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Italian Security in the MENA and Balkans, Part 6: Relations with Serbia

September 24, 2016

By Matteo Albertini and Chris Deliso

This, the sixth installment in our present series, assesses the modern security, economic and diplomatic relationships between Italy and Serbia. As this analysis indicates, Rome has a vested interested in cultivating the bilateral relationship, for diplomatic and economic reasons- being one of Serbia’s largest trade partners.

This factor indicates that AISE (the Italian foreign intelligence service) has a significant interest in Serbia regarding economic intelligence. Additionally, Serbia’s position on the migrant route, while the role of other actors there like Russia and China, also bring in a more traditional security and intelligence focus.

Italy’s Diplomatic and Economic Relations with Serbia: Modern Context

Italy enjoys excellent diplomatic relations with Serbia, which inherited a large part of the existing liaisons between the two countries from the Yugoslav years and always represented a strategic partner for the Italian presence in the region. Indeed, as a senior Italian diplomat notes for Balkanalysis.com, the staff size at the Italian embassy in Belgrade barely changed between 1990-2010; Belgrade, as former capital of Yugoslavia, had always been the central focus of Italian (and most other) diplomacy in the region.

The creation of new states following the Yugoslav disintegration, climaxing with Kosovo in 2008, has slightly affected Italian infrastructure and staff decisions, as it required a new embassy to be built there during a dynamic and changing period for the international presence in Kosovo. But it is the case that Serbia remains today a vital strategic hub for Italian diplomacy in the region.

The origins of modern Italian-Serbian cooperation date back to 1953, when the Italian automotive company FIAT signed an agreement with the Yugoslav state-owned company Zastava to allow the production of FIAT car models in Yugoslavia. It was a revolution for the local market and the collective imagination, with some models (like the Yugo 45) which have not by chance become, in recent years, icons of Yugo-nostalgic feelings.

After the signing of the Osimo Agreement in 1975, diplomatic and intelligence relations were managed in a softer way than before. Some recent journalistic inquiries showed that Yugoslav intelligence used to spy on the Italian Istrian and Dalmatian diaspora groups in Italy. Yugoslav counterintelligence operations also were conducted against possible nationalist actors, targeting those Italian nationals who decided to remain in Yugoslavia after 1948 (the so-called rimasti). But since most of these actions were conducted in the Venezia-Giulia Region (Trieste and the surroundings), they tended to be conducted under a Croatian-Slovenian command.

The crucial moment in the relations between Rome and Belgrade was without doubt the dissolution of Yugoslavia. At the beginning, the Italian Socialist government generally supported Belgrade, while there was a contemporaneous pro-Slovenian and pro-Croatian position among right-wing politicians. What was clear to all was the need to preserve the existing relations with the diplomatic establishment (in part remaining in Yugoslav ranks and in part turning to its newly independent homeland).

Further, as soon as Croatia and Slovenia declared self-determination, Italy began to see them as the arena for confronting the aspirations of Germany. Slovenia and Croatia were accused of being responsible of genocide against Italians in WWII. Italy requested posthumous reparations, and to renegotiate international treaties. Rome also blocked for a while Slovenia’s accession to the European Union. In this situation, Belgrade remained more of an ally for Italy, allowing opportunities for diplomatic leverage.

The close relations between Italy and Serbia can be underlined by showing the limited consequences, over a few short years, of some serious events. Italy sent a large deployment to NATO’s 1999 “Allied Force” intervention, which bombed the Federal Republic of Yugoslavia. Italy also provided the key logistic support from Aviano Air Force Base. The bombing killed over 3,500 civilians in Serbia, Kosovo and Montenegro. And it marked the very center of Belgrade with an enduring ‘monument’: the remnants of the Ministry of Defense in Nemanjina Ulica.

After the war, Serbs would question why they had been attacked by a traditional ally. In almost every diplomatic conversation in the following years, our sources attest, one of the first questions concerned why Italy (under D’Alema’s government, and with a traditional Pro-Serbian centrist politician such as Lamberto Dini as foreign minister) had decided to participate.

