Gaining international recognition and joining key economic integrations

1The Minister of Foreign Affairs at the time of Slovenia's accession to the EU, Dimitrij Rupel, replied the following when asked how Slovenia's path to the EU began: “In 1991, Slovenia opted for the West, for the European values, for democracy, market economy, the rule of law, human rights ... Compared to other former socialist countries, it had an additional task - it had to form its own state. With Miloševic's Yugoslavia, the path to the West and the EU was impossible. Slovenia became independent in the context of wider European events. Slovenia's independence and statehood were necessary for Slovenia to acquire the European character and join the European direction. The beginning of Slovenia's path to the EU coincided with other major European upheavals. Slovenia was in line with the European events thanks to the Demos government (1990-1992) and the internal focus of Slovenian politics in general.”¹²⁰ The fact is that for such a small national economy as the Slovenian one was - which, on top of everything else, seceded from a large home market - focusing on the foreign market was the only way to achieve a stable economic growth and development.¹²¹ The political independence of Slovenia presupposed the introduction of its own economic policy in all classical areas, including the system of economic relations with foreign countries. The reactions of other republics and foreign countries to both political independence and economic measures were completely unknown at the time of and after gaining independence. The settlement of relations with other parts of Yugoslavia, that is negotiations on the delimitation of the Yugoslav external debts with other republics and creditors, negotiations on domestic debts and distribution of property, as well as on rights and obligations under international treaties, had only just begun after Slovenia's political independence.¹²²

2Establishing independent economic contacts with foreign countries, the flow of goods, services, capital and knowledge from Western Europe were institutionally connected with the recognition of Slovenia. Until that happened, Slovenia could not count on foreign money or larger exports. International recognition was thus the ultimate goal of the efforts of Slovenian politics as well as in building its economic sovereignty. This much-anticipated act took place at the end of December 1991 or in January 1992, when Germany was one of the first countries to recognize Slovenia, followed by the European Community.¹²³ In 1992 and 1993, the most critical reasons for Slovenia's concern regarding the economy and the state disappeared. Two fundamental strategic uncertainties affecting the state and the economy went away. By the end of 1992, Slovenia had been recognized by a hundred countries and it became a member of the United Nations and its specialized organizations. At the end of 1992, it became a member of the European Bank for Reconstruction and Development, in early 1993 a member of the International Monetary Fund, the World Bank and the International Finance Corporation, and in 1994 a member of the GATT (General Agreement on Tariffs and Trade). Slovenia was thus connected with the West and protected from the war that was taking place in parts of the former Yugoslavia. This created the basis for the normalization of economic relations with foreign countries and for the negotiation on the Yugoslav debts abroad. In 1996, Slovenia settled its debt relations with the creditors of the former Yugoslavia, i.e. with the consortium of commercial banks (London Club), and achieved the release of all Slovenian debtors from the international agreement between the former National Bank of Yugoslavia and the consortium of foreign commercial banks from 1988 (New Financial Agreement), which provided for a solidarity clause; this meant taking over a debt of $ 812 million and dividing it between the former debtors to foreign countries (Abanka, Nova Ljubljanska banka, Nova Kreditna banka Maribor and Nafta Lendava). Almost $ 655 million of this debt was repaid early and Slovenia began to manage relations with the members of the Paris Club, that is, the countries with which the former Socialist Federal Republic of Yugoslavia had regulated debts through bilateral agreements in the period 1984-1988.¹²⁴ Slovenia was characterized by a relatively large trade openness. For instance, in 1997, about 80 percent of Slovenian trade was based on free trade agreements. Following the accession to the GATT in October 1994 and to the WTO (World Trade Organization) in July 1995, an agreement with the EFTA (European Free Trade Association) countries entered into force in July 1995. At the time, this organization included Iceland, Liechtenstein, Norway and Switzerland. Subsequently, in January 1996, Slovenia joined the Central European Free Trade Agreement (CEFTA). The purpose of this agreement was to gradually establish a free trade area for industrial and agricultural products by 2001 in the almost 90 million market of the Czech Republic, Hungary, Poland, Slovakia, Slovenia and Romania. Among the countries in transition, Slovenia still had free trade agreements with Bulgaria, Estonia, Croatia, Latvia, Lithuania and Macedonia, and an agreement on preferential status of goods with Bosnia and Herzegovina.¹²⁵ Slovenia became a member of the OECD (Organisation for Economic Co-operation and Development) in 2010, an organization uniting the most economically developed countries in the world.

