Igor Lukšić On Montenegrin Independence, Responding To The 2008 Global Financial Crisis, & Joining the E.U. And Eurozone

Timeline

April 1992 The Federal Republic of Yugoslavia is established, comprised of the Republic of Serbia and the Republic of Montenegro. 

May 2001 Igor Lukšić becomes a Member of the Parliament of Montenegro.

March 2002 Montenegro adopts the Euro as its de facto currency - although it is not a member of the Eurozone nor European Union.

February 2003 The Federal Republic of Yugoslavia transitions from being a federation to a political union, reducing the level of integration between Serbia and Montenegro. 

March 2003 Igor Lukšić becomes the Deputy Foreign Minister of the State Union of Serbia and Montenegro.

February 2004 Igor Lukšić becomes the Minister of Finance of the Government of Montenegro.

September 2005 Igor Lukšić completes a PhD in Economics with a doctoral dissertation entitled Transition – the Process of Achieving Economic and Political Freedoms.

June 2006 Montenegro secedes from the State Union, resulting in the full independence of Montenegro and Serbia.

December 2008 Montenegro applies to become a member of the European Union.

December 2010 Igor Lukšić becomes the Prime Minister of the Government of Montenegro.

June 2012 Montenegro begins membership negotiations with the European Union.

December 2012 - April 2016 Igor Lukšić is the Deputy Prime Minister and Minister of Foreign Affairs & European Integration of the Government of Montenegro.

June 2017 Montenegro becomes a member of the North Atlantic Treaty Organization (NATO).

May 2024 Montenegro states its intent to join the EU by 2028.

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Planned Economies vs. Market Economies

Aiden Singh: You’ve written about your views on planned economies of the kind older Montenegrins remember once living under vs. market economies. 

And you’ve written about your admiration for Friedrich Hayek’s exposition of the strengths of market economies in solving problems central planners can’t overcome.

Can you share with us, broadly, your views on this topic as both a Montenegrin who remembers living under a centrally planned economy and as an economist?

Igor Lukšić: That’s very interesting because, professionally, as economist, I'm actually rooted into the Austrian economic school. And both my MA and PhD were based on the findings of the Austrian school thinkers like Friedrich von Hayek, Israel Kirzner, Ludwig von Mises, Carl Menger, and so on. 

A hundred years ago, Austrian economics was arguably the top school of thought. But then after the very historic debate between Hayek and John Maynard Keynes, the Austrian influence withered, whereas Keynes gained all the popularity for finding a formula to help economies that are hit by a crisis recover. 

So the issue of centrally planned versus market economies and the process of transitioning from a centrally planned economy to a market economy was actually the focus of my PhD research.

And I also had the opportunity to make it tangible and real by pursuing some policy solutions, especially when I was a finance minister. In that position, in a country which is in transition, you actually are able to do big things - tax reforms, fiscal reforms, structural reforms, improving the business environment, and so on. 

And this process of transitioning from a centrally planned economy to a market economy is very complex and leaves a lot of scars. And sometimes those scars are felt generations after. Even today in 2025 people say, well, all those neoliberal reforms from twenty years ago are the cause of economic pain today.

Now, being Hayekian doesn't mean that I'm laissez faire because Hayek himself wasn’t laissez faire. The goal is not to pursue anarchy; it’s not wanting to have no state and no the rule of law - quite different from that. Hayek witnessed firsthand the collapse of Austro-Hungarian Empire and the rise of inflation. So he was very much in favor of the rule of law, but at the same time trying to avoid putting stumbling blocks into the economy by distorting prices.

So the whole process of transition is very complex. Whatever road you take and pursue, there are people who like it and there are people who hate it. Privatization as policy measure has been very intensely debated wherever you go, be it Estonia, Bulgaria, or Montenegro.

And one thing about privatization that I think is often misunderstood is: the point of privatization is to make your economy more efficient, not to make all the companies healthy. And that was also a particular feature of the Montenegrin transition because in the socialist times there was massive over-employment. So introducing market forces means that you want to make those companies more efficient.

What made our transition more complex was that it was done in the context of the dissolving - unfortunately in bloodshed - of socialist Yugoslavia. So Serbia and Montenegro, which were part of the Federal Republic Yugoslavia, were put under international sanctions back in 1992. That context made our transition process a bit different than, for example, the Czech Republic, or Poland, or Slovakia.