A proper answer would take us too far from the purposes of this article, but it is worth noting that Italian participation in the bombing allowed the country to get a primary role in the aftermath of the war. The NATO intervention was the first time that an international mission had been guided by Italian officials. Part of Kosovo was later overseen by a multinational force under Italian command, and this allowed Italy to regain a more central role in Greater Mediterranean diplomacy; this trend would later be demonstrated by the leading role Italy took in the Lebanon 2008 intervention.

Generally speaking, soon after the fall of Milosevic contacts between Belgrade and Rome grew faster, with Italy becoming one of the first supporters of Serbia’s European path. Also, as reported in a 2009 interview with Massimo D’Alema himself, Italy did not abandon the diplomatic option even during the attacks, trying to force Milosevic’s government to withdraw troops from Kosovo.

In any case, NATO intervention in Serbia had consequences and directly led to the second occasion of diplomatic confrontation between Italy and Serbia, when in 2008, Italy decided to accept Kosovo’s declaration of independence and to recognize the existence of the new state (interestingly enough, at that time, the Italian Foreign Minister was the same Massimo D’Alema). This time the consequences were harsher, and saw Belgrade recall its ambassador, Sanda Raskovic-Ivic, who was sent back some months later and kept this position until 2010.

Both disputes were quickly resolved, in consideration of the greater importance Italy had as an ally for Belgrade in its European path- but also in consideration of the growing economic relations that Italian companies had developed with the country during the previous 15 years.

Serbian Leadership Reiterates Strategic Nature of the Relationship

On 2 June 2016, Serbian Prime Minister Aleksandar Vucic gave an interview to an Italian-Serbian Chamber of Commerce publication. In it, he underlined the importance of the relations between the countries: “there is one word which is overused in our political life and international relations as well. Too often we exploit the term strategic. In the case of Serbian–Italian relations, I would dare to say that, yes, truly, Italy is a strategic partner of Serbia. With strong support to our European endeavors, we cultivate even stronger political relations with the Italian government, the strongest relations we may find in our economic performance.”

The premier continued, noting that “it could be said that economic cooperation between Serbia and Italy can serve as a model of good economic cooperation between any two countries. This is confirmed by the level of bilateral trade, totalling over 3.6 billion euros in the last year, which is about a quarter of the total goods trade between Serbia and the EU. […] Italy has provided strong support to Serbia’s EU integration process, but there is also growing interest among Italian companies for cooperation with the Serbian economy and investing in the Serbian market. We should develop our relations further and even more ambitiously, in diversifying our economic, political and cultural relations. Finally, we should continue presenting Serbian-Italian relations as a success story and as a role model for strategic relations generally. […] Speaking of possibilities and the prospects of further economic cooperation with Italy, the following sectors have been recognized as having constant, and so far mutual, interest for investment: the automotive and metal industries, the textile industry, wood processing, IT, agriculture and renewables.”

Italian Diplomatic and Intelligence Structure in Serbia

This deep cooperation is well-indicated by the staff numbers of Italian Embassy in Belgrade: the Ambassador Giuseppe Manzo, in Belgrade since 2013, has some 25 accredited diplomats. Along with its competitively-sized contingent, Italian diplomacy has taken the initiative, marking 90 years of its Belgrade embassy in 2016, and thus holding special events throughout the year.

According to the latest official data (updated September 16, 2016), this reveals Italy is at a high place within the second tier of countries represented. The largest diplomatic presences are those of Russia, with 54 diplomats, the US, with 40, China, with 37 persons, and Germany with 33. But Italy, with its 25 diplomats, comes out ahead of other European powers such as Austria (15), France (19), Greece (15), Turkey (15), Hungary (19) and Britain (16).