Realization of the vision

1Integration into the European Union had been a priority for Slovenia since gaining independence,¹²⁶ although there were also concerns and doubts about the rationality of the integration. The prevailing opinion was that a small country was not economical and it would be best to integrate it into a larger economic community as soon as possible. The economist Marjan Senjur believed that by joining the EU, Slovenia would “give up part of its state powers in the field of economy. On the other hand, an independent state is necessary for the preservation of the national essence of the Slovenian nation. The question is whether a country that has lost its economic independence can maintain the national independence. This is not a problem of large countries, but a problem of small ones. That is why in Slovenia we can sometimes hear things like ‘as an economist, I am satisfied, but as a Slovenian I am not'. Concerns about Slovenia opening up to the world are often of this sort.” However, the fact is that even small countries can develop economically quite successfully. One of the essential conditions for this is the openness of the economy.¹²⁷ Due to the close political, economic and cultural cooperation of Slovenia with the European Union, the strategic goal of the Republic of Slovenia was full membership in the EU. Slovenia began negotiations with the European Union in 1992 and concluded the first agreements with it a year later.¹²⁸ With the signing of a framework agreement between the Slovenian government and the Commission of the European Union on the implementation of measures regarding financial, technical and other forms of cooperation on 7 October 1992, Slovenia became a recipient of technical assistance under the Phare Programme. In addition to technical assistance, other projects were launched, including the assistance in the purchase of various equipment, cooperation in the field of education, training abroad as well as co-financing of investments and public works.¹²⁹ Subsequent ratification of this agreement in October 1993 also enabled the implementation of public procurement under the Phare rules and the realization of projects within the first indicative programmes for Slovenia and in the framework of other programmes structured within the pre-accession strategy for the Central and Eastern European countries with the signed association agreement.¹³⁰ Phare represented an initiative of the European Union and provided financial assistance to the countries of Central and Eastern Europe to support the process of economic transformation, while helping them to strengthen their emerging democratic societies. At the European Council meeting in December 1994 in Essen, it was decided that the Phare Programme will become a key instrument in helping the countries of the Central and Eastern Europe to move closer to the European Union. Its role in preparations for the implementation of the pre-accession strategy was emphasized.¹³¹ According to the opinion of the Commission of the European Union from 2000, Slovenia efficiently used the funds from the programme in question and directed a large share of technical assistance to solving specific technical problems related to the policy reform, transition to a market economy, adoption of the acquis and acquisition of technological knowledge. In the framework of the Phare Programme, Slovenia participated in the following three programme sets: National Programme, Cross-Border Cooperation Programmes and MultiCountry Programmes (regional). Within all three programmes, Slovenia received ECU 155 million (the latter was replaced by the euro on 1 January 1999 in a 1:1 ratio) in the period 1992-1997.¹³² Through the Phare Programme, Slovenia also cooperated with the neighbouring countries, namely through the so-called Cross-Border Cooperation Programme, which was financed by the Commission of the European Community. The latter allocated large funds to its members devoted to regional development. Within the framework of this Cross-Border Cooperation Programme, Slovenia collaborated with Italy, Hungary and Austria in several areas. Most of the funds were earmarked for economic cooperation, while they were also used for working together in the areas of transport and border infrastructure, the environment, human resources, culture and technical assistance.¹³³

2In June 1996, Slovenia signed an Association Agreement with the EU, which entered into force after ratification in the parliaments of Slovenia and fifteen EU member states. The National Assembly of the Republic of Slovenia ratified the Association Agreement in July 1997.¹³⁴ The Association Agreement between the Republic of Slovenia and the EU was based, among other things, on the principle of equal treatment of citizens of the Republic of Slovenia and the EU. Such treatment was a practical expression of the EU's fundamental principle of non-discrimination.¹³⁵ The European Association Agreement between the Republic of Slovenia, of the one part, and the European Communities and their Member States, acting within the European Union, of the other part, was ratified on 15 July by a Final Act (signed in Luxembourg on 10 June 1996) and a Protocol amending the European Agreement establishing an association between the Republic of Slovenia, of the one part, and the European Communities and their Member States, acting within the European Union, of the other part (signed in Brussels on 11 November 1996). Upon the signing of the Association Agreement, the negotiating delegations of Slovenia and the EU initialled an Interim Agreement on Trade and Trade-Related Matters on 19 September 1996, which entered into force in 1997.¹³⁶ Upon signing the Agreement on 10 June 1996, Slovenia also applied for membership in the European Union, and the Agreement entered into force in February 1999. The Agreement defined the following objectives of the accession:

