Financial Times

SURVEY - Greece and SE Europe: Balkan Overview: The powerful forces. By ANTHONY ROBINSON. 1 Jun 1998

Changes in Europe will help to raise the region's strategic profile The Brussels-centric view of Europe inevitably places Greece on the periphery of the continent, separated from the populous industrial heartland by a mysterious and ill-defined zone called the "Balkans". But two powerful forces are at work which will drastically change the region's relative isolation from the modern European mainstream. The first is the shift in the European centre of gravity to the east as the German capital moves from Bonn to Berlin and eastern enlargement of the European Union brings the contiguous states of Czechoslovakia, Hungary, Poland, as well as Slovenia and Estonia, into an enlarged central European heartland.

The second seismic shift in the geo-strategic pattern is in the opposite direction and will bring the oil and gas-rich western part of central Asia and the Caspian region into closer economic and political contact with Europe.

The result will be to raise the strategic importance of the Black Sea and the Mediterranean and Black Sea littoral countries which are expected to be the prime markets for the oil and gas transported from central Asia via Russia, the Caucasus and Turkey.

One of the challenges facing Greece, currently an isolated outpost of the EU in the Balkans, will be how best to position itself to benefit from these broad currents which promise to transform the economic and political prospects of the Balkan and Black sea region as a whole. But the key decisions affecting the region's future prosperity are likely to pass over the heads of the smaller countries.

Exploiting, processing and transporting oil and gas from the Caspian region is big politics and big money. All the new producing countries want to ensure maximum revenues to finance their own broader economic development. The main strategic decisions, however, will be taken by the oil and gas multinationals who will put up the billions of dollars required. These decisions will have to be acceptable to those countries whose goodwill is required to ensure safe and reliable exit routes for the large volumes of oil and gas expected to flow westward.

Whether Greece benefits directly from the new energy flows depends largely on how much of the oil flows across the Black Sea and how many oil tankers Turkey is prepared to allow through the already congested Bosphorous. Turkey's determination to play the environmental safety card to the full is partly due to genuine fears about the risks of shipping ever-increasing quantities of oil through the heavily populated Bosphorous. But such risks are also ammunition to support Turkey's own strategic desire for the bulk of Caspian oil to flow through Turkish pipelines to its Mediterranean port of Ceyhan, terminal of the currently under-used pipeline from the Iraqi oilfields.

For political and logistical reasons the oil companies are expected to insist on several export routes, including one across southern Russia to Novorossiysk. Work is already under way on re-building the smaller pipeline which runs from Azerbaijan through Georgia to the port of Supsa. The fate of Greek-Bulgarian plans to build a 300-km pipeline from the Bulgarian port of Burgas to the north Aegean port of Alexandroupolis depends greatly on the volumes of oil which will ultimately be transported across the Black Sea from these Russian and Georgian ports to markets in the Mediterranean.

The advantage of the proposed pipeline is that it by-passes the Bosphorous bottleneck. The disadvantages are the high costs involved in repeatedly loading and unloading operations and the environmental dangers in taking tankers through the Aegean with its island resorts and multitudinous cruise ships, yachts and small boats.

Meanwhile, the change of regime in neighbouring Bulgaria has improved prospects for the pipeline. Bulgarian participation is no longer perceived as a state venture but is open to private investment, according to Alexander Bozhkov, the deputy prime minister. Mr Bozhkov masterminded the rapid privatisation policies which have helped to transform the prospects of Greece's northern neighbour.

Whatever the outcome of the pipeline project it is clear that economic recovery in the Black Sea region provides Greek banks and companies with the potential not only to take part in the region's privatisation process but also to benefit from expected higher living standards in the populous countries around the Black Sea. These include the 25m consumers in Romania and the 50m in Ukraine.

Greek companies, however, will face increasing competition from low cost but increasingly high quality central European companies and from Turkish banks and companies well entrenched in central Asia and other parts of the former Soviet Union.

The big question mark hangs over the future of Greece's western neighbour, Serbia. Belgrade is embroiled in a violent stand-off in Kosovo which is pushing Serbia further into isolation and bankruptcy and risking de-stabilisation in Macedonia and Albania itself. Greek companies such as OTE have learnt the hard way that under the present regime Serbia is not a fit place for foreign investors. But the endgame is approaching for President Slobodan Milosevic. His successors will have a chance to rebuild the economy with international assistance - provided they show the convincing political will for reform displayed by the new Bulgarian government, and with less success so far, by the Romanians.