TOPIC OF THE WEEK: Georgia likely to get a conditional Yes (or a conditional No) in its bid to earn EU candidate status
Georgia is anxiously waiting for European Commission’s final report on the fulfillment of the 12 recommendations needed to earn the much-coveted status of an official EU candidate country. In this short note we review the background of Georgia’s journey to applying for the status and argue that the Nov 8th decision is unlikely to deliver a definitive verdict on Tbilisi’s aspirations for a clearer path to eventually joining the EU.
In essence, it is the European institutions that find themselves between a rock and a hard place given the less-than-exciting opinion that they now hold of the ruling Georgian Dream party. The commonly held view is that Georgian Dream has not made enough progress with reforms, which was confirmed by the EC’s interim report conclusion from June that barely 3 of the 12 recommendations have been met. Hence, despite some existing precedents to the opposite, we find it very unlikely that an outright Yes will be delivered on Nov 8th, including because that would allegedly reward Georgia Dream for pursuing what many see as a Russia-friendly foreign policy. Equally, flatly rejecting Georgia’s candidacy will only intensify the brewing discontent with the EU that has become more evident in the public opinion over the course of the last year.
As a result, we assign a more-than-50 percent probability that the report will deliver a conditional Yes (or a conditional No depending on whether one sees the glass half full or half empty), thus leaving the process open with the hope that the 2024 Parliamentary Elections may bring about a different political configuration that will make it less ambiguous to start accession talks with the EU. In any case, the political and geopolitical impact of this decision is unlikely to have deleterious economic effects, at the least in the short term, as the broader economy continues to grow briskly, with Georgia standing to benefit as an active bystander in the South Caucasus vis-à-vis the Armenia-Azerbaijan conflict.
At the end of the day, we anticipate a “classic Brussels fudge”, which we will take as a conditional Yes (rather than as a conditional No), as the most likely outcome of the Nov 8th decision. This should be welcomed by the market and support Georgian bonds.
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