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European integration and lost billion: Does Europe seek ‘suicide’ of Moldovan elite?

The Ukrainian crisis has put everything in the shade and the problems of other ‘Eastern partners’ of the European Union have paled into insignificance. Meanwhile, the Vilnius Summit of Nov 2013 gave impulse also to the other countries, and the situation with Moldova is the best evidence of it. On Monday, August 10, 2015, the National Bank of Moldova announced a tender to select a company that will investigate “the theft of the century” – loss of $1 billion from the banking system of Moldova. The finance specialists of these organizations will have to find out who is behind the illegal transfer of money from three Moldovan banks to offshore companies. European Union, IMF, World Bank demand investigation and the Moldovan government obeys them.

June 27, 2015, marked a year after Moldova together with Georgia and Ukraine signed the Association Agreement and DCFTA with the EU at the EU Summit in Brussels. Moldova’s Association with the EU and its visa-free regime have affected the parliamentary elections in Nov 2014 and the regional ones in Jun 2015.  Despite heavy economic situation, the parties advocating for European integration won both the elections, though the total result was nearly “half-and-half”. 

However, a corruption scandal of nation-wide importance cast shadow on the results of both the elections. At the end of 2014, it became known that since 2012 Banca de economii (BEM), the largest bank in Moldova, along with Banca sociala and Unibanca transferred one billon US dollars to the accounts of offshore companies under the guise of loans. It is a colossal amount for Moldova – the country with $2.1 billion reserves and about $2.5 billion exports. Then prime minister Iurie Leancă invited detectives from Kroll, a U.S.-based investigations firm, to inquire into the incident. In May 2015, they confirmed the fact of the crime. The final report of the Kroll described the patterns of money transfers to offshore companies. The situation in Moldova was fragile. The national currency – leu- has depreciated by one fourth since the beginning of the year. The National Bank increased the basic rate. In June, the governmental crisis began. Prime Minister Chiril Gaburici sent in his resignation over the scandal with possible forgery of his higher-education certificates.  In early July 2015, the banking scandal over the transferred billion became a reason for the Western financial donors – EU, IMF, and WB – to freeze their cooperation with Moldova.

Moldova might face a financial default. In August, the National Bank of Moldova upgraded its inflation forecast for 2015 and 2016 to 9.8% and 11.6% respectively, which was by 1.2 and 5.2 percentage points higher than the previous forecast (April). According to the updated forecast, the fuel and communal services will go up dramatically in the first half of 2016.   Difficulties are yet to come. On Monday, August 10, 2015, new Prime Minister of Moldova Valery Strelets said the three banks involved in the shady deal - Banca de economii, Banca sociala, Unibank – will be closed down on October 16 2015.  License revocation was one of the conditions set by the EU, IMD, and WB, to continue their cooperation with Moldova. On August 11 2015, on the next day of this decision and the decision to launch a second stage of the audit over the case on the lost billion, an article by Thorbjørn Jagland, Secretary General of the Council of Europe, was published on the website of the influential U.S. newspaper, The New York Times. Such format of speech was unusual for Jagland and was evidently programmed for Moldova.

Entitled “Bring Moldova Bank from the Brink” the article shocks, as at the Eastern Partnership Summit in late 2013, the EU called Moldova its best partner. Then the relations of the EU and Moldova were defined as “success story.”

However, less than two years after such credit of trust, Jagland in his article wrote that Moldova “is at risk of becoming Europe’s next security crisis, with potential consequences far beyond its borders.” It turns out, that the “success story” was exactly what led Moldova to the brink.  “Despite years of disappointment, many Moldovans still hold great ambition for their country. They maintain that, freed from corruption, it can be transformed. But first, this captured state must be returned to its citizens,” Jagland wrote for conclusion. He calls Moldova “a captured state.” What does it mean?  Who has captured it?

This is how Thorbjørn Jagland describes Moldova’s situation:

— Over the last six years (i.e. since the start of the Eastern Partnership project) little has been done to open up the country’s economy and its institutions.;

— Corruption remains endemic;

—  The state is still in the hands of oligarchs.