• providing a suitable framework for political dialogue to enable the development of close political relations between the parties,
• promoting the expansion of trade and harmonious economic relations between the parties, thus encouraging the dynamic economic development and prosperity in Slovenia,
• gradually developing a free trade area covering virtually all trade between the Community and Slovenia,
• supporting the development of the Slovenian economy and its transition to a market economy,
• ensuring an appropriate framework for Slovenia's accession to the European Union, provided that the necessary conditions are met.¹³⁷

3The Government Decree on the provisional application of the Interim Agreement on Trade and Trade-Related Matters between the Republic of Slovenia of the one hand and the European Community, the European Coal and Steel Community and the European Atomic Energy Community of the other was in force until the ratification of the Agreement. The basic subject of the trade part of the Agreement was the reciprocal and asymmetric establishment of a free trade area. The European Union completely liberalized the market of industrial and agricultural products in January 1997, while Slovenia intended to do so gradually, by around 2001. In addition to the provisions pertaining to trade, the Agreement contained a number of legal provisions, determining the movement of capital, financial and cultural cooperation, prevention of illegality, etc. On 1 December 1997, a conference entitled EU Enlargement: The Case of Slovenia was held in Brussels, at which the Strategy of the Republic of Slovenia for the Integration into the European Union was presented. The focus was on the economic field, while other aspects of the strategy were also addressed.¹³⁸ On 13 December 1997, following a favourable opinion from the European Commission, the EU received a decision to open membership negotiations with Cyprus, the Czech Republic, Estonia, Hungary, Poland and Slovenia. The candidates were faced with the requirement to enforce the accumulated laws, regulations, rules and standards of the EU called the acquis communautaire.¹³⁹ In March 1998, the Intergovernmental Conference on Slovenia's Accession to the European Union began in Brussels, which also included the process of accession negotiations. In 2000, the Treaty of Nice was adopted, which enabled the enlargement of the Union through institutional changes, and in December 2001, the Laeken Council listed ten candidate countries that could conclude negotiations by 2002. Slovenia was among them and, indeed, it finished negotiations with the other nine candidates in December 2002 in Copenhagen. The European Parliament gave its consent to the Accession Treaty in April 2003 and in the same month, the Council of the European Union unanimously adopted a decision on the accession of ten acceding countries to the European Union. In early November 2003, the European Commission presented its latest report on the readiness of the acceding countries before joining the EU. According to the report, Slovenia was the best prepared of all the candidates.¹⁴⁰ Negotiations on the accession to the European Union were therefore taking place from April 1998 to December 2002. On 23 March 2003, the citizens of the Republic of Slovenia voted in a referendum for Slovenia's accession to the European Union with an 89.64% support.¹⁴¹ Simultaneously, a referendum was also held on Slovenia's accession to NATO, which also received support on 1 May 2004. A little less than thirteen years after gaining independence, Slovenia became a member of the EU and began the final preparations for fulfilling the so-called Maastricht criteria for joining the Economic and Monetary Union (EMU).¹⁴² It should be emphasized that Slovenia's accession to the EU was the only and, above all, the greatest common strategic goal that the government and opposition structures were able to reach, which was also the aspiration of the majority of the Slovenian economy.¹⁴³ We must add that Slovenia's formal accession to the EU in May 2004 did not mark the end of the process of joining the various integrations of the European Community. Two other accessions were particularly important: entering the so-called euro area (adoption of the euro currency) and the common agricultural policy area. Both were achieved by Slovenia in 2007.¹⁴⁴

4One of the most important positive consequences of the accession to the EU was the increase in trade, which greatly contributed to the success of the Slovenian economy, which was growing since 1991. In 1997, the Interim Agreement between Slovenia and the EU entered into force, by which the EU abolished all customs duties and charges with equivalent effect on industrial products of Slovenian origin, in exchange for a complete Slovenian abolition of customs duties on all industrial products of the EU origin by 1 January 2001. By entering the EU, all customs duties and import quotas were abolished, as Slovenia became part of the common European market.¹⁴⁵ One of the great novelties was the adoption of the single currency and the farewell of the Slovenian tolar. However, even before Slovenia adopted the euro as its currency, it had to meet the criteria for participation in ERM II - the European Exchange Rate Mechanism ensuring the stability of exchange rates and the relationship between the euro and the currencies of foreign EU member states. A non-EU country cannot join ERM II, while any member wishing to adopt the euro must first operate under this exchange rate mechanism. The programme of accession to ERM II was adopted in November 2003 and Slovenia joined the ERM II on 28 June 2004. On 2 March 2006, the European Commission requested an assessment of its readiness to join the euro area, and in its report of May 2006, it found that all convergence conditions were met. The European Council then adopted a decision on the enlargement of the euro area to Slovenia in June 2006, and in July of the same year, the Council of the EU, composed of finance ministers, provided the legal basis for the adoption of the currency. They set 1 January 2007 as the day of the introduction of the euro and decided on the exchange rate between the Slovenian tolar and the euro. The central exchange rate against the euro was determined in the following ratio: 1 euro = SIT 239.64. In Slovenia, the informative double-labelling began in March 2006. The key date was 1 January 2007, when all scriptural money, also in transaction accounts, was automatically converted into the euro currency. The euro thereby obtained legal tender status in the Republic of Slovenia.¹⁴⁶

