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

The Swiss institute "Veritas Global" has recently published the report “High risk of conflict escalation in 2022 in Eastern Europe”. This report, among other things, foresees an increased risk of hostilities, as well as the potential for more hybrid attacks with a real possibility of renewed armed conflict in several flashpoints in Eastern Europe. The report also highlights that the growing ethnic confrontation in Bosnia creates risks for 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 Veritas Global report has been misinterpreted with tendentious and disinformation purposes by Serbian and Russian media, changing its content and misinforming the public with headlines that do not correspond to the content of the report. The institute has called on the media to present their report objectively. The GeoPost brings an interview with George Anjaparidze, managing partner of Veritas Global.

The Geopost: Veritas Global recently published the report “High risk of conflict escalation in 2022 in Eastern Europe, but also an opening to ensure stability.” Can you tell us what the findings of this report are?

2022 presents an unprecedented opportunity. The changing geopolitical backdrop could create an opening for normalization in the long-running conflicts in Eastern Europe. However, this also means that there is an increased risk of hostilities, as well as the potential for more hybrid attacks and a real possibility of renewed armed conflict in several flashpoints in the region.

Russia’s assertive stance is encouraged by its growing monopoly power in natural gas markets in Europe. The market share of Russian natural gas imports into the EU has increased from 17% in 2006 to around 35% in 2020. For 7 of the 27 EU members, Russian natural gas accounted for over 90% of all imports. These developments have broad implications that go beyond the functioning of energy markets. One potential concern is that Russia could use its leverage to influence decisions made in the European Council, where some decisions are taken by unanimity or consensus. Russia hopes to use this leverage to limit the severity of sanctions in response to potential Russian aggression.

Moreover, the US decision to withdraw troops from Afghanistan and plans to “pivot to Asia” have created a perceived power vacuum in Eastern Europe and Central Asia. Russia sees these developments as an opportunity to simultaneously generate and test US and NATO commitments in Eastern Europe. While this risks escalating the conflict, it also creates an opening for normalization in the region’s long-running conflicts.

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

The Geopost: What are the main findings of this report for the Western Balkans?

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

The positive momentum towards North Macedonia’s EU membership could also have beneficial impacts on the EU-facilitated Belgrade-Pristina dialogue. The prospect of EU membership is a major incentive for Belgrade to normalise relations with Pristina. There is also an opportunity to use economic analysis to improve the dynamics of the negotiations 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 the outcomes of the dialogue can better utilise the support available through the EU Economic and Investment Plan for the Western Balkans can help achieve better negotiation outcomes.

The Geopost: Recently, the world has been faced with 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 de-escalating conflict. Business and investment opportunities could serve as an opportunity to develop more productive relations. Great opportunities exist in developing energy and logistics connectivity, but also in other industries such as tourism and agriculture.

The Geopost: Russia and China are trying to use Serbia's declared military neutrality to increase their influence in Serbia. Do you think such an approach by Serbia could have consequences for its EU accession process?

Historically, the non-aligned movement has deep roots in the region. We do not see Serbia's declared military neutrality as an obstacle to EU integration. But your question raises a broader issue that is important to consider not only in the context of the Western Balkans, but also beyond.

There is a growing need to better align investment principles and practices across what has become a more diverse set of providers of external public finance. This is true for public sector lending, but also for important systemic investments in the private sector. If governments borrow for economically unsustainable projects, this can create fiscal constraints that prevent other desired investments from being made. Similarly, if important systemic investments made by the private sector become inappropriate, they can expose countries to macroeconomic shocks and instability.

Achieving better alignment of investment principles and practices among capital providers is a global imperative, but it is more urgent in the Western Balkans. Capital can become obsolete or blocked if it is distributed without proper anticipation of the responsibilities and standards that come with closer integration with the EU. One factor that is building 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 early.

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

The exact format for normalizing relations is probably best decided through an 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 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 generated solely by the prospect of EU membership. Local communities will benefit enormously from more predictable and secure living conditions. Normalization will also reduce the risk environment and support investment in Kosovo, particularly through the implementation of the privatization program. Projects that could benefit include tourism infrastructure, mining of extractive minerals such as magnesite and bauxite, communication infrastructure, and real estate development.

The Geopost: The latest report published by Veritas Global has been deliberately misinterpreted with tendentious and disinformation 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 fake news, disinformation and propaganda by Serbian and Russian media has increased.

Veritas Global is an independent economic and strategy advisory and research institute based in Geneva, Switzerland. Our practice on climate change and infrastructure finance has a global focus, while our work on the economy of conflict is focused on Eastern Europe. Our analysis receives media coverage in several geographies, including Asia, Europe, the US and the Western Balkans. While we welcome media coverage, we would ask the media community to present our analysis objectively. In addition, we would appreciate if media outlets that use our analysis would include a link to our website so that their readers can easily access our reports.

The Geopost