 “At the end of last year, $1 billion disappeared from three of the country’s banks. The scandal has come to epitomize the state’s failure to protect citizens’ interests,” he wrote.

Further in his article the CoE Secretary General says that the regional picture is also bleak, as in recent months, there has been a serious deterioration in relations with Transnistria. The conflict has since been frozen. The crisis in Ukraine, however, “has sparked fears of a thaw,” Jagland wrote. “Many in Moldova worry that Transnistria could become the next Crimea.”  That is, he thinks, if the conflict is unfrozen, Transnistria may be ‘annexed by Russia.”

What does Jagland recommend the Moldovan leadership in such a crisis? In particular, he says, “the clear lesson from Ukraine has been that, in today’s Europe, a state’s strength and stability depends on its commitment to democracy and the rule of law.” Moldova, too, must now think of its democratic security. 

To that end, Jagland recommends Moldova the following measures:

1. The government must immediately begin purging corrupt officials from public bodies. As a start, the dozens of judges — some very high-profile — who have been accused of egregiously abusing their power should be investigated;

2. Law enforcement agencies must also do everything they can to arrest the individuals responsible for the massive bank fraud;

3. In order to give people confidence that justice will be served in these cases, murky political interference must be eliminated from the judicial system;

4. Legislation currently before Parliament that would guarantee the impartiality of state prosecutors should be implemented without delay. And to prove that no one is above the law, the current blanket immunity from prosecution enjoyed by members of Parliament should be reduced;

5. Fundamentally, Moldova will need to implement the basic checks on power that should exist in any democracy. The key anti-corruption agencies — the Anti-Corruption Center, the National Integrity Commission and the General Prosecutor’s Office — must be set on an independent footing, with clear powers and genuine muscle.;

6. Robust restrictions on party funding will be necessary to weaken the grip of big money on politics;

7. New rules will also be required to break up media monopolies and provide critical journalists with better protections.

For conclusion, Jagland assures that the Council of Europe will seek to help Moldova carry out reforms that “meet international standards and are deemed legitimate at home and abroad”.

So far, Moldova’s authorities responded to Jagland’s article with uncertain gestures. Moldovan Prime Minister’s spokesperson has responded to Jagland’s criticism, saying the Government exerts genuine efforts to bring Moldova “back from the brink.” Therefore, the action plan on the implementation of the Association Agreement with the EU will be revised. The political consultants in Moldova have no idea about what Europe expects from the Moldovan elite. Do they expect a suicide?

Nevertheless, we can draw several conclusions. EU’s rhetoric about Moldova’s EU membership has not changed over the past year. The prospects of joining the EU remains obscure for Moldova. The AA with EU has been signed, but its implementation has not brought any solid benefits. So far, the most solid achievement is visa-free travels to the EU countries.  Moldova is the only EaP state to have such status. Generally, the so-called Eastern Partnership project is implemented as before. However, as it comes from Jagland’s speech, Europe demanded important political decisions from Moldova: to eliminate oligarchy and settle the Transnistrian conflict.

However, “Jagland’s program” contains more solid prospects too. Europeans made it clear for Chisinau like they did in Kiev (through the incident with Ihor Kolomoisky in Ukraine and invitation of Mikheil Saakashvili to Odessa) that the “post-Soviet” practice that emerged from privatization of the government establishment with merger of the state and the formally private business must be eliminated. On the one hand, European transnational corporations have no interest in the mediation of the post-Soviet “oligarchs.” The West thinks the post-Soviet oligarchy has fulfilled its historical function and is no longer needed. On the other hand, the EU fails to meet the expectations of the local public, and the only measure is to redistribute the resources of that public. The local society is tired and thirsty for justice in the internal balance. In addition, there is geopolitical fight with Russia for dominance in the region, and the anti-corruption and anti-oligarchic domestic policy is turning into an instrument and weapon for the West against Moscow’s “revisionism.”  Now, the local protégés have either to realize and fulfill the West’s order or lose its grace. In this light, Jagland’s article is of fundamental nature. They made Moldova understand that in case of delay or failure to meet the requirements, it may fall back to the level of 2009, when Moldova politically contacted with the EU through the CoE.

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