And I’ve claimed over the years that pursuing policies that unlock productivity and entrepreneurial spirit is extremely important. In some sense, the political transition from communism is relatively straightforward: you introduce a multi-party system, there’s no more communist parties, etc. And you can transition to a market economy: liberalize prices, liberalize trade, stabilize the government's budget, and so on. But neither of those things guarantee that you will also have a mentality change - a mental transition. I think that's critical. And it has to do with culture and prevailing values - things which make some countries more prosperous and faster developing.

Aiden Singh: How did your background as an economist of the Austrian school of thought and your views on the process of transition inform your time in public office? Can you give an example of a specific policy that was shaped by this background?

Igor Lukšić: So, for example, I never liked progressive taxation; I’ve always been more in favor of a flat tax. 

And the economic logic behind that is that I don't want to tax successful people. 

I'd rather tax their spending. If they want to buy a very luxurious car, let's make them pay a lot for driving that car. If they want to emit a lot of CO2, let’s make them pay for emitting CO2. 

But don't punish them for making it being able to earn money. You don't want to discourage them earning; I don't believe in that kind of redistribution.

I was a member of a social democratic party that came into being with the transformation of the Communist Party into the party called Democratic Party of Socialists. So by its name, it sounds left of center and by its name one of the ideological policies those parties usually pursue is progressive taxation.

But I've never liked it. 

So even as very young parliamentarian, when a vote came up on progressive taxation, I abstained. I couldn't vote against it because it was a policy of my party and government, but at least I abstained.

And when I was finance minister, I along with my team was able to push for some reforms. And I think that made us a more competitive economy in the region.

So I've always argued that a combination of the rule of law and economic freedoms is what gets you to where you want to be. 

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Montenegrin Independence 

Aiden Singh: You entered government in 2001 during a period of transition: the Federal Republic of Yugoslavia was moving towards the independence of its component republics.

Take us back to your early days in government as an MP for Montenegro. What was it like governing a nation who’s day-to-day business wasn’t passing this or that piece of legislation or tweaking public policy on the margins, but actually moving towards independence, disentangling it from an international federation, and restructuring the apparatus of the state?

Igor Lukšić: That's a very interesting question.

So I started as member of parliament in 2001. 

And the Belgrade Agreement was signed in 2002. The Agreement - with a strong push from the European Union and their high representative back then, Javier Solana - aimed at transforming the Federal Republic Of Yugoslavia into a more confederate type of system which ceased to be called Yugoslavia and started to be called Serbia and Montenegro. So less a federal system and more a confederate system. 

And I was a member of the constitutional committee on behalf of the Montenegrin Parliament that worked to transfer the Belgrade agreement, which was a political agreement, into a legally binding constitutional charter. So I was very much involved in the movement toward independence.

And during this period in the early 2000s, indeed we had issues like tax reform, public procurement legislation, and stuff like that.

But it all stayed in the deep shadow of the looming independence referendum. 

However, having said that, despite all eyes being on the referendum vote I have to say that the period between 2003 and 2006 was also rich in all sorts of reforms government pursued. 

In today's world, ahead of such a historic vote there’s no way you would find politicians able and willing to pursue tough economic and structural reforms ahead of such an important vote because they would fear scaring away some voters. 

But in our case the amount of reforms that were pursued was really tremendous.

And it was done under a guiding document called Agenda for Economic Freedoms that was developed by a set of local experts, professors, USAID, the IMF, the World Bank, and so on. 

So there was real work done ahead of the referendum. 

And that enabled and helped smooth the transition to full independence and integration into the international community. For example, it helped us gain EU member state candidate status and open accession talks. If we started from scratch in June 2006 after the referendum, it would have taken much more time.

Aiden Singh: How seamless or complex was the transition from an institutional perspective? Did new institutions need to be established or did existing institutions simply take on new roles?

Igor Lukšić: The last years of socialist Yugoslavia had become quite decentralized. 

So the federal state ran foreign policy, security policy, and so on. And the biggest chunk of the federal budget was the military budget.