There are also interesting anomalies on Belgrade’s diplomatic scene, like Libya, the failed state with rival factions that nevertheless still manages to keep 27 diplomats in Serbia, according to the official data. Of course, on the southern edge of the Italian security arc we have traced in this series, Libya presents a serious challenge to Italy due to migration and terrorism, and economic concerns (ENI) in the country. So the Belgrade presence of a significant number of Libyan diplomats is something the Italian services monitor with interest.

As we reported in the second installment of this series, while the Slavonic-speaking central hub for Italian intelligence is in Zagreb, Belgrade is gaining back its pivotal role in Italy-SEE relations and in intelligence work as well. This does not depend only on the fact that Serbia remains the regional center of balance, but also because Italian interests and goals are confronted in Serbia by those of the major players, like Germany, Turkey and of course Russia. Historically, culturally and politically, Moscow remains better connected with Belgrade than in any other Eastern European country. Indeed, part of the reason for the AISE hub activities in Croatia is that it is considered much ‘safer ground’ than in Serbia, where the Russians have a stronger footing and can more easily monitor Italian intelligence moves,

An Active Ambassador- Giuseppe Manzo

Thus, it is not by chance that Italy entrusted an experienced diplomat, with previous postings in Tirana and Washington (both key actors in the Balkans), to deal with the growing importance of Serbia for Italian strategic goals. In this respect, diplomats say that Giuseppe Manzo represented the perfect choice.

Appointed on 3 June 2013, he was also previously chief of the press service and spokesperson of the Italian Foreign Ministry, managing the transition of the communication of the MFA towards e-diplomacy, introducing social networks and new media. In the period 2010-2011 he led the press office of the Italian Embassy in Washington, coming from the Italian embassy in New York, with experience from 2007-2008 as member of Italian delegation to the United Nations.

Manzo’s previous Balkan appointment occurred as counselor at the Embassy in Tirana in the period 1995-1998: tough years for Albania, which saw the explosion of the Pyramid scandal, looting of state arsenals, and the consequence migration crisis across the Adriatic.

In Manzo, Italy thus sent to Belgrade a diplomat familiar with international institutions, US policies and aware of the regional situation. But above all, Italy sent to Serbia a skilled communicator, who was able to develop inside the Italian Embassy a well-functioning information office. The ambassador has often released interviews and comments to local and international media, and is a Twitter user. The Embassy publishes a six-month press review (L’Italia a Belgrado), frequently updates its social profiles on Facebook and Twitter, and even publishes Flickr photo albums.

Since his arrival in 2013, Manzo has strongly backed Serbia’s accession to the European Union, showing satisfaction with the achieved levels of cooperation in fields such as security and rule of law enforcement. In a recent interview for the Italian-Serbian Chamber of Commerce’s publication, Diplomacy & Commerce, he underlined the importance of the “European Goal” for the countries still waiting for accession: “stability is not an irreversible achievement. It is rather a work in progress, and we have to recognize that the EU integration process is the main driving force to promote democratic change, economic growth and social developments in all these countries.”

He then underlined the diplomatic role of Italy in strengthening the relations between two key countries of the Western Balkans: “through the Trilateral Initiative we started last year, together with Serbia and Albania, and within the Western Balkan Process, by chairing and hosting in 2017 [in Rome] the Summit among Prime Ministers, Ministers of Foreign Affairs and Ministers of Finance/Economy, to promote joint projects on infrastructure, transport, energy and tourism.”

Growing Economic Ties

The ambassador then turned to economic subjects, underlining that Italy is one of the principal economic players locally, and seeks stronger economic development. Since the beginning of Manzo’s mandate in 2013, Italy has become Serbia’s leading trade partner: the Serbian Statistic Institute reports that Italian exports to Serbia equal 2.38 billion euro each year. And, Italian firms in Serbia now exceed 600 (they were 250 in 2011 and 450 in 2013). These companies employ more than 20,000 workers, with a turnover of over 2 billion euros.

