Relations with the European Union

Joining the European Union (EU) and its single market, which enables free movement of people, goods, capital and services, represents the strategic priority of the Republic of Serbia.

The Stabilisation and Association Agreement between the European Communities and its Member States, and the Republic of Serbia was initialed on 7 November 2007. Once the Agreement is signed, Serbia will acquire the status of an associated country and for the first time formalize its institutional cooperation with the European Union. The two most important obligations to be taken on by the Republic of Serbia under this Agreement will be to gradually liberalize trade in industrial and agricultural goods and to harmonize legislation with the EU acquis communautaire. 

To take full effect, the Stabilisation and Association Agreement will have to be ratified by the European Parliament, national parliaments of all EU member states and the National Assembly of the Republic of Serbia. The ratification process usually takes 18 to 24 months. However, the economic aspects of the SAA, precisely, the gradual establishment of the free trade zone begins upon ratification of the so-called Interim Agreement, whish is an integral part of the SAA. The Interim Agreement will take full effect within 2 to 4 months after signing the SAA, and its ratification by the European Parliament and the National Assembly of the Republic of Serbia.

Once the SAA becomes effective, as an associated country, Serbia will be able to apply for EU membership. The speed of the EU accession process will depend on the European Council’s assessment of Serbia’s compliance with the prescribed criteria for full-fledged EU membership, that is, assessment of Serbia’s endorsement of the key objectives of the European Union. The EU membership requirements set before the candidate countries are based on the conclusions of the 1993 Copenhagen European Summit. These conclusions, known as the Copenhagen criteria, are as follows:  

• stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities;
• existence of a functioning market economy, as well as the capacity to cope with competitive pressure and market forces within the Union;
• ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union.

The European Partnership remains one of the key instruments of the European Union’s pre-accession strategy towards the Republic of Serbia. In that context, in February 2008 the EU Council of Ministers passed a Decision revising the European Partnership for the Republic of Serbia. The new European Partnership specifies priorities that Serbia has to address in the coming two-year, i.e. four-year period. 

In order to facilitate preparations of the country, particularly those of public administration, for meeting new challenges and obligations arising from the Agreement, in December 2007 the Government of the Republic of Serbia passed a Decision on preparing the National Program for the Integration of the Republic of Serbia into the EU (NPI). The NPI is a comprehensive document that will enable the planning and efficient coordination of all Government activities in the accession process. The Program would replace several other documents prepared during the previous stages of Serbia-EU relations and serve as a special roadmap for future steps. It will deal not only with the obligations regarding the transposition of the EU acquis in domestic legislation, but also with the tasks that will have to be implemented to ensure compliance with the political and economic accession criteria.

NBS Role in the EU Accession Process

In line with its strategic commitment to European integrations, Serbia has to move away from centralized government-run economy to a functioning market-oriented economy. The pillar of market economy is stable and developed banking and financial sector, therefore, a reliable and efficient central bank ensuring macroeconomic stability has one of the key roles in the European integrations.

The National Bank of Serbia’s representatives participate in the activities of coordinating bodies set up by the Serbian Government to ensure successful negotiations on the EU membership and conclusion of the Stabilisation and Association Agreement. In line with the National Bank’s competences, its representatives are members of the following subgroups tasked with the harmonization with EU legislation in the following areas: free movement of capital; competition; financial services; economic and monetary issues; statistics; consumer and health protection; financial supervision; finance and budgetary provisions.

In cooperation with other relevant institutions, the NBS representatives participate in the drafting of the National Program for the Integration of the Republic of Serbia into the EU (NPI).

The revised European Partnership for the Republic of Serbia, among other things, includes the new priorities and recommendations the implementation of which will be under the purview of the National Bank of Serbia. In addition to these commitments, the NBS is also expected to implement a number of activities to ensure compliance with the Maastricht criteria – a prerequisite for all potential EU member states aspiring to join the European Monetary Union.

Maastricht Criteria

Based on a comprehensive macroeconomic analysis of the Eurozone, the Treaty of Maastricht stipulates the criteria that EU member states must meet in order to enter the single currency monetary zone.

It is considered that the fulfillment of the “convergence criteria” and permanent maintenance of macroeconomic indicators at an appropriate level, represent the main preconditions for the lasting stability and balanced economic development within the Eurozone. The criteria are binding for all potential Eurozone member states, with the exception of those countries that have already joined the single currency monetary zone, having already fulfilled the required criteria.

The convergence criteria have been set as follows:

1. Sustainable degree of price stability and an average inflation rate which does not exceed by more than 1.5 percentage points that of the three best performing member states in terms of price stability. Inflation rate is measured based on the comparable consumer price index. 
2. Long-term interest rate – average nominal long-term interest rate which does not exceed by more than 2 percentage points that of the three best performing Member States in terms of price stability. The benchmark for establishing the interest rate are interest rates on long-term government bonds or securities of comparable value; 
3. The ratio of budget deficit to gross domestic product must not exceed 3%; 
4. The ratio of public debt to gross domestic product must not exceed 60%; 
5. Exchange rate stability and participation in the Exchange Rate Mechanism (ERM II). This criterion refers to compliance with the normal exchange rate fluctuation margins, without any significant tensions for the period of at least two years prior to the introduction of common European currency. It is important to note that a country under the ERM is not allowed to devaluate its currency in relation to the currency of any other EU member state with the aim of improving the competitiveness of its own economy.

Cooperation with the European Central Bank 

In 2008, the NBS stepped up its cooperation with the European Central Bank (ECB) through implementation of different EU-funded projects.

The project “Needs Analysis for the National Bank of Serbia” was implemented by the European Central Bank (ECB) from 1 September 2008 to 31 May 2009. Within the project, which involved 17 NCBs of the European System of Central Banks (ESCB), the regulatory and operational framework of NBS operations relative to ESCB standards was analysed in six different project areas. The Needs Analysis Report was the principal deliverable of the project, setting out expert recommendations for further improvement of NBS operations in areas where harmonisation is required to enable the NBS to join the ESCB.

As a follow-up to the Needs Analysis Project, cooperation with the ECB continued under the project “Strengthening of the Institutional Capacities of the National Bank of Serbia”, approved from the EU Instrument for Pre-Accession Assistance (IPA) for 2008. The project involves experts from the ECB and 21 NCBs, and envisages the implementation of recommendations of ESCB experts presented in the Needs Analysis Report. The aim of the project is to strengthen the institutional capacities and efficiency of the NBS. The project deliverables in the form of strategies, internal policies and economic models will allow the NBS to meet EU central banking standards.

The implementation of this two-year project which covers 11 different areas of NBS operations began on 1 February 2011.