro, by contrast, insists that, with little heavy industry, it does not need such protective measures, indeed because it is a small economy highly dependent upon foreign trade, it makes sense for it to have a highly open trade regime. Each side rejected the Brussels suggestion that convergence should be achieved through tariff cuts by Serbia and increases by Montenegro. Dinkic said that “Either Montenegro will raise customs to our level, or we should not live with them. It is not acceptable for us to destroy half of our industry to have one quasi-state”.
Whether a convergence of import tariffs would, overall, be harmful to the two republics is disputed. It is highly debatable that Serbia would benefit in the long term from continuing to protect uncompetitive industries. As for Montenegro, converging tariffs at Serbian levels would bring a net loss to the economy in so far as consumers turned instead to Serbian-produced goods. In many cases, however, they would likely continue to buy imported goods, so that the cost to consumers from higher prices would be balanced by a gain for the republic’s budget of higher import duties.
The Montenegrin economy is not as liberal as the Podgorica authorities like to suggest, or as has always been recognised by opponents of harmonisation. While tariffs are low, quantitative restrictions on imports (quotas, licenses etc.) are thought to be a significant part of the reason why prices are considerably higher in Montenegro than in Serbia. These quantitative restrictions are to the detriment of Montenegrin consumers, and do not benefit the budget. The only winner is Montenegro’s powerful import lobby, which benefits from low tariffs while passing on costs to consumers. If, as part of a customs harmonisation with Serbia, such quantitative restrictions were to be removed, consumers would benefit from lower prices, the budget would benefit from higher import duties, and only importers would lose. In fact, such quantitative restrictions should be removed, whether or not tariffs are harmonised with Serbia’s.
In a sense, the actual merits of economic harmonisation are only part of the question. Of key importance is that such complex issues touching on the perceived vital interests of each republic are likely to continue to be sources of contention for as long as the union survives in the form envisaged in the Constitutional Charter survives. Economic integration and the establishment of a single market might bring benefits. But in a form of relationship that corresponds to the wishes of neither side yet depends on consensus, the prospects for achieving those potential benefits are poor.
Another area of contention has concerned the relationship of the new union with the international financial institutions, especially the IMF. Since the FRY was readmitted into international organisations following the fall of Milosevic, Podgorica recognised that there was no choice but to deal with the IMF through the channels of the joint state even if that joint state hardly existed other than on paper. The IMF established positive relations with its counterparts in Belgrade, notably Labus and Dinkic. To Podgorica officials, it appeared as though the IMF regarded having to deal with the complex relationship between Serbia and Montenegro as an inconvenience. Worse, it seemed to them that IMF officials, who spent nearly all their time in Belgrade, paid only cursory attention to Montenegro, treating it as a mere troublesome appendage of Serbia. Particularly galling was the impression that a somewhat impatient IMF attitude was influenced by the frequently voiced negative views of Labus and Dinkic concerning their republic.
The IMF insisted that, for the purposes of its three-year stand-by arrangement with the FRY, it needed to have as a counterpart a clearly defined joint depositary. According to sources in the Constitutional Commission cited in the Serbian media, the IMF and the World Bank proposed that, after the transformation of the National Bank of Yugoslavia (NBJ) into the National Bank of Serbia (NBS), the latter should continue to perform that function on behalf of Serbia and Montenegro. Montenegrin central bank chief Ljubisa Krgovic quickly rejected that idea, and expressed doubt that it had come from the IMF and the World Bank.
A compromise was reached according to which the Council of Ministers of the new union, once constituted and with the approval of the member republics, would determine the manner of representation with international financial institutions. In the meantime, the duties of fiscal agent in relations with international financial organisations would be performed by the Federal Ministry of Foreign Economic Relations. Labus cast doubt on whether such an arrangement would be acceptable to the IMF. Claiming that the issue was not adequately settled in the Constitutional Charter, he suggested that the IMF might impose the NBS as depositary and also delay credits under the stand-by arrangement because of the political uncertainty. Labus further warned that the new state would need urgently to agree on its budget in order to satisfy the IMF.
The controversy over relations with international financial institutions, as well as the impatience of Labus and Dinkic and the sensitivity of Krgovic, show again the scope for conflict in the new union. For its part, the IMF should find a way to show flexibility towards the admittedly unusual new state union, which, after all, largely exists due to international insistence. It should also take greater account of Montenegro than it has hitherto.
More fundamentally, Belgrade and Podgorica should make every effort to make the new arrangement work. However, they should also be ready to correct its real deficiencies. That might, conceivably, in due course mean evolving a tighter union, with more competencies and economies of scale. If, as is more likely in the medium term, it would mean reassessing the union and perhaps dissolving it, then the international community should not seek to prevent them.
3. Kosovo: The Ghost at the Table
The Belgrade Agreement referred only fleetingly to Kosovo, which, of course, is still legally a part of the FRY, although administered by the UN. Importantly, the Agreement states that if Montenegro were to withdraw from the union, the status of Kosovo would not be altered thereby. Kosovo would, under UN Security Council Resolution (UNSCR) 1244, remain part of Serbia, as the successor of the FRY, and its final status would still have to be resolved, whatever path Montenegro chose. While this only re-stated the existing position in international law, it was important to scotch the notion that Montenegrin independence would complicate the situation.