Italian companies have indeed achieved a quasi-monopolistic position in most of the growing sectors of Serbia’s economy: the automotive one, with FIAT (now Fiat Chrysler Automobiles) contributing by itself 1% of Serbian GDP; the banking sector, where Banca Intesa San Paolo and Unicredit hold more than 25% of the market; the insurance sector, 45% of which is controlled by Generali and Fondiari SAI; textiles, where Italian brands like Calzedonia, Pompea and Benetton are present, as well as in footwear, particularly thanks to the Geox facility in Vranje.

Further, in the agricultural sector, a leading Italian company, Ferrero, has recently signed an agreement to farm hazelnuts in Serbia. In this regard, the ambassador presented his future projects for developing mutual relations under the slogan “culture & agriculture.”

In this regard, Manzo noted a range of initiatives. “As for agriculture, a couple of weeks ago Italy successfully participated as a partner country in the renowned Agricultural Fair of Novi Sad,” he stated. “Agribusiness could in the next year be one of the main sources of development for the Serbian economy, while for Italy it is already a strong reality, considering, for instance, that Italian exports in the agroindustry amounted to around 37 billion euros last year and we want to target 50 billion in 2020. Also our cultural cooperation is intense, but again we can do more and more. The Italian language is the first foreign language studied in Serbia after English and cultural relations between students and universities are particularly strong.”

Here it is interesting to note that Vojvodina alone produces 32% of Serbia’s total national exports, and represents one of the favored areas for delocalization of Italian companies. With its Hungarian minority and Central Eastern-flavor, Vojvodina has also historically been of keen interest to especially Hungary and sometimes Austria.

Energy Sector Potential

Italy is also trying to carve out its place in the energy sector (following its recent acquisitions in Montenegro, which will be discussed in this series’ final article). At present in Serbia, the local market is actually dominated by gas imports from Russia, and specifically by Gazprom: in 2008 Belgrade sold the majority of the state shares in the NIS energy company for $580 million (plus $500 million in investment from the Gazpromneft oil company). In that sense, Serbia’s energy sector is under the influence of Moscow state companies. A later agreement in 2013 further increased the year import to 2.5 billion cubic meters up to 2021. Lukoil is also present in the energy scene, having in 2003 won the contest for Beopetrol.

Possible investments by Italian companies are thus more likely only as an answer the growing demand for pipelines. The only competitive sector would then be the green one, considering that Serbia still depends on hydro-carbons for 90% of its energy needs, as a recent survey underlined. Serbia planned to reach a 27.3% renewables target by 2020 under Energy Community Treaty commitments, and currently operates 44 MW in small hydro-power plants, 2 MW in biogas power plants, 0.5 MW installed in wind and 2.4 MW in solar PV.

In this regard, the Italian corporation Building Energy recently signed an agreement with the Krusevac municipality for the construction of a biomasses thermal plant in the town. This could be the beginning of a widening trend of Italian participation in Serbian renewable investment, considering the overall trend of Italian deep participation in other key sectors.

The Economic Reasons behind the Italian-Serbian Strategic Partnership

Ambassador Manzo’s statements on the evolving economic relationship reaffirm a phenomenon reported by Balkanalysis.com in 2011. Thus, it is important to analyze the meaning of such a heavy Italian presence in the country.

There are multiple reasons for this colonization, such as the geographical proximity and logistical advantages. But the most important factor is surely connected with the low cost of work, and the presence of many qualified specialists.

Further, since 2008 the Serbian government has provided heavy incentives to foreign investors. For instance, the 2009 agreement between the Serbian government and FIAT – which is one of the few ever signed between a private company and a state – conceded the entire Kragujevac factory area (previously called FAS and now, FCA Serbia) to FIAT for just 1 euro and 10,000 euros for each worker.

But the crucial point is probably that, by virtue of the Agreement for Stabilization and Association signed with teh EU, the Generalized System of Preferences with the USA, and the exemption from customs for exchanges with Russia, the foreign companies that invest in Serbia gain access to a market as big as one billion people for “Made in Serbia” products. According to the definition, a product becomes ‘made in Serbia’ when more that the 50.01% of the transformation of raw materials is completed on state territory.

