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5th Jul 2022

EU refuses to bail out Montenegro's China loan

  • Moračica Bridge is part of the future Bar-Boljare highway (Photo: Miomir Magdevski)

The European Union will not help Montenegro pay off its almost €1bn loan from China.

The western Balkan state borrowed the Beijing money to build a highway, which has since turned into one of the world's most expensive roadworks.

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Unable to pay off the debt, the Financial Times reported Montenegro had asked the European Union to step in.

But a European Commission spokesperson on Monday (12 April) told reporters there is no chance of that happening.

"We are not repaying the loans they are taking from third parties," said spokesperson Peter Stano.

Stano said every country is free to do whatever it wants, when it comes to investment.

But he did say the Chinese investment in Montenegro is a point of concern.

"There is the risk of macro-economic imbalances and debt dependency," he said.

"The motivation for under taking such steps, taking such loans, needs to be checked with the Montenegrin authorities," he added.

The highway is still under construction and has cost the country some €20m per km, reportedly among the world's most expensive.

Only around 40km, a third of the projected length, has been built.

The deal was signed in 2014 with China's Exim Bank, under a Montenegrin government that has since been voted out.

The bank, in turn, agreed to finance 85 percent of the cost of the road, which is being built by the China Road and Bridge Corporation.

Should Montenegro default on the loan, its land would be used as a collateral. And Montenegro's finance minister had described the possible EU bailout as "a low-hanging fruit."

The prospects of that now happening appear dim, even though wider geopolitical games of influence are at play.

China's inroads into the western Balkans is not limited to Montenegro and Russia is also keen to tighten its grip on the region.

Freedom House, a US-based think tank, says Montenegro and Northern Macedonia respectively owe 39 and 20 percent of the state's debt to China.

"China has aimed to gain influence in the region through a strategy of debt diplomacy—that is, providing cash-strapped, infrastructurally-weak countries with funds," it said, in a report last year.

The EU says it still remains Montenegro's biggest investor and its largest provider of financial assistance.

It provided over €500m in funding since 2007 to help Montenegro in its path to join the European Union.

Trade volume with the EU in 2019 had also reached €1.38bn.

For its part, a China government spokesperson in an email said difficult geological conditions for the construction of the motorway in Montenegro is "the fundamental reason for its cost to be relatively high."

He also noted that the interest rate of the loan is at 2 percent, which he said is relatively low compared to Montenegro's total debt.

"Chinese investments are neither geopolitically motivated, nor do they pose any threat to the security of any country," he said.

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