EU refuses to bail out Montenegro’s loan to China
The European Union will not help Montenegro to repay its loan of nearly one billion euros to China.
The Western Balkan state borrowed money from Beijing to build a highway, which has since become one of the most expensive road works in the world.
Unable to repay the debt, the The Financial Times reported Montenegro asked the European Union to intervene.
But a spokesperson for the European Commission on Monday April 12 told reporters there was no chance that would happen.
“We do not repay the loans they take with third parties,” said spokesman Peter Stano.
Stano said each country is free to do whatever it wants when it comes to investing.
But he said Chinese investment in Montenegro was a matter of concern.
“There is a risk of macroeconomic imbalances and debt dependency,” he said.
“The motivation to take such steps, take out such loans, must be verified with the Montenegrin authorities,” he added.
The motorway is still under construction and has cost the country some 20 million euros per km, which is said to be one of the most expensive in the world.
Only about 40 km, or a third of the planned length, have been built.
The deal was signed in 2014 with Chinese bank Exim, under a Montenegrin government that has since been rejected.
The bank, in turn, agreed to finance 85% of the cost of the road, which is being built by the China Road and Bridge Corporation.
If Montenegro defaults on the loan, its land would be used as collateral. And Montenegro’s finance minister described the possible EU bailout as “a fruit at hand”.
The prospects for this to happen now appear bleak, even though there are broader geopolitical influence plays at play.
China’s forays into the Western Balkans are not limited to Montenegro, and Russia is also keen to tighten its grip on the region.
Freedom House, a U.S.-based think tank, says Montenegro and North Macedonia owe 39 percent and 20 percent of the state’s debt to China, respectively.
“China has sought to gain influence in the region through a strategy of debt diplomacy – that is, by providing funds to cash-strapped countries with poor infrastructure,” a- he said in a report last year.
The EU says it is still Montenegro’s largest investor and main provider of financial assistance.
It has provided over € 500 million in funding since 2007 to help Montenegro on its way to EU membership.
The volume of trade with the EU in 2019 also reached 1.38 billion euros.
For his part, a Chinese government spokesperson in an email said that the difficult geological conditions for the construction of the highway in Montenegro are “the fundamental reason for its relatively high cost.”
He also noted that the loan interest rate is 2 percent, which he said is relatively low compared to Montenegro’s total debt.
“Chinese investments are neither motivated by geopolitics, nor do they pose a threat to the security of any country,” he said.