The next six months are shaping up to be crucial for the EU accession hopes of Bulgaria, Romania, Kosovo and new kid on the independence block - Montenegro, writes Mark Russell.

Bulgaria and Romania will be the first to join the EU family as long as they are able to meet criteria laid down by the European Commission, which has compiled a list of specific goals it expects the two countries to achieve if their proposed entry date of 1 January 2007 is to be achieved.

Romania's conditions focus primarily on technical matters such as food, safety and the distribution of EU agricultural aid.

Bulgaria, however, has been told it must make substantial progress in overcoming high-level corruption and organised crime. Bulgaria has moved quickly to address corruption issues, with its health minister announcing an anti-corruption strategy for healthcare institutions within days of the EC monitoring report issued earlier this month.

Adoption of the reforms will not only directly affect the time lines for EU accession for both countries, but also the speed the level of investment that can be expected to flow into them.

Previous thinking had put Bulgaria as favourite ahead of Romania to join the EU, with Romania coming in on the Bulgaria's coat-tails. Today, that position appears to be reveresed and it is Romania that appears to be leading in the race to join the world's richest trading bloc.

Huge EU investment planned

Potentially massive EU investment is already on the table, with billions of Euros already pencilled into the EU budget between 2007 and 2014.

An EU agreement hammered out in late 2005 grants Romania 10.8 billion euros for the 2007-2009 period and 18.3 billion euros between 2010 and 2013.

Bulgaria is facing a similar financial carrot, creating a big incentive for the EU reforms to be pursued vigorously.

International investment may not flow across both borders quite as quickly as EU funding, but recent history indicates it will arrive shortly afterwards.

Comparisons can be made between what happened after Spain joined the EU in 1986 and what is likely to unfold in Bulgaria and Romania. Spain's accession led directly to an increase in GDP and a significant fall in inflation and unemployment. The country's industrial sector prospered, infrastructure links improved and property values rose sharply.

Even ahead of EU membership both Romania and Bulgaria are already investing in improving road and rail links. Tenders are currently (May 06) being sought for a multi-million euro bridge project spanning the Danube, for example, which will provide enhanced road and rail links between the two countries.

With significant EU funding earmarked, both capitals can expect an inflow of international workers, leading to increased demand for both office space and residential housing.

The real growth in residential demand, however, will come - as with the last eight former communist countries to join the EU - from the rise of the aspirant middle classes. And they will be increasingly created by foreign direct investment (FDI), which will create jobs.

And, again, as with the newly joined countries, the property investment opportunities will be in the big cities - especially, we believe, in both Sofia in Bulgaria and in Bucharest, in Romania; at least initially.

Independence for Kosovo

Kosovo also covets the economic benefits EU membership would bring.

Kosovo's Prime Minister Agim Ceku has clearly signalled his desire for fast track EU membership once its relationship with Serbia is settled. In May Ceku announced his government's plans to open an office at the European Union in Brussels.

However it will take Kosovo several years after the breakaway province's future is decided before it has any realistic hope of meeting the requirements for integration into the EU.

Moreover, its leaders will not be fully focused on the task until its final status with Serbia is resolved.

Kosovo's 900,000-strong Albanian majority wants independence while the 100,000 Serb minority wants to remain part of Serbia. UN-brokered talks are seeking to decide the future of the province, which has been run by the UN and NATO since 1999.

Independence is the most likely outcome and an agreement can be expected before the end of 2006.

But while its future is unresolved - and even once it is settled - Kosovo will remain a high-risk investment option. Inter-ethnic violence could flare up as its status decision nears and economic stability is far from certain.

However, the province's economy is not stagnant, with the UN entity responsible for privatisation - the Kosovo Trust Agency - announced in late May a 16th round of asset sales.
Serbia's authorities oppose the privatisation programme, while the ethnic Albanian authorities in the province see it as an avenue for attracting international investment and creating jobs.
When the threat of instability diminishes, tourism is also expected to significantly boost the economy and lay the foundation for a more stable property investment platform.

Unfortunately for Kosovo, it faces a chicken-and-egg dilemma in terms of the EU. Membership is unlikely to be granted until it proves it is politically stable and ethnic divisions solved - but many observers believe that it is EU membership itself that would play a key role in guaranteeing peace and stability.

The bottom line is that this is not going to happen in the near term.

Montenegro in the fast lane

Montenegro's narrow vote for independence in May was as much about its wish for closer ties with Europe as it was for independence from Serbia. Many Montenegrins believe - with good reason - that Serbia is holding back Montenegro's desire for EU membership.

These concerns were vindicated when, within days of the vote affirming independence, EU Enlargement Commissioner Olli Rehn said proposals for separate Stabilisation and Association Agreement (SAA) negotiating mandates for Montenegro and Serbia would be prepared.

At the time he indicated Montenegro's EU ascension could be fast-tracked, while Serbia would remain gridlocked until it fulfils EU demands - in particular, co-operation with the UN war crimes tribunal.

Montenegro's leaders are also taking a pragmatic, one-step-at-a-time approach to the mechanics of independence, promising there will be no "rush into euphoric, unilateral moves".
From an investment perspective, therefore, Montenegro remains in the "monitor progress" basket.

However, not all international investors are holding back.

Toronto tycoon Peter Munk has already announced plans to construct a huge $720 million luxury marina at Tivat, on Montenegro's Adriatic Coast.

The project, which includes luxury hotels, a golf course and related infrastructure, is almost the size of the Montenegrin government's annual budget!

Montenegro's Agency for Promotion of Foreign Investments is also very bullish, claiming US companies may be ready to invest 1.5 billion euros in oil processing, cement plants and tourism.

It is still early days, but Montenegro could prove to be a fascinating investment prospect.