Macedonia licks wounds as Nato bid vetoed by Greece

By bne IntelliNews April 4, 2008

Dominic Swire in Skopje -

The Macedonian delegation stormed out of April's Nato summit in Bucharest after the country's hopes of joining the military alliance were dashed by a veto from Greece. Macedonia now joins the ranks of Georgia and Ukraine who were also refused entry, and can only look on with envy at Balkan neighbours Albania and Croatia who did receive invitations to become members.

The move is a bitter blow that will hurt Macedonia's economy as much as its pride. The Macedonian stock market plummeted, with the benchmark MBI10 index dropping a record 8.4% on the day of the veto on April 3. However most Macedonians will be lamenting the lack of a tangible reward for the rapid progress the country has made over the last few years. "Тhese are difficult moments for a small nation," Macedonian Foreign Minister Antonio Miloshoski told reporters in Bucharest following the bad news.

What's in a name?

The Greeks used their veto after talks failed to resolve the name dispute between the two countries that has rumbled on for the past 17 years. Greece's objection is to the constitutional name "Republic of Macedonia," which it says implies territorial ambitions over a region in northern Greece also called Macedonia. It's a worry that many Macedonians say is completely irrational. "I think that's out of any possibility," scoffed Macedonian Deputy President Zoran Stavreski at the suggestion in an interview with bne in January. Speaking in his government office in Skopje, Stavreski pointed out that Macedonia had already altered its constitution and changed its flag to appease Athens. "There should be a line drawn somewhere. We can't constantly change important elements of our history and constitution just because Greece wants us to."

Although the country Macedonia was not named as such until 1944, when it ceased to be South Serbia and Yugoslavia was divided up into republics, the population has grown extremely attached to its name. Some in the country believe it serves as a reference to their ancestors from ancient Macedonia, notably Alexander the Great - a fact hotly disputed in Greece. "Our name is part of our identity, it's part of who we are," says Vladimir Gjorcev, a surprisingly young Macedonian MP with wiry black hair tied into a bob. "It's strange to explain to a foreigner what it means if someone asks you to change your name, because no one is asking for Britain or France or Germany to change their name," he reasoned.

Economic disappointment

While the knowledge that Macedonia didn't cave in to Greek pressure may be consolation for some, failure to enter Nato will be of much greater concern for those who have been involved in promoting the country over the last few years. Aside from the obvious security benefits that membership would have offered in a region no stranger to violence, there would have also been a massive financial impact.

Membership would have been a "big boost to Macedonia's credibility" in terms of foreign investment, CEO of Invest Macedonia Viktor Mizo told bne. "Nato membership implies stability and security, and these are among the main criteria in investment decisions."

Since the 2002 summit in Prague that saw Nato expand to include much of the former Eastern Bloc, membership has generally been seen as a clear step towards EU membership and, as such, is proof to investors that a country is moving in the right direction. Obviously, this would be good news all round, but what investors are really after is the golden window following Nato membership but prior to EU accession. This opens up an opportunity to impose flexible economic policies without having to adhere to strict EU policy and tax regulations.

"It's much more difficult for a country that's already a member of the EU to reduce tax as much as we did in 2007 and 2008," explains Stavreski. "Investors are looking for new emerging economies that already have elements of functioning market economies and have political perspective of becoming an EU member."

Macedonia has certainly made giant strides of late. At the start of the year, the country cut personal and corporate income tax to 10% with 0% tax on reinvested profits. Technological investment zones have been set up with 50% reduction on personal income tax for the first five years, and the country has set up a free trade agreement with Turkey.

However, one of the most eye-catching reforms has been the implementation of the one-stop shop for registering new companies. Now the process takes just four hours and costs €28, with a zero capital requirement at the start that increases to €5,000 at the end of the first year. Invest Macedonia reckons the country is now one of the easiest places in Europe to start a business. Just 18 months ago, the process took 48 days.

Yet Macedonia still has a number of big issues to tackle. One of these is corruption. Although those in the government trumpet an impressive drop of 20 places on Transparency International's Corruption Perception index last year, a brief glance at the numbers shows Albania as the only country in the Balkans in a worse position.

Despite the progress Macedonia still has a huge image problem to address. For now, the country can only lament how this may have been improved with Nato membership.

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Macedonia licks wounds as Nato bid vetoed by Greece

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