Nevertheless, while Montenegrin independence would not make a resolution of Kosovo’s status more complicated, it would be mistaken to imagine that a long-term solution for a joint state of Serbia and Montenegro could be attained without addressing Kosovo’s status. As long as Kosovo’s future remains unresolved, the territory and the constitutional make-up of Serbia, and of the joint state of Serbia and Montenegro, remain less than fully defined. The 2002 agreement between Serbia and Montenegro only partially addresses the future of the defunct FRY and does not represent a stable solution for the territories of the former state.
A major reason why the EU was so determined to persuade Montenegro to retain the joint state was its concern that early independence would force it to address Kosovo’s status prematurely. The EU and the wider international community have opted for interim, inherently unstable solutions for Serbia, Montenegro and Kosovo rather than tackling the causes of instability. This unwillingness to address difficult issues avoids exposing the deep international divisions over the issue of Kosovo’s status, but it leaves all three entities in a highly unsatisfactory limbo.
The reference to Kosovo as an autonomous province of Serbia that was inserted in the preamble of the Constitutional Charter at the insistence of some parties in Belgrade elicited a strong reaction from Kosovo Albanians. A resolution in Kosovo’s Assembly declaring the provision invalid was struck down by the Special Representative of the UN Secretary-General, Michael Steiner, whose spokesman asserted that, as Kosovo’s status is defined in UNSCR 1244, what Serbia and Montenegro wrote in their Constitutional Charter was not important.
Nevertheless, the establishment of a new union of Serbia and Montenegro raises awkward questions about Kosovo. Notwithstanding that some Serbian politicians privately take a more pragmatic view and accept that Kosovo is likely to separate from Serbia at some point, Belgrade’s official position is that Kosovo continues, under UNSCR 1244, to be an internationally recognised part of the FRY and of Serbia. In January 2003 Djindjic began calling for Kosovo’s status to be addressed sooner rather than later. Officials of the EU, the United States and the UN reiterated that the time was not ripe, and Djindjic’s assassination probably has put an end to that initiative. Contrary to Djindjic, Labus had cited the need to buy time for the resolution of Kosovo’s status as one reason for accepting the Belgrade Agreement with Montenegro.
It is difficult to imagine how Kosovo could be fitted into the framework provided by the Constitutional Charter. For Kosovo’s Albanians, any form of union with Serbia is wholly unacceptable. The idea of reintegrating Kosovo into the joint state of Serbia and Montenegro as a mere province of Serbia, as some Belgrade politicians envisaged in the preamble of the Constitutional Charter, would thus appear to be out of the question.
It would also appear difficult to fit Kosovo in the joint state as a third entity, equal with Serbia and Montenegro. The proposed union of Serbia and Montenegro envisages positive discrimination in favour of the smaller republic. Any such arrangement would be even more complicated in case of a union of three entities, in which Serbia, though much larger than Montenegro and Kosovo combined, would have to accept a three-way division of authority in the joint institutions. Montenegro is in any case sensitive to the danger of finding itself in the shadow of Serbia in any union. There is little prospect that Montenegrins of any political persuasion would agree to become the smallest entity in a union of three republics.
A union of Serbia and Montenegro without resolution of the status of Kosovo also raises practical difficulties. European officials are keen to move ahead with integrating the new joint state into European structures, including early membership of the Council of Europe – which was in fact finally extended to the new state on 3 April 2003 – and negotiations for an EU Stability and Association Agreement (SAA). They say that the uncertainty over Kosovo’s future should not hold up Serbia and Montenegro’s progress on European integration.
However, what membership in the Council of Europe for Serbia and Montenegro will mean for Kosovo is unclear. For example, as citizens of the joint state, against whom will Kosovo citizens be able to seek redress at the European Court of Human Rights in Strasbourg – the Belgrade authorities that have no sway in Kosovo, or the UN administration that is not and cannot be a signatory to the European Convention on Human Rights? The European Commission’s keenness to begin negotiations on a Stability and Association Agreement with the joint state is also problematic. As things stand, such an agreement could not include Kosovo. The EU’s rush to cement a union which is, due to the undefined status of Kosovo, inherently unstable, and to bind it into the Stability and Association process runs against the core purpose of that process: to foster stability in the region. A long-term, stable solution need to include resolution also of Kosovo’s status.
4. Political Expediency
The new state delivered short and medium-term gains for its two key negotiators, Zoran Djindjic and Milo Djukanovic. For Djindjic, the end of the FRY meant that his major political rivals, Kostunica and Labus, were left without positions. The new Serbian Prime Minister, Zoran Zivkovic, should still be able to exploit those advantages following the Djindjic assassination. For Djukanovic the deal had obvious benefits. First, it relieved him from his commitment to hold an early referendum on independence. It was highly uncertain that such a vote in 2002 would have produced a convincing pro-independence majority, especially if the pro-Yugoslav parties succeeded in persuading their supporters to boycott as they threatened. Withdrawal from that promise under intense EU pressure may have been a welcome escape for him.
Secondly, Djukanovic’s pro-Yugoslav Montenegrin rivals will now be outvoted by his supporters inside the new state institutions in Belgrade and so will lose the benefits of patronage and federal support (including federal resources) for their political activities in Montenegro. Djukanovic secured both economic portfolios in the new five-member council of ministers for his own allies, who will no doubt use these to build Montenegro’s contacts with the international financial institutions and end the alleged Serbian monopoly.
The prominence of such political considerations further emphasises the lack of genuine belief in the new union. Rather, cooperation between Serbian and Montenegrin government officials was to a considerable extent about mutual, short-term political gain. By contrast, those who really wanted the union to work, such as Labus and Dinkic, have been openly unhappy about the agreed arrangements.
