The sustainability of the Balkans region’s economic growth and the possible tweaks to the existing model are issues that repeatedly cropped up during the two days of the Sofia Forum for the Balkans and were squarely in the focus of one of its panels on June 9, 2012.

The region’s dependence on Europe’s more developed economies is not a recent development; going back a century, historical economic data shows that only during times of prosperity in Western Europe did the Balkans effectively catch up in terms of per capita gross domestic product, Laza Kekić, regional director for Central and Eastern Europe at the Economist Intelligence Unit, said.

At the same time, when Western Europe was undergoing periods of economic adversity, the Balkan economies suffered harsher declines, with the result that the economic gap between the region and Western Europe has remained unchanged, or even worsened in some cases, by comparison to 1914.

The euro zone had a big impact on the small Balkan economies, often through multiple channels such as imports, remittances and foreign direct investment (FDI). The countries most vulnerable to euro zone developments were in fact not the ones that traded the most with the euro zone, but those that depended the most on the bloc for remittances and FDI, namely Albania, Serbia and Croatia, Kekić said.

However, talk of fundamental alteration of the economic growth model was misleading.

“It creates the impression that there is some sort of great scope of choice for policy-makers to choose from. The truth be told, there isn’t very much,” Kekić said.

However, one area where policy-makers could influence proceedings was FDI – increasing financial inflows was depended on lowering political risk. “Policy-makers can do certain things to reduce political risk and also improve their investment climate in that respect. I’m almost inclined to invert the famous dictum from [former US president Bill] Clinton, in many ways ‘it’s politics, stupid’ in this region that is determining economic performance,” he said.

The story of the Balkans – that of perpetually converging but never actually catching up, following the lead of Western Europe in growth and decline, but in an exacerbated fashion – is not one exclusive to the region, economist Georgy Ganev, program director for economic research at the Centre for Liberal Strategies think-tank in Sofia, said.

What was surprising in the current period of economic downturn was how resilient the region has been, holding up “reasonably well” so far, with the notable exception of Greece.

Ganev echoed Kekić’s point about changing the model growth: “It’s not like you have a ‘menu’ for growth and you pick the most delicious option for you.”

When economic growth returns to the region, different

countries will embark each on their own path, but most of them will face much of the same challenges, such as the negative demographic dynamics that will require Balkan countries to address the issue in the foreseeable future.

The Balkans as a whole should strive to renounce their “laggard mentality” and quit expecting that they would be handed things; instead, the focus should be on what can the Balkans offer to the world, Tzvetan Lazhanski, a member of the advisory board at Bulgarian company Devin AD, said.

In this respect, the fact that the region’s countries have never had the time to develop entrenched capitalist business models could be an advantage – the Balkans could be a testing ground for new business models, offering plenty of opportunities because of the region’s relative underdevelopment, he said.

The current crisis in the region was not so much an economic one, as a crisis of values and priorities, Elvin Guri, chief executive of River Styx Capital, said.

“We built our growth, if it can be called a model, in the past 20 years on the basis of catching up, economic convergence without necessarily convergence of values. Essentially we wanted the EU money without their rules and that clearly has created an internal crisis, not just a fallout from the global economic crisis,” Guri said.

This discrepancy in values was one of several factors – along with political risk and small markets – were the key reasons why the Balkans attracted mainly “mediocre, opportunistic, small-time investors” skewing the growth towards a “short-term opportunistic model.”

The repositioning of Western European investors was an opportunity for local entrepreneurs to push forward with economic integration of the disparate countries of the Balkans. “Most of us that live here have no choice, we cannot just pack up and leave like the foreign investors are doing,” Guri said.

It would take building companies spanning the entire region to draw back strategic investors to the Balkans, an effort that would take economic, not political will. “Economic integration should bring about the integration of values, which would ultimately lead to political integration.”