But Montenegro already had a lot of institutions at the republic level. For example, it had a national bank. And although it was affiliated to the federal one, it more or less easily got transformed into a stand-alone central bank. And we had institutions that collected taxes and customs. So we weren’t building everything from scratch.

This made our case different from that of, for example, Czechoslovakia. When Slovakia became independent, they had to start developing institutions from scratch because most things had been dealt with in Prague by the Czechoslovakian government.

Our case was not like that. We had many institutions. 

In fact, a peculiarity in our case was that, even throughout the nineties, although Montenegro was not yet independent and although Montenegro was part of the federal arrangement, we had a Ministry of Foreign Affairs. It's very peculiar but Belgrade kind of silently accepted it: ‘You care for that symbol of sovereignty? Fine. Just don’t breach our accords.’

And in the late nineties, Montenegro increasingly gained a lot of mechanisms of sovereignty. That was due to the political friction between the Montenegrin government and the government in Belgrade dominated by Milosevic. Especially after the 1999 NATO intervention, the Montenegrin government started to feel more and more confident. And when Milosevic went down, one of the policy proposals was to transform the Federal Republic into a union of two independent states. It took two/three years to reorganize into this structure - still one entity from the outside but made of two countries from inside - as a bridge towards full independence. 

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The Euro

Aiden Singh: In 2002, Montenegro adopted the euro as its national currency, despite not being a member of the eurozone. 

You’ve been a staunch advocate of the euro, arguing that its benefits have been much grander than simple economic rationale. At the European level, what in your view have been the benefits of the euro?

Igor Lukšić: Well, first of all, my strong advocacy for the euro also has a little bit of ideological aspect to it because in the Austrian economic school anything that involves playing with or manipulating the currency is wrong - Austrians never liked monetary policy. They’ve thought that money should play as a neutral role as possible because anything you do with monetary policy sooner or later sends bad signals to the economy, distorts prices, and eventually leads to a recession. So my advocacy for the euro is not only rooted my me liking Europe - there is this Austrian economics aspect to it too.

But indeed for a small country like Montenegro the euro is also a firewall because in the early 1990s we suffered from one of the historically most rapacious hyperinflations. One thing I agree very much on with John Maynard Keynes is when he said that if you want to destroy the morale of a society, you start with their currency. That's very much true. 

I think what we witnessed, what we endured, in the nineties with the collapse of the economy, the banking sector, and our currency led to a lot of bad things in the fabric of our society coming to the surface - wars and bloodshed.

And then, after the NATO intervention in 1999, we started again to be hit by galloping inflation.

So soon after the intervention ended, the government made a decision to introduce the German mark as a parallel legal tender to the dinar. And only three or four months afterwards, the dinar was pretty much squeezed out because people preferred the German mark. 

So the switch to euro was only natural because there were no German marks anymore - you had to switch to the euro. 

But it was without the formal consent of the European Central Bank. So to make sure we eventually become an official eurozone member state we need to make sure that we comply with the convergence criteria, which are: keeping public debt at max 60% of GDP and keeping the budget deficit at max 3% of GDP.

So there are several layers to liking the euro as far as I'm concerned. There is the academic one and there is also the very pragmatic policy one of ensuring solid backing in a hard currency, without which you can always find excuses not to do some hard things like transforming your economic system.

Aiden Singh: How well do you think unilateral adoption of the euro has worked for Montenegro?

Igor Lukšić: I think it has worked well. 

Until a couple of years ago we didn't see much of inflation. 

For a small country like we are, with a relatively narrow service-based economy and very much oriented towards tourism and construction, it is probably natural to expect it to have a slightly higher inflation rate than in other more established, more diversified European economies. But the margin has not been drastic. 

And now, after this round of post-covid inflation, the rate is starting to come down again.

Yearly inflation is about 2% to 3%, which is not much. 

So the euro has provided us with price stability and I think, in general, it has worked well. 

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Fiscal Policy Post Independence

Aiden Singh: You assumed the position of Minister of Finance in 2004 and held that position through Montenegro’s move to independence.

We discussed earlier the transition process in terms of institutions. Let’s talk specifically about the fiscal transition process. 

Tell me about how the fiscal transition process played out and what needed to be done to transition to having an independent Montenegrin fiscal policy? 