As with Macedonia, Serbia also provides a very favorable tax regime for companies. No taxes on profit are charged for 10 years for companies with a total sales volume higher than 8 million euro and at least 100 new employed per year. 14 free zones (amongst them Subotica, Novi Sad, Zrenjanin, Šabac, Kragujevac and Belgrade) grant tax breaks and charge no VAT. Where the VAT is charged, it is 20%, which is lower than in most European countries.

As reported by East Journal in a December 2015 article, this shape of the economic system has two main consequences: “the privatization of many state companies […] and the closure, or the collapse, of many local companies. As a matter of fact, public auctions and state incentives are more bracing for foreign companies, that have a consolidated experience on the market and can more easily win contracts.”

This situation could eventually have heavy consequences for Serbian small and medium-sized enterprises and may lead to worse consequences if foreign companies leave once the proscribed 10-year period of presence expires, should these companies decide to move to the next profitable country.

Diplomacy and the Italian Situation in Serbia

Despite possible economic consequences over the medium-long term, the excellent quality of Italian-Serbian relations, and the reciprocal trust between the acting governments, is testified by the constant growth of the Italian-Serbian Chamber of Commerce and by a series of interviews and declarations recently released by officials of both countries, as we have seen with Vucic’s interview.

Less than a month ago, on 31 August, the Italian ambassador to Belgrade was received by the newly-appointed Foreign Minister, Ivica Dacic, to deliver a congratulation letter for his nomination from his Italian counterpart, Paolo Gentiloni.

The official letter stated that “as Serbia’s primary strategic partner, Italy will continue to support Your Country in its European integration path in the wider fields, with the goal of getting more and more concrete results. […] The Western Balkan Summit which will be hosted by Italy next year will be a perfect occasion to promote the European integration of the countries in the region, enforcing their reciprocal cooperation also through their active involvement in the process. Our main goal is to improve our bilateral relations and the relations between the countries in Western Balkans. For Italy, Serbia’s future is inside the European Union. […] Looking forward to get back to working with you and your government, and to future occasions for meeting in person, I wish you the best for you new role.”

During the meeting, both Ambassador Manzo and FM Dacic underlined the importance and the high level of trust reached by bilateral relations, and reiterated promises of developing cooperation in every field of common interest. Ambassador Manzo, while expressing his satisfaction with the choice of Rome as host of the next Western Balkan summit, underlined Serbia’s commitment to maintaining peace and stability in the region. He also took into account Minister Dacic’s concerns about the behavior of some countries which partly compromised this stability.

The future meeting in Rome was also at the center of Undersecretary Amendola’s visit to Belgrade last June, when he also gave a long interview to the newspaper Politika. In it, Amendola indicated economic growth, security and rule of law as Italy’s priorities for the Western Balkan 2017 Summit: “I chose to reunite in Belgrade the Italian ambassadors in the Adriatic-Balkan area to begin the organization of the agenda of the summit,” he said.

The Italian undersecretary also met Serbian Prime Minister Aleksandar Vucic for a meeting about “the economic and cultural development of the region, the investment and growth opportunities for Italian companies active in infrastructural projects, and the Italian contribution to the promotion of rule of law in the region.”

In this regard, before coming back to Italy, Amendola and the ambassadors also participated, in the Belgrade Special Court’s room dedicated to Giovanni Falcone, to the presentation of a regional project dedicated to the fight against organized crime. This was developed after the donation to Serbian Police of a database collected by Italian National Anti-Mafia direction.”

Police Cooperation between Italy and Serbia

The renewed efforts of Serbian security agencies in the fight against organized crime have strengthened international cooperation. The centrality of Serbia here was indicated by the Anti-Mafia meeting held in Belgrade in May 2013, in the OSCE mission’s office. Serbian government representatives and officials from Sweden, France, Germany, Austria, USA, Netherlands and Europol participated. In a nod to Italian influence, the central event was a speech by Prosecutor Paolo Roberti.

