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The debt of integration: Montenegro’s Chinese loan and the traps of Europe
by Tijana Okić
12 July 2021

The Balkans debt crisis continues to ravage the economies of the region, with Montenegro vainly turning to the EU for a bailout on multi-billion euro debts to Chinese contractors (Exim bank of China) on what is essentially part of the EU-imposed mega-infrastructure project to build European road corridors.

At the same time, the crisis intersects with the new cold war hitting the region, between, on the one hand, NATO and the EU, and on the other, Russia and China. Montenegro’s notoriously corrupt regime has been fully supported by the former since it passed from the Russian sphere of influence, joining NATO in 2017. The crisis also exacerbates the internal nationalist crisis within Montenegro which saw the same regime fall in last year’s elections, the first change in government in thirty years. The ‘socialist’ regime of Milo Đukanović, although initially a partner of Greater Serbian nationalism and its war crimes, turned against it in the mid-1990s in order to cling to power, leading the country to independence in 2006 on a wave of anti-Serbian nationalism. In a country with a complex Montenegrin-Serbian heritage, the reaction to decades of misrule has taken the form of Greater Serbian nationalist revanchism and demands for re-unification, supported by a failed Russian-backed coup in 2017. Tacitly then, the struggle is also one between NATO and pro-Russian orientations. The nationalist divisions tearing Montenegrin society apart are further inflamed by a 2019 law which essentially nationalised the institutions of the Orthodox Church, drawing the pro-Serbian church hierarchy as well as the political establishment of Serbia proper into the conflict. The coalition currently in power is led by a Greater Serbian bloc (the Democratic Front and Democrats), aided by a smaller liberal party (the Civic Movement of Unification, Reform Action), on which its majority depends. It was the leader of this liberal party, currently Vice president of the Montenegrin government who wrote to the EU asking for a bailout and help with servicing the debt towards the Chinese.

The disaster of Chinese investment and the burden of public debt in Montenegro

The case of tiny Montenegro’s massive infrastructure debt is part of the larger picture and presence of Chinese capital in the former Yugoslavia and the economic war between the West and China. Recent announcements by the G7 of moderate global corporate tax rates were even hailed by some on the left as “the end of neoliberalism.” [1] This is hardly the case, but merely confirms that the USA is preparing for a long (for now economic) war with China and hopes by equalising global corporate tax rates to prevent competitor countries from taking advantage of greater US government spending. Smaller countries will be victims of this imperialist competition. Montenegro, with a population of only 620,000, is one of them.

The Chinese “Belt and Road” initiative, adopted in 2013, is considered by many as the single most important initiative of the CCP foreign policy and strategic goals. [2] Belt and Road is a global infrastructure development strategy whose ambitious plan is a Silk Road for the 21st century, investing in over 70 countries worldwide to connect Asia, Africa and Europe by a series of motorways, railways and maritime networks. Montenegro is one of the first countries to secure credit from the Chinese Exim bank under the auspices of this mega infrastructure project.

However, Montenegro’s indebtment story cannot be seen outside the general economic trends of the post-Yugoslav region, that is long term processes of privatisation, financialisation and euroisation. [3] These processes have been on the rise from the 2000’s, when the region saw its first massive wave of privatisations and market liberalisation. Additionally, all of the post-Yugoslav states have undergone a process of “official and unofficial euroisation”, with the consequence of the loss of both monetary and fiscal independence, and a chronic structural debt burden. [4] Montenegro’s economy has been euroised and, despite the fact that the country is neither a member of the EU nor Eurozone, its official currency is the euro. This places constraints on the economy, which largely depends on tourism as its main economic motor. Since by definition the country cannot issue Euros it must either obtain them through exports, that is, through receipts of tourist euros, but mainly through the lending of the largely foreign-owned banking sector. The public debt in 2016 was 66.3 % of GDP and in 2020 it soared to 109%, exacerbated by the COVID crisis which saw the tourism, country’s main economic activity plummet. The predictions are that by 2023 the debt level should decrease to the levels before the crisis. [5] [6] However, these predictions remain unstable given the looming crisis of the debt contracted with the Chinese Exim Bank.

As part of EU accession, Montenegro adopted the Maastricht convergence criteria concerning the budget deficit and public debt. Thus, if public debt exceeds 60% of GDP “the Government is to propose to the Parliament a reduction of multi-year expenditures, reduction of expenditures of municipalities, as well as propose other measures to ensure reduction of State debt.” [7] However the government has continued to take on more debt, in particular the loan with the Chinese Exim bank to finance one of its most important public infrastructure projects, the Bar-Boljare motor way.

From the very beginning, the loan for the first part of the project worth almost a billion euros was deemed dangerous for the future of Montenegro’s public finances. The extreme difficulty presented by the largely mountainous terrain of the country, the lack of obvious economic rationale of the project, and the fact that it would never make a profit — all of these indicated a debt that could never be repaid. It is also alleged that Đukanović has corruptly outsourced money to local sub-contractors close to his political clique. [8] The public was never acquainted with the terms and conditions of the contract [9] and parts of the contract remain secret to this day. This is the largest Chinese debt contracted in the post-Yugoslav region. What the public knows is that the interest rate is 2 %, the initial grace period of 6 years has expired, the Chinese company CRBC responsible for the construction works has prolonged the deadline six times, and the project is nowhere near completion, with only 40 kilometres out of a planned 177 built.

