SARAJEVO (Bosnia and Herzegovina), June 17 (SeeNews) – The possible exit of the United Kingdom from the European Union on June 23 will boost Euroscepticism and slow down the Union's expansion dynamics which is bad news for Serbia and Bosnia's efforts to join the bloc, analysts from the region told SeeNews.
Although a potential Brexit scenario may push market volatility into uncharted territory, the biggest challenges for non-EU states are seen in the political arena, Erste Bank analysts told SeeNews.
Brexit is currently causing uncertainty which is fueling volatility in the markets just like in the early stages of the financial crisis, Henning Esskuchen, head of Erste Group Equity Research, told SeeNews. "In the event of a “leave” vote, we might see this volatility reach uncharted territory and, of course, the effects will differ for EU members and other countries," he noted.
Although the effects can be contained, depending on what kind of agreements would replace EU membership rules, especially in trade, one thing is certain – substantial and immediate short-term impact will affect many business areas if the exit occurs, Esskuchen said.
For Serbia alone, UK is a destination for only 1.4% of its goods compared to German-bound exports of 12.5%. In this sense impact will be visible but manageable, however, the political brunt which could interfere with Serbia's efforts to become an EU-member is much more concerning, Mladen Dodig, head of Erste Research in Serbia, told SeeNews.
EU formally opened accession talks with Serbia in January 2014, but the Southeast European country opened the first two of the 35 chapters in its negotiations to join the bloc only in December.
Karlheinz Dobnigg, CEO of Raiffeisen Bank in Bosnia and Herzegovina, agrees that political consequences for non-member states are much greater than those on the economic front. Brexit would give opponents of EU integration in Bosnia reason to block reform strategies, he said.
Bosnia submitted an EU membership application in February. At the time Bosnia's presidency chairman, Dragan Covic, said he hoped that Bosnia would be given the status of a candidate country in 2017.
Elsewhere in Southeast Europe, Macedonia was granted an EU candidate status in December 2005 but is still waiting for a date to start membership negotiations. Four other countries in the region - Slovenia, Bulgaria, Romania and Croatia - are EU members.
"A decelerated path towards the European Union would have major consequences for Bosnia's economy - from the investment inflow to the volume of foreign trade. This would boost the unemployment rate and lower the standard of living for citizens who are still in a markedly disadvantaged position," Dobnigg said and added that the only way to mend the situation is to accelerate the country's progress on the road to the EU.
FDI dropped 55% to 218.9 million marka ($126 million/111.9 million euro) in the first nine months of 2015, latest central bank data shows. The number of unemployed people in Bosnia amounted to 524,061 at the end of April, in a population of about 4 million, while the average salary reached 830 marka.
In terms of direct economic aftereffects, Bosnia's exports to the UK amount to only 0.5% of the total figure, while in the past several years significant net foreign direct investments from the UK have not been registered, Dobnigg explained.
On the other hand, Bosnia will certainly feel the effects of a potential slowdown in EU economy given that the Union is the country's largest export market. In addition, a majority of investments in Bosnia stem from the EU, while a large number of its citizens live in EU-member states and add great value to the country's standard of living, he also noted.
In relation to finances, Dodig said that the banks in the region are a frontier for impact, mainly due to overall uncertainty. Also, being sensitive to the dollar, Serbia might receive a bit of a shock as it is expected that Brexit might trigger safe haven flows and lead to temporary appreciation of the US currency, he cautioned.
"We have recently witnessed ‘strange’ movements such as UK’s 10Y Gilts yields drop in parallel with rising of 5Y UK’s default probability on BREXIT fears, so it is obvious that investors are seeking potential directions after the June 23," Dodig concluded. "I guess some of them are turning also to polls and bookies."
Britain will decide whether it should leave or stay in the EU next week, with all local polls currently favouring the "for" campaign.