Igor Lukšić: Due to the way the former Yugoslavia - comprised of Serbia and Montenegro - was constructed, most of the tax authority and fiscal policy authority was already in Montenegro, except for tariff collection because tariffs went to the central government's budget. 

And at some point, Montenegro took back tariff authority as well.

So it was not that complicated to prepare for independence from a fiscal policy perspective.

Obviously, independence brought new costs and new spending liabilities. For example, you want to make sure that your foreign service is as adequate as it should be for an independent country. You need to make sure that you're present everywhere and that you're able to advocate for your interests the best possible way. Also, the military had to undergo a lot of changes to move away from being a Yugoslav oriented army and prepare for the NATO membership. And, obviously, the process of European integration imposes a lot of obligations on the spending side: you need to set up a number of new institutions and agencies which mirror those in other EU countries or which are required by European legislation.

And from a tax collection point of view, we had to make some changes - adopting a value added tax, for example. We had to change the way we collect property tax, income tax, and so on. So there were a lot of details that needed to be addressed.

But I think it was not that complicated because we already had a good basis for all that. We didn't have to build anything from scratch.

Fiscal Reforms

Igor Lukšić: As far as fiscal reforms were concerned, what I kept a lot under my eye was public debt. 

There were a lot of challenges as far as public debt was concerned. 

After the lifting of international sanctions that had been placed on Yugoslavia during the 1990s and early 2000s, and with Yugoslavia re-entering the international community, a line had to be drawn below all our international commitments and obligations. There was a need to settle the Paris Club debt, the London Club debt, and so on.

Strengthening The Banking Sector 

Igor Lukšić: Additionally, due to the collapse of Yugoslavia's banking system, one of the measures to start restoring the trust of the people in the banking sector was to compensate them for the deposits lost in early nineties. That was also something that had to be dealt with.

Restitution of Property Post-Communism

Igor Lukšić: There was also restitution of property to people whose property was expropriated or nationalized in the 40s and 50s, just after the second World War. And where that was not possible, we provided monetary compensation. 

So it all constituted quite a hefty group of different fiscal liabilities that we had to deal with.

Approach To Fiscal Policy

Igor Lukšić: And then my personal approach to fiscal policy was to always keep public debt under my eye and and use any windfall or extra proceeds to make sure that we repay as much debt as possible. 

And that proved to be a good approach, especially in 2008 when we suffered a very very hard hit from the financial crisis. 

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Responding To The 2008 Financial Crisis As Finance Minister

Aiden Singh: You were finance minister through the 2008 global financial crisis. Take us inside the Ministry of Finance during this period. How did the government respond to the crisis?

Igor Lukšić: I remember those months vividly.

As finance minister, I recall being in Washington attending annual meetings of the IMF and the World Bank, and those were very bleak days for the international financing community. 

When Lehman Brothers went down, it was a terrible shock for everyone.

Then Hungary was in trouble and everybody was worried about what comes next.

I remember sitting in an office of our representative at the World Bank along with the governor of our central bank and a couple other colleagues literally dictating to a colleague as he typed out a draft law putting together policy solutions. We sat in the room together and crafted draft legislation which had to be hurried through all the legislative committees and then the full parliament to make sure that we had all the tools to respond to such a great danger. It was such a big red alarm and we needed to move fast.

We were trying to make sure that we are able to fulfil all our debt obligations and also stabilize the banking sector. There was such a bad memory in Montenegro of the banking sector collapsing in the early nineties while Yugoslavia was crumbling and of the deposits of many people, including my parents, disappearing all of a sudden. That was still so vivid in the memory of the people. So it would have been catastrophic to let things go laissez-faire and let things try to resolve themselves.

And I am very fond of Austrian economics, but it does not mean I’m an anarchist. I don't think that as a policymaker in such a context you can just say ‘Okay, let it play out and then we'll see tomorrow what happens’. No. You bear such a tremendous responsibility for what's going on in your country.

It was all very precarious because people started withdrawing deposits from banks - there was a run starting on, not just one, but on all banks. 

So we decided - among other measures such as loans to banks in case of need, which was controversial - to offer a blanket guarantee which said that the government stands behind all deposits. And we enacted legislation which made such a guarantee for a time.