The problems do not stop there, given the huge negative impact the whole project has for bio-diversity, pollution, and protected national parks, nature reserves and rivers. Earlier feasibility studies pointing out these dangers were simply ignored. Worse, as the Tara River was given protected status in 2004, the government abrogated the right of the citizens to vote in a referendum over whether to allow construction, which is directly detrimental to the one of the deepest European river canyons and the most pristine ecological oases in Europe. Unsurprisingly, NGOs have loudly complained about the lack of state inspection and of respect for the existing laws by the contractor. [10]

Now that the project has clearly failed and the first tranche of debt payment is due, Montenegro is placed before the abyss. The Vice-President of Montenegro, Dritan Abazović, of the liberals, has written a letter to the EU Commission asking for help in repaying the debt. The letter states that the project has been halted, that it is a disaster, and that Montenegro will not be able to repay the debt. [11] The EU has declared its support for Montenegro while declining to repay debt contracted with a third party. [12] This leaves Montenegro in a rather uncertain and impossible position whose final outcome is yet to be seen. The rumours in the region have it that the contract signed with the Chinese foresees, in the event of non-repayment of the debt, China taking over the port of Bar, as it had previously done in Greece for example with the port of Piraeus or Hambantota in Sri Lanka. [13] The German press eagerly recalls that Montenegro is not the only country asking for help in repaying its debt to China, as Ecuador, Pakistan, Ethiopia and Kenya have previously done so. [14]

Balkans to the people of Balkans!

What the German press conveniently forgets is that this is all part and parcel of the EU’s official policy, the so-called Juncker Plan for 2015-2018 to boost the European economy, based on public-private partnerships, with 315 billion euros as its planned investment capital. [15] This plan enabled China to enter European markets primarily through investments via the European Investment Bank, thus securing public-private partnerships to cut the costs of placing its own goods on European markets. [16] Examples from the region testify to this as well. While the funding for the Pelješac Bridge in Croatia is provided by an EU grant of 357 million euros, the company doing the works is the same Chinese company responsible for the disaster in Montenegro. [17] In Bosnia and Herzegovina, funding for the renovation of the Sarajevo tramlines comes from an EBRD loan (20.4 million euros) and two Chinese companies have been awarded public tenders under strong EBRD pressure. [18]

In 2017 the Bosnian Electricity Company (Elektroprivreda) and Chinese Exim bank signed a 613 million euros loan agreement, whereby the Chinese were supposed to secure the construction firms and workers. [19] One of the latter, General Electric has now cancelled their involvement, bringing the whole project to a halt. The Energy Community of South Eastern Europe, a regional association imposed by the EU to forcibly liberalise the energy markets of the region and to export the externalities of perfect competition and market equilibrium, that is export Europe’s “dirty energy” to the Balkans, is suing the Bosnian government for violating EU rules on state aid to industry, that is for guaranteeing the Chinese loan to Elektroprivreda [20].

The EU faces both ways, like Janus, towards China. On the one, hand it has sought to open the EU to Chinese investment and finance. Thus, it has reinforced tendencies to Balkan financialisation, by making state investment conditional on either EU or Chinese financing and by recently supporting Chinese companies in fixed “public tenders”. On the other, now that the US has reaffirmed its global leadership under the guise of multilateralism, the EU, and its liberal imperialist choir, is tempted by more robust competition with China. The Balkans is once again the crossroads for the clash of global powers. With increasing integration into the EU, it has lost its industries as well as monetary and fiscal sovereignty.

Investment now depends on attracting FDI, and the rules are determined by Brussels, the finance often provided by one of its financial arms, and foreign contractors selected no questions asked. In this way, ecocidal mega-infrastructure projects of no economic benefit, involving no investment in the local economy, pump out domestic capital in the form of external debt, while state finances are locked by neoliberal rules into accumulating debt, which can only be serviced through further external debt, and ultimately repaid by the debt bondage of future impoverished generations.

The local ruling elite is quite happy to play along, diverting wads of cash into its own pockets, while diverting the peoples of the region with its continuing nationalist conflicts, conflicts that are envenomed by the cold and economic wars of the Great Powers.

The Balkans to the Peoples of the Balkans!” – was the old revolutionary slogan – and one of its main demands today is for the non-payment of the debt and a political economy that serves local needs rather than the grand designs of the imperial hegemons.

Footnotes :

[3Živković, Andreja, Financialisation in the Post-Yugoslav Region: Monetary Policy, Credit Money and Dollarization, in: Revista de Economía Mundial, núm. 46, 2017, pp. 117-133. Available here:


[20For a detailed analyses see this text:

Tijana Okić