EU Refuses to Help Pay Off Montenegro’s $1 Billion Loan to China

April 15, 2021 Updated: April 15, 2021

The European Commission said in Brussels on April 12 that it was not going to help Montenegro to pay off its 1 billion euro loan to China for the unfinished first phase of the Bar-Boljare highway. Montenegro is the first country in Europe to find itself in a debt trap set by the Chinese regime’s Belt and Road Initiative (BRI).

China’s BRI (also known as “One Belt, One Road”) is Chinese leader Xi Jinping’s grand foreign policy project launched in 2013. It aims to extend the Chinese communist regime’s economic and political influence to countries in Asia, Europe, and Africa by recreating ancient China’s silk road and maritime silk road for trading in the 21st century. The BRI invests Chinese capital in the construction of various high-cost infrastructure projects in more than 60 participating countries.

However, BRI has been accused by the international community of setting debt traps for poor countries that accepted Chinese loans, aggravating their debt crisis and exposing them to China’s influence.

“The EU is already the largest provider of financial assistance to Montenegro, the largest investor and the largest trade partner. … We continue to stand by them, but we are not repaying the loans they are taking from third parties,” European Union foreign policy spokesperson Peter Stano said at a press briefing on April 12.

“The EU has concerns over the socioeconomic and financial effects some of China’s investments can have. There is the risk of macro-economic imbalances and debt-dependency,” Stano added.

Montenegro’s Minister of Finance and Social Welfare, Milojko Spajić, announced on April 15 that the government plans to negotiate with the European Union on repaying the billion dollar loan from China for the unfinished first phase of the Bar-Boljare highway.

In 2014, against EU’s advice, Montenegro accepted a 1 billion euro (about $1.2 billion) loan under the BRI to build a highway linking the port of Bar on Montenegro’s Adriatic coast to its neighboring country Serbia. The loan makes up 25 percent of the country’s overall debt, according to a report by Politico.

In 2018, the highway loan began to impact Montenegro’s economy. The country’s debt significantly increased and forced the government to raise taxes, partially freeze public sector wages and end a benefit for mothers, Reuters reported.

Montenegro holds a strategic position in the Balkans and is a key access point for China to reach central Europe and beyond. The small Western Balkan republic is an accession candidate to the EU–close economic and political ties could prove valuable for China if Montenegro becomes an EU member.

The U.S. government’s policy research organization Center for Global Development warned about the debt implications of the BRI in a report. It identified Montenegro as one of eight high risk countries that “could suffer from debt distress due to future BRI-related financing.” The other countries are Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Pakistan, and Tajikistan.