Interview with the managing partner of “Veritas Global” regarding the report “High risk of conflict escalation in 2022”

The Swiss company “Veritas Global” has recently published the report “High risk of conflict escalation in 2022 in Eastern Europe  but also an opening to secure stability”. This report, among other things, foresees an increased risk of hostilities, as well as the potential for more hybrid attacks with real possibilities for resumption of armed conflict in some hot spots in Eastern Europe. The report also notes that the growing ethnic confrontation in Bosnia poses risks to stability in the region.

At a time when the world is facing the rise of fake news and Russian disinformation, the level of news manipulation has also increased. The report of “Veritas Global” has been misinterpreted with tendentious and disinformative purposes by the Serbian and Russian media, changing its content and misinforming the public with headlines that do not correspond to the content of the report. This institute has called on the media to present their report objectively. “The Geopost” brings an interview with George Anjaparidze, managing partner of “Veritas Global”.

Veritas Global recently published the report “High risk of conflict escalation in 2022 in Eastern Europe but also an opening to secure stability” Can you show us what are the findings of this report?

2022 presents an unprecedented opportunity. The shifting geopolitical backdrop could create an opening to normalize the situation in long-standing conflicts in Eastern Europe. However, this also means there is a heightened risk of hostilities as well as potential for more hybrid attacks and a real possibility of renewed armed conflict across several hot spots in the region.

Russia’s assertive stance is emboldened by its growing monopoly power across natural gas markets in Europe. The market share of natural gas imports from Russia to the EU have increased from 17% in 2006 to about 35% in 2020. For 7 of the 27 EU members, Russian natural gas was over 90% of all imports. These developments have far-reaching implications that go beyond the functioning of energy markets. One potential concern is that Russia may use its leverage to influence decisions taken at the European Council where some decisions are taken by unanimity or consensus. Russia is hoping to use this leverage to limit the severity of sanctions in response to potential Russian invasive actions.

Furthermore, the US decision to withdraw troops from Afghanistan and plans to “pivot to Asia” has created the perception of a power vacuum in Eastern Europe and Central Asia. Russia sees these developments as a once in a generation opportunity and is testing US and NATO commitments to Eastern Europe. While this risks conflict escalation it also creates an opening to normalize the situation in long-standing conflicts in the region.

Also, the report highlights that Eastern European countries are among those with the highest COVID-19 mortality rates. Much of the region will continue to face a challenging outlook for government finances. Maintaining access to financing support facilities offered through the IMF, regional, and international financiers will continue to play a critical role in cushioning the economic impacts of the pandemic and dealing with the COVID-19 challenge.

What are key findings of this report on the Western Balkans?

The external environment will remain challenging in 2022. At a regional level, the rising ethnic confrontation in Bosnia creates risks to stability in the region. The lack of progress on formally launching EU accession negotiations with North Macedonia, and to an extent Albania, has created a perception in the Western Balkans that appetite of EU member states for further enlargement has soured. The launch of EU accession negotiations for North Macedonia in 2022 could be a major milestone and an essential element for restoring EU credibility.

Positive momentum towards North Macedonia’s EU membership could also have favorable spillovers for the EU facilitated Belgrade – Pristina dialogue. The prospect of EU membership is a major incentive for Belgrade to normalize relations with Pristina. There is also an opportunity to use economic analysis to improve the negotiation dynamics of the EU facilitated Belgrade – Pristina dialogue. Economic analysis can help inform stakeholders on the benefits and costs of the issues being discussed. Clearly articulating how outcomes from the dialogue can better leverage the support available through the EU Economic and Investment Plan for the Western Balkans can help drive better outcomes of negotiations.

Recently, the world has faced Russia’s attempt to increase its influence, especially in certain regions, causing tensions but also opportunities for military de-escalation. How do you assess these developments?

In Eastern Europe, Russia has the potential to play a more constructive role in conflict de-escalation. Business and investment opportunities can serve as an enabler for development of more productive relationships. Major opportunities exist in development of energy and logistics connectivity but also in other industries such as tourism and agriculture.

 Russia and China are trying to use Serbia’s declared military neutrality to increase their influence in Serbia. Do you think that such an approach of Serbia could have consequences in the process of its EU membership?

Historically, the non-aligned movement has deep roots in the region. We do not see Serbia’s declared military neutrality as itself being an impediment to integration with the EU. But your question raises a broader issue that is important to consider not only in the Western Balkan context but also more broadly.

There is an increasing need to better align investment principles and practices across what has become a more diverse set of external public finance providers. This is true for lending to the public sector but also for systemically important investments in the private sector. If governments borrow for economically unviable projects, it can create fiscal constraints that prevent the realization of other desired investments. Similarly, if systemically important investments made by the private sector become unviable it could expose countries to macroeconomic shocks and volatility.

Reaching better alignment on investment principles and practices among capital providers is a global imperative but it is most urgent in the Western Balkans. Capital can become obsolete or stranded if it is deployed without proper anticipation of the responsibilities and standards that come with closer integration with the EU. A factor that is compounding the scale of the challenge arises from the need to align capital flows with the energy transition needed to achieve climate change goals while adapting to climate impacts. As a group, capital providers, recipients and consumers will be better-off if these issues are addressed upfront.

Even after the recognition of the Republic of Kosovo by most member states of the United Nations, EU and NATO, the decision of the ICJ in favor of the declaration of independence of Kosovo and despite the talks between Kosovo and Serbia, Serbia continues not to recognize Kosovo, do you think that mutual recognition is a solution for both countries for their EU integration?

The exact format for normalization of relations is probably best decided through the EU facilitated dialogue between Belgrade and Pristina. But whatever form normalization takes, the economic benefits of EU membership are unequivocally clear. Our analysis shows that as an EU member, Serbia would have access to 20 times more financial assistance from the EU through the cohesion program. The economic benefits accrued to Serbia through the trade and investment channels are expected to be even more significant. But it is important to recognize that the economic benefits of normalization are not only generated from the prospect of EU membership. Local communities stand to benefit tremendously from more predictable and secure living conditions. Normalization will also reduce the risk environment and support investment into Kosovo, in particular through implementation of the privatization program. Projects that stand to benefit include tourism infrastructure, mines in extractive minerals such as magnesite and bauxite, communication infrastructure, and real estate development.

The latest report published by Veritas Global, has been deliberately misinterpreted with tendentious and misinformation purposes by Serbian and Russian media. Have you seen these reports and what is your assessment of these reports, at a time when the tendency for false news, misinformation and propaganda by the Serbian and Russian media has increased.

Veritas Global is an independent economics and strategy advisory and think-tank based in Geneva, Switzerland. Our practice on climate change and infrastructure finance has a global focus whereas our work on conflict economics is targeted at Eastern Europe. Our analysis receives media coverage across several geographies, including Asia, Europe, US as well as the Western Balkans. While we welcome media coverage we would kindly ask the media community to present our analysis objectively. In addition, we would appreciate if media outlets that use our analysis would include a weblink back to our website so that their readers have easy access to our reports.

The Geopost