And of course, such a guarantee could only be sustained for a relatively short period of time. So after a year and a half when fears subsided, we decided to let that law, which was temporary, roll off.

At that point we went back to more standardized solutions: deposit insurance that protects depositors up to a certain amount, similar to the deposit insurance schemes that exist throughout the developed world. 

It was such a dangerous situation because it wasn’t only the banks that were in trouble - it also spilled over to the whole economy. 

Back then, our industrial production was based on aluminium smelting, which accounted for 50% of our exports. There was also an important steel factory back then, too. 

And all of a sudden, I was receiving frenzied calls from all sides. The country was on fire.

We needed to move quick. So it was definitely very challenging times for us. 

I also remember waging a lot of tough battles with the IMF team that wanted to pursue what might be called a very ‘neoliberal’ set of policies. 

Based on our calculations back then, those policies would have turned what was a recession of 4% to 5% of GDP into a depression of at least 10%, which would have been devastating.

So we resisted and decided not to go down the IMF road, but to try to get out of the mess on our own, and we managed - somehow. 

Let's just say it was extremely tough. 

And on a more personal level, it was also a very beautiful period for me because we had twins at the beginning of 2009. 

It all converged to the same half a year or so. So lots of sleepless nights, for two different reasons.

Aiden Singh: So, obviously, the government’s tax receipts declined precipitously during this period. Was there anything that you were able to do to try to offset this? How did you respond to the fiscal shortfall?

Igor Lukšić: It had to be a mix of measures.

Before 2008, we saw the highest economic growth on record in Montenegro’s history: 7, 8, 10%. After independence we were growing like crazy because, all of a sudden, there was a tremendous inflow of foreign investments. Everybody wanted to be part of the success. And so tax receipts were coming into the treasury like crazy. 

And one of the things we did was build a lot of reserves.

So when crisis hit in autumn 2008, we had cash reserves of almost 10% of GDP sitting in our treasury.

And just a month before the crisis hit, we had actually pre-paid obligations to the World Bank equivalent to 2% of GDP. 

So we, without knowing the crisis was headed our way, actually had some ammunition. 

But when the crisis hit, the impact on the economy was so massive, that the cash reserves weren’t enough.

So we had to take several measures. 

We had to rebalance the budget, which required some reconfiguring of salaries, new taxation, and so on. 

It also meant pursuing structural policy changes such as changes to the pension system. We introduced a higher retirement age requirement of 67 (which was later lowered to 66).

It also meant liberalizing the business environment, cutting red tape to unlock some productivity and efficiency. 

We also had to step in to provide government guarantees to some of the most hurt companies like the aluminium smelter, the steel mill, and so on. And looking back, I still think that was the right thing to do because their collapse would have been such a huge economic and social shock: working class people would have born the brunt of a collapse and we wanted to avoid that.

And data shows that assets in the banking system dropped significantly during the crisis, so the credits supported by government's guarantees actually helped make up for this loss to try to keep the monetary base at relatively stable level - to help prevent what could have been a very deep depression.

We also introduced new institutions such as an investment development fund which looked at supporting small and medium-sized companies. And we set up a labor fund to help people who lost their jobs due to the bankruptcy of the companies they work for receive some compensation. These things acted as social stabilizers. 

So we introduced a series of reforms to try to withstand the storm. 

And what made matters even more difficult was that we had two recessions: shortly after the 2008 crisis, the Euro crisis broke out. And since we’re so connected to Europe, it put us back into recession. So it was a protracted crisis.

And it was only from 2013 onward that the economy really started to bounce back and recover.

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Issuing Euro Denominated Bonds

Aiden Singh: Montenegro uses the euro as its legal tender and issues bonds in euros and U.S. dollars.

Does issuing government debt in currencies which you don't control present any challenges during these crisis periods such as the euro crisis?

Igor Lukšić: In theory, yes. But it’s a manageable challenge.

I was finance minister when we did the first ever roadshow and sold our first ever euro bonds in 2010. 

And, against the expectations of the World Bank and the IMF, it was successful.

It was oversubscribed by three times, so it was quite successful. 

Obviously, the yield was relatively high. But this is natural for a newcomer.

And after a while, with new bond issues, the yield curve starts to drop. 

