Georgia on Europe’s Mind

Andrew Wilson
www.project-syndicate.org

LONDON – It is three years since Russia invaded Georgia, and two years since the European Union launched its “Eastern Partnership” (EaP) in 2009. The EaP was conceived before the war, but its implementation was subsequently accelerated to reassure Georgia and its nervous neighbors that the EU opposed any effort by Russia to impose a “sphere of influence” on the region.

But the EaP has only a small budget for mainly technical projects, and it has done little to beef up the EU’s pulling power in the East. The only significant European leader to attend the EaP’s launch in Prague in May 2009 was Angela Merkel. A relaunch is therefore needed at a second summit in Warsaw on September 29-30, under the slogan “more for more” – that is, more support for states than undertake more reforms.

The EU could do with more friends, but the EaP is still struggling to find a success story. Belarus, always an outlier, has lurched from post-election political crisis in December 2010 to economic crisis this summer. Not so long ago, Ukraine was hoping to sign a new Association Agreement and Deep and Comprehensive Free Trade Agreement’ (DCFTA) at an EU-Ukraine summit in December. But those accords are in jeopardy now that former Prime Minister Yulia Tymoshenko is being prosecuted on what appear to be blatantly political grounds.

Farther east, the threat of renewed conflict between Armenia and Azerbaijan over Nagorno-Karabakh is higher than in many years, and Georgia itself initially stood aloof from the EaP. Since its “Rose Revolution” in 2003, the country has cultivated an image as an ultra-liberal dynamo, with officials attacking the EU for its “sclerotic civilization” and the International Monetary Fund as “Gosplan on the Potomac.”

This was not mere rhetoric. When institutions proved difficult to reform, the Georgians often simply abolished them – most famously the traffic police and even the local Food Standards Agency. And real progress was made in cutting corruption: less than 5% of Georgians reported making “irregular payments,” according to the EBRD’s 2011 Life in Transition survey.

But the boom years of 2004-2008, with growth topping 12% in 2007, seem over. Inward foreign direct investment in 2010 stood at $553.1 million (4.7% of GDP), down sharply from the record of $2 billion in 2007 (19% of GDP). The Russian market has collapsed, owing to Russia’s “health and safety” bans on Georgian imports. Turkish imports dominate local food markets, despite the historic reputation of fertile Georgia’s wine, fruit, and mineral water.

The EU might help to bring FDI back. The Georgian government’s sudden Euro-enthusiasm is also driven by the collapse of its NATO aspirations after 2008, together with the Obama administration’s “reset” policy towards Russia – much resented in a country where the road from the airport into Tbilisi, the capital, is called “George W. Bush Avenue.” President Mikheil Saakashvili has toned down his rhetoric about Georgia following a “Singaporean model.” He still talks of a low-tax, low-regulation future, but justifies the Singapore metaphor in geopolitical terms: Georgia, too, he argues, is a regional hub with overbearing neighbors and a dynamic economy built on a cosmopolitan base.

Georgia would be an ironic success story for the EaP summit, but the EU seems likely to announce the country’s readiness to be fast-tracked towards a DCFTA after two and a half years of often painful “pre-negotiations.” Closer relations with the EU also mean political parameters. Georgia has duly liberalized its civil code on ethnic and religious minorities, despite fierce opposition from the Georgian Orthodox Church.

But the political scene remains bitterly divided between an entrenched ruling elite with a reputation for cutting corners and a weak and divided opposition, whose maximalist wing has marginalized itself by constantly campaigning for Saakashvili’s resignation. Five days of demonstrations in Tbilisi in May seemed deliberately designed to provoke violence. The government didn’t cover itself in glory by sending in the riot police, though the two demonstrators who were killed seem to have been struck down by an opposition leader’s fleeing car.

Presidential elections are due in January 2013, when Saakashvili’s second and final term is up. Saakashvili denies that he will copy Russia’s Vladimir Putin by moving to the job of prime minister (which would be “Putin-plus,” as the constitution was amended in October 2010 to shift power to the premier). But he is young (born in 1967), and his mission to recover the breakaway regions of Abkhazia and South Ossetia is still unaccomplished.

Georgia still argues that it can have the best of both worlds: a better relationship with the EU while maintaining the vibrancy that makes it unique. It claims, for example, that it can adopt the DCFTA while adding only minimally to domestic business costs. It has also sought to reassure foreign investors that its libertarian heart still beats. In July, the government enacted a “Law on Economic Freedom,” which makes any new state tax subject to referendum and introduces legally-binding macroeconomic parameters to keep the budget deficit below 3% of GDP, total state debt below 60% of GDP, and government expenditure below 30% of GDP. Fiscal discipline, it seems, is not just confined to Europe’s north.

It should also be borne in mind that the desire to regain influence over Abkhazia and South Ossetia is driving Georgia’s new embrace of the EU. With NATO membership no longer an immediate prospect, Giorgi Bokeria, the head of the National Security Council, has called on the EU to play more of a hard military role in the region, transforming its monitoring mission in Georgia into something more like its peace-keeping force in Bosnia.

Georgia will test the EU’s new flexibility in the East. The country is ahead of its neighbors in many areas, but behind in others – including national security. But the political will, on both sides, for closer cooperation appears to have emerged at last.

Andrew Wilson is a senior policy fellow at the European Council on Foreign Relations.