The choice of Belgrade as conference host was significant. The prosecutor stated that Italy seeks to extend to all the Balkan countries the strong cooperation it already has with Serbia in the fight against organized crime and corruption. The idea of this regional conference was connected to the Italian Ministry of Justice’s decision to donate Italian SIDDA/SIDNA software to the Serbian Special Prosecutor for Organized Crime, in December 2013. It was developed by the National Anti-mafia and Anti-terrorism Office, in order to manage investigative data.

The Italian Foreign Ministry also participated by funding around 100,000 euros to this project, making Italy the lead contributor. The Serbian side planned to share the database system with all Serbian public prosecutors offices, “in order to harmonize the different IT systems.”

The (Lesser) Impact of the Hacking Team Affair in Serbia

As our previous installment discussed, the 2015 email leak involving Milanese spyware firm Hacking Team caused some reactions in the Croatian media, forcing the Croatian intelligence service to publicly rebuff claims that its work had been compromised in any way by the leak. While the reaction to the leak was less pronounced in Serbia, one very interesting article from Serbian tech site Share Lab in July 2015 reveals that the Italian company sought to do business with the Serbian Security Information Agency (Bezbednosno-informativna agencija, BIA) and the Ministry of Defense.

As in Croatia, the negotiation was reportedly undertaken with the aid of a local Belgrade company, but also involved an Israeli one. According to the long article, the initial Serbian interest came in 2011, after a BIA agent noticed HT at the MiliPol Paris fair in 2011. Negotiations apparently continued during that year, with at least one trial demonstration performed in Belgrade, but changes in government and disagreements over price meant that a deal never came to pass.

Italian Leadership of NATO Military Liaison Office in Serbia

In 2006, NATO opened a Military-Liaison Office in a country it had been bombing only seven years earlier. While no one is expecting Serbia to join NATO, the initiative was meant to provide the basis for maximal non-membership cooperation.

In this light, it is interesting to note that the local NATO leadership of this office has been held by Italians- a choice that indicates the ‘acceptable’ nature of Italian leadership in Serbian society, considering the recent history. As such, in February 2016, Italian Brigadier General Cesare Marinelli became Chief of the NATO MLO, taking over from his fellow countryman, Brigadier General Lucio Batta. The latter had also served in this position on a previous mission.

Brigadier General Marinelli is a well-regarded officer who was active in the Rome operations center for pre-planning Italian troop deployment to Kosovo before the war, and similarly led advance planning for deployment to Afghanistan before the US invasion there. He also has overseen Italian troops operations in Bosnia, Kosovo and Albania and thus is well acquainted with the region.

Conclusions: Intelligence Focus Guided by Economic Interests First

The changing dynamic of Italy’s relations with Serbia are indicated by its areas of focus. With war an increasingly distant memory, Italy is taking advantage of its good relations with Serbia to advance its economic interests. Therefore, the primary area of focus for state agencies like AISE (as well as numerous private intelligence firms) is economic intelligence. One of the questions for modeling involves scenarios by which Italy’s banking crisis could affect its general economy and trade with Serbia (including banking ownership in the country), and what this would mean for Serbia itself.

Serbia today is attempting to continue the former Yugoslavia’s role as the one ‘vital’ Balkan power between East and West, and it is indeed the case that today’s major powers all have a stake there. For Italy, the historic good relations with Serbia are allowing it to play a leading role, even in the most sensitive of areas for local society (such as relations with NATO).

The current Italian ambassador’s tenure has been, all agree, highly successful. The upcoming diplomatic rotation will indicate much about Rome’s intended orientation, but with the next Berlin Process conference for the Balkans to be hosted by Italy next year, we can expect that Italy will keep up a high level of diplomatic and logistical cooperation in advance of that event.

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