So, yes, it was a challenge. It's always a challenge. But a surmountable one.

I do think that, in recent years, the challenge has grown because recent governments have issued a lot of debt. And I disagree with some of their economic policy measures, which I think can pose a risk to the country. 

Our credit rating today is, unfortunately, at the same level it was at when we first got one by Standard and Poor's in 2004 when I was finance minister. So after twenty years, we’ve remained at the same level. 

That shows that there have been missed opportunities.

Had I been finance minister two or three years ago, I probably would have used the the windfall revenues at that time, which were generated thanks to strong growth performance, to build up some cash or repay some debt.

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Prime Ministership

Aiden Singh: You assumed the prime ministership in 2010.

And the country began negotiations to join the EU in 2012, during your term in office. You’ve been a staunch advocate of Montenegro joining the union. Why do you feel it’s in the best interests of the country to do so?

Igor Lukšić: I don't think we have any real choice, especially in today's world.

I like the saying that ‘Europe is made up of small countries and countries that have not yet realized they are small’. 

I think in the current world with the United States, China, and perhaps new emerging powers, it is of strategic interest for the EU to become more wealthy, so to speak.

I do sympathize with all those who claim that the EU should undergo some internal reforms to be manageable, especially if it continues to enlarge. 

Secondly, I think there's a lot of evidence that, once part of the EU, if you're clever enough, you're smart enough, and you do your work well, it can re-energize countries. It can provide countries with the means to quicken up the pace of growth and development.

Of course, that doesn't mean that integration into the EU is without challenges. It is true that, for many countries, once you join the EU your demography gets worse because many people move abroad and get employed somewhere else. And usually, it's talented people. It's kind of a protracted brain drain. 

The upside is that they send back remittances to their parents and family members or come from time to time and spend in the country while on holiday. 

But brain drain is, of course, not something you want. And it is a source of concern for me. 

But as I see it, it has nothing to do with the EU. I think it has to do with the ability of this country, or any other country, to make your human capital a strength. There are things that can be done to make your country more competitive and attractive to talented individuals. 

And some of those policies can be controversial.

For some countries, it is not possible to make human capital a strength without looser immigration policy - which I don't mind. 

It is very much a human feature and part of the human story to migrate and to travel.

Sovereign states in their current incarnation are relatively new, not something from eons ago.

But the drive of Homo sapiens to spread all over the world, and explore, and travel, is. It is part of the human DNA to be set free, to research, to migrate.

So I am very much liberal as far as immigration policy is concerned. And I think the way to improve both the demographics and the pool of talent of many countries is by opening up.

Of course, it doesn't mean that this is the prevailing consensus view because many people are concerned that their way of living, their culture, may be threatened because of foreigners coming in. 

So that's a debate that’s ongoing in many places in today's Europe. 

But I think, in terms of EU integration, smart policymakers need to understand these two sides of the coin: that the EU offers enormous opportunities, but at the same time, it's not risk less. So policymakers needs to make sure that the opportunities afforded by EU entry materialize into something tangible and demonstrably beneficial to the people by being as proactive as possible.

Some might argue that Montenegro should try have a relationship with the EU which is more like that of Switzerland, or some more exotic entities like Monaco.

I disagree. I think for us it is of strategic importance to be part of that big family to which we contribute as much as we can and from which we gain as much as we can. 

But in order to make sure that is going to happen, we need smart policymakers.

Aiden Singh: Implementing reforms and taking steps to prepare Montenegro to join the EU was one of your major policy priorities as PM. Can you discuss some of the steps your government took towards that goal?

Igor Lukšić: In order to open accession talks we had to work on seven benchmarks. Those benchmarks were spread across different fields such rule of law, electoral reforms, media freedoms, human rights issues, and so on.

The benchmarks are more political than economic. 

And we managed to meet enough of those goals by October 2011 that the European Commission recommend the opening of accession talks.

Those talks started in June 2012.

So most of the efforts back then were to make sure that Montenegro’s political system and society as a whole - the government, the opposition, the civil sector made up of NGOs - is mature enough to enter the EU.

Once a country is a candidate to join the EU, the accession discussions are centred around 35 chapters. Two of the chapters are very technical, so there are really 33 chapters which are talked about heavily.