5Already in 1993, Mencinger presented the story of the “Slovenian path from Yugoslavia to Europe” in a very picturesque way. He described it as follows: “A farmer, ‘the first in the village', decides to become a townsperson, although ‘the last in town'. No one in the village wants him any harm, but he concludes that he has no chance for a better life because his fellow villagers are not ready to do what people in the neighbouring villages have been doing for a long time and because they have already started arguing about their grandfathers and their sins. When he leaves, he settles on the edge of town and waits patiently to be allowed behind the walls. He becomes ashamed to be from the village, so he discards the clothes and habits that speak of his origin. To please the townspeople, he tries to do everything the way he thinks they will approve and does not even notice that as long as he is humbled, they do not really care what he does. He enters all societies he is allowed to. He is happiest if they let him pay for a drink or if he is praised. He is most ashamed if his former compatriots are mentioned to him. The townspeople are constantly trying to ‘help' him, preferably by lecturing him. He is slowly starting to live a better life than he did when he was living in the village. Many years pass before he realizes that the rules for moving and even selling to the town are constantly changing, that city officials make a living from the ‘help' he receives, and that he does not decide on anything he does. He cannot go back, because the neighbours have burned everything, and not elsewhere, because there is nothing but chaos everywhere.”¹⁴⁷ Certainly suggestive and from today's point of view that much closer to the truth. There were also those who, less than a year before joining the EU, thought that Slovenia would not enter it prepared. One of them was the leader of the then opposition and the president of the Slovenian Democratic Party (Slovenska demokratska stranka - SDS), Janez Janša, who expressed his opinion on the economic situation in Slovenia at a press conference in the autumn of 2003. He pointed out that the economic growth of around two percent was catastrophically low for a developing country or a country in transition, and that the negative impact of low economic growth was exacerbated by high inflation and rising debt.¹⁴⁸ According to him, the external factors, such as the difficulties in the EU economies, were not the main reason for low economic growth, but were only in third or fourth place, as the economies of other transition countries also cooperated with the economies of the European Union, where economic growth, with the exception of the Czech Republic, was higher than in Slovenia. Janša added: “The reasons for the poor situation lie in an unfriendly environment for the development of small and medium-sized economy, excessive government spending and unfavourable conditions for foreign investment. The latter reason is not mentioned at all in the analyses of poor economic growth, however. External factors are only in the fourth place. Small and medium-sized economy is the main engine of progress in developed countries. The unfriendly environment for its development is created mainly due to payment indiscipline and poor credit policy of state-owned banks towards this sector. Public spending is increasing on a yearly basis, and there is no good savings programme. With regard to foreign investment, the pressure from various lobbies has created an unfavourable environment for the arrival of healthy foreign capital. Foreign investment is catastrophically low this year. The data on the employment stagnation is also worrying; the structure showing that employment in the state administration is increasing while employment in the economy is declining is particularly problematic. In such circumstances, it is not possible to expect Slovenia to be ready to join the European Union”.¹⁴⁹ Janša's worries proved to be superfluous, Slovenia became a full member of the EU, and its macroeconomic picture improved with the accession.

