Key findings of the 2005 Progress Reports on Serbia and Montenegro and Kosovo

Serbiaand Montenegro

On 10 October 2005, the EU began negotiations on an SAA with Serbia and Montenegro.

Political situation

The entry into force of a revision of the Constitutional Charter restored the legitimacy of the State Union Parliament. The country has pursued public administration reform and established the administrative structures necessary for the SAA negotiations. The country has made significant progress in its cooperation with International Criminal Tribunal for the former Yugoslavia. This progress must continue to achieve full cooperation. The country must make further efforts to respect fully the Constitutional Charter, reform the public administration and the judiciary, fight against corruption, and ensure effective democratic control over the military. Political leaders need to take a constructive approach with regard to Kosovo.

Economic situation

In both republics, the economies operate to some degree according to market principles. Further vigorous reform efforts are necessary to address the shortcomings in competitiveness. In Serbia, the main positive developments were continuation of fiscal tightening; reduction of trade deficit; reduction of external debt; further progress in the restructuring and privatisation of the banking sector. However, inflation and wage pressure has mounted and the business environment remains difficult. The government sector still absorbs too many resources. In Montenegro, the main positive developments were the strengthening of economic growth; a continued decline of inflation, further advancement of privatisation, a decline of unemployment, a reduction of budget deficit and the rise of bank lending. However, external debt increased further and the private sector development is still hampered by an inefficient judiciary. High wage growth has diminished competitiveness

European standards

Both republics have made some good progress in the area of the internal market, notably on customs, competition and trade. They must now continue to make sustained efforts to improve legislative and administrative capacities with a view to fulfilling their future SAA obligations. They must also avoid creating new barriers between the republics. There has been some progress on sectoral policies, but it is uneven. As regards justice, freedom and security, no visible progress has taken place in areas such as visa, border control, asylum and migration, where the competences are shared between the State Union and the Republics. In some areas falling within the exclusive remit of the republics, they have made progress, but further resolute efforts are needed.

The European Commission will continue to provide significant financial assistance to support Serbia and Montenegro. For the years 2004 and 2005, €427 million is available for Serbia and Montenegro.

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