And one of the innovations we made to the process was to introduce civil sector representatives as part of the accession teams - we allowed NGOs, universities, and so on to send representatives. That was our way to build long-lasting consensus and ensure that everybody's on the same page, eager, and enthusiastic. We’ve brought onboard as many stakeholders as possible.

And they remain part of the process of our ongoing accession talks.

Aiden Singh: You were also committed to having the country join NATO, which it did in 2017, a few years after your time in office. Why do you think the country’s national security interests are best served by being a member?

Igor Lukšić: It’s a security guarantee, an insurance policy. 

Despite all the discussions nowadays about NATO countries needing to increase their defense spending, that expense is still less than we would have to spend running our own armies entirely on our own in a turbulent region such as the Balkans.

So I think for us it was really a no brainer to be as closely associated with NATO as possible. 

What I am actually worried about is the overall opportunity cost of this insistence that we need to increase defense spending from 2% of GDP to 3,4, or 5% of GDP because it erodes the peace dividend we’ve enjoyed over the past thirty years.

I think those resources could be better deployed to address, for example, environmental issues which lately appear to have been forgotten.

I would like to see us work further on developing a pooled and shared defense union among the European states rather than just spending more and more.

It doesn’t make sense for every European state to be doing the same thing: no country is excellent at doing everything. We should specialize in our areas of strength. 

And by building a deeper defense union, we may prevent the need to increase costs.

But generally speaking, I think it is very important for Montenegro to stay close to NATO and work as an ally to make sure that we meet all our defense commitments, that we contribute as much as we can, and that we work for the best of the whole system.

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The Future of Montenegro

Accession To The European Union

Aiden Singh: You’ve written about the three broad criteria by which the European Union considers a country’s application for membership. Can you share with our readers what these criteria are and how they are assessed?

Igor Lukšić: So the three broad criteria are what are called the ‘Copenhagen criteria’, which were developed by European Union in the 1990s as it was getting ready to let in newcomers from the former socialist bloc. 

And those three broad criteria are related to having political and institutional stability, having a well functioning market economy, and being able to adopt and take on the obligations of the EU legislation.

The EU legislation component is relatively straightforward: it’s pretty simple to determine whether a country is successful in adopting EU law.

By contrast, the other two criteria, I think, are pretty much based on the discretionary impressions of EU member states.

This is especially true, I think, of the political stability criteria because it encompasses issues like adherence to human rights standards, protection of the rule of law, and the functionality of the political system overall. 

The market economy criteria also has strong elements of discretionary assessment because it is defined in terms of a country needing to be able to withstand competition and being able to compete in the European market. And I think it's very hard to establish proper indicators to judge whether a country is there or not.

That criteria is probably a reflection of the context in which it was determined, where, in the early 1990s, former communist countries were transitioning towards market economies.

Aiden Singh: You believe Montenegro is close to satisfying these criteria and joining the European Union?

Igor Lukšić: Yes.

As far as the market economy criteria, I think we're more or less there: we’ve gone through many years of structural changes in this country as we moved through the process of transition and then towards EU accession. I think we’re there.

In terms of adopting the EU Acquis - the body of EU law - I think we’re there.

I think we're close to the point where everybody will say yes.

Accession To The Eurozone

Aiden Singh: How close do you think Montenegro is to being a candidate to join the Eurozone? How much of a challenge do you believe it will face meeting the convergence criteria for joining?

Igor Lukšić: On that front too I think we’re almost there because we've been using the euro already.

We will need to put our public finances in better order because right now our public debt is above the limit. 

And our approach to measuring our public debt is not fully in line with European methodology. So we'll have to implement a new methodology. 

That updated methodology will probably indicate that our public debt is somewhat larger than is reported right now, meaning that the process of convergence will have to be stricter. 

On the inflation front, I don't think there's much of an issue because we are already a Euro-ized country. Inflation is probably somewhat higher than the desired average, but it’s under control.

And the same for interest rates. I think the curve very much depends on what happens in the European economy. But generally, in the long run, the interest rate curve will become more favorable. 

But public finances we'll have to work on.

So if we are an EU member state by, let’s say, 2028, it will then take a few more years to officially join the Eurozone.

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