6The first and long-standing Slovenian President Milan Kučan described Slovenia's accession to the European integrations as a fundamental strategic goal of the foreign policy and one of the key points of all decisions for an independent state since the plebiscite. He listed the following factors as the motives and reasons for joining the European integrations: faster economic and social development, greater prosperity and quality of life, acceleration of the country's internal transformation processes or economic, structural, property and political reforms, the recognition that Slovenia is a democratic country respecting the rule of law, human rights and the free market, as well as the recognition that it is a credible partner in international relations. These factors also included Slovenia's active role in discussions on the future of Europe, overcoming the European divisions and supporting its integration, as well as the country's active role in the enlargement of the EU first to Southeast Europe and Central Europe. Approximately a year after Slovenia's accession to the EU, Kučan assessed that the experience of living within the EU was “fundamentally good”, but he also emphasized some of the most crucial problems Slovenia had in the negotiations. He mentioned that, according to the criterion of averages, Slovenia had to carry out a number of demanding structural reforms on its own and that its neighbours, Italy and Austria, as EU members, tried to take advantage of their position in the negotiations to repay the alleged injustices regarding the border and property that they, as allies of the Axis powers, supposedly suffered in the peace negotiations after the Second World War, which led to the delay in signing the Association Agreement in 1997. He also mentioned the discriminatory position of not allowing new members (except Malta and Cyprus) free movement of labour for a period of 7 years, although Slovenia was not an “exporter” but an “importer” of labour, and the so-called “Spanish compromise”, by which Slovenia had to allow foreigners access to their real estate even before EU membership, which, among other things, required an amendment to the Slovenian Constitution.¹⁵⁰ The President of the Republic of Slovenia at the time of joining the EU, Janez Drnovšek, said the following in one of the interviews regarding the decision to enter the EU and NATO: “These were key decisions that, of course, affect the future of our country. After the plebiscite, this is undoubtedly the most important decision the Slovenians have made. The membership in the EU and NATO means that our future is outlined in the company of countries with which we share democratic values and goals. I deeply believe that this decision leads us to a freer, more stable world, to a better future.”¹⁵¹ Anton Rop, Slovenian Prime Minister at the time of the accession to the EU, said the following in his speech at the ratification of the Accession Treaty between Slovenia and the EU: “Our citizens will be offered new opportunities for education, cultural and scientific cooperation. By making effective use of all these possibilities and opportunities, we will be able to better and more easily respond to the challenges of globalization and enable citizens to have a higher level of prosperity and social security.” He added that the government had prepared the Programme for the Effective Accession to the European Union including measures in the fields of economy, education, regional development, completion of the public sector reform, implementation of the rule of law, foreign policy and cultural identity. He concluded his speech with the words: “Good luck, Slovenia! We are at home in Europe!”¹⁵²

7Upon Slovenia's accession to the EU, the late Drnovšek said: “The historical beginning of this new period will not be the end of the nation's history or the end of our identity. This is a real opportunity for the international promotion of our history and our identity. With even greater commitment, determination and responsibility than before, we will have to take care of everything we do not want and do not intend to give up - our language, our culture, our art and our history. Nobody denies us all this, but no one else will do it for us. In the future, it will solely depend on us whether our historical experience and cultural tradition will become a recognizable part of the European heritage and whether our creativity will be clearly visible in the European space.” Drnovšek believed that “we can be proud that in thirteen years, we have tread the path from independence to an internationally renowned country with good economic foundations and consolidated democracy”.¹⁵³ The Prime Minister Anton Rop also shared the opinion that Slovenia had achieved a lot by joining the EU. Shortly before Slovenia's official accession, he wrote the following in the foreword to the book Vzpon med evropske zvezde (Ascent to the European Stars): “Great work is behind us. The vision of becoming part of modern Europe and transatlantic connections ruled by democracy, safety, prosperity and economic progress has been filling us with optimism since gaining independence and is now becoming a reality.”¹⁵⁴ At the end of this chapter, we should mention that six months after joining the European Union, Slovenia was facing a new challenge. Only a few weeks after the parliamentary elections, a decision had to be made as to whether Slovenia should be the first of the new members to take the helm of this union of states and the weight of responsibility of the presidency of the Council of the European Union. Slovenia accepted the challenge and chaired the Council of the European Union in the first half of 2008. Based on the responses of high EU representatives and other Member States it did so successfully.

8The idea of a united Europe was once merely a dream of philosophers and visionaries. Victor Hugo, one of the leading European writers of the 19^th century, inspired by humanistic ideals, dreamed of a “United States of Europe”. Today, the EU is a reality, and Slovenia is a part of it. The European Union is most often described in the following manner: “Dissimilarity and respect for cultural diversity are an essential part of the European Union. After centuries of armed conflicts, lasting peace is guaranteed in Europe among the EU Member States. On the basis of democratic agreements, the general social progress and security of the individual are realized without losing the cultural identity and uniqueness of the European nations.”¹⁵⁵ This is all very nicely written, but only time will tell what the fate of this community will be.