The European Commission has suspended the payment of €125 million to Bosnia and Herzegovina to help its entities recover from the consequences of the coronavirus pandemic, local media reported on Wednesday.

The information was confirmed after a warning from Brussels earlier this week of possible sanctions in response to the secessionist policy of the authorities in the Republika Srpska entity.

The European Commission and BiH authorities had signed an agreement in December 2020 on an aid package worth €250 million. Half of the amount was paid out in 2021 while the remainder was to have been disbursed this month. This, however, did not happen and it is uncertain whether the money will be paid out at all.

Representatives from the EU Delegation to BiH told the Banja Luka-based Nezavisne Novine daily that the second part of the aid package has been suspended based on the criteria of conditionality requiring steps to be taken with regard to economic governance, institution building, stability of the financial sector, transparency, the fight against corruption and a better functioning of the labor market.

Implementation of these measures and policies will require close cooperation at all government levels. The EU will assess compliance with the conditions for the award of macro-financial support in the coming months, the EU Delegation explained.

BiH has so far received €345 million in support to deal with the consequences of the coronavirus pandemic, including €95 million in grants and the rest in favourable loans.

The BiH economy is mostly dependent on the EU market which accounts for two-thirds of its exports. The same goes for the Republika Srpska entity.

Sanctions loom

European Commission spokesman Peter Stano confirmed on Tuesday that the further escalation of destructive activities by the Republika Srpska aimed at separating that entity from the constitutional-legal order of BiH could result in the Union resorting to sanctions against those responsible.

“We are committed to facilitating a dialogue that would contribute to removing obstacles to real progress on BiH’s European path for the benefit of all citizens and the country. Should the situation further deteriorate, the EU disposes of a wide toolbox, including the existing EU sanctions framework, and a review of the overall EU assistance,” said Stano.

Immediately after that the head of the EU Delegation to BiH, Johann Sattler confirmed that the Union considers authorities in Banja Luka to be directly responsible for the escalation of the crisis in the country.

“Such rhetoric and actions jeopardise the stability and prosperity of the country, and are in complete contradiction with its EU perspective” Sattler tweeted.

Last week the US introduced sanctions against the Serb member of the country’s presidency, Milorad Dodik, and his legal adviser Milan Tegeltija. The US is expected to add other names to the list of persons under sanctions.

Croatian Foreign and European Affairs Minister Gordan Grlic-Radman said in Sarajevo last week that Croatia would like problems in Bosnia and Herzegovina to be resolved through dialogue. “We should first exhaust all possibilities arising from talks and dialogue and then establish other instruments that should work to continue the reform process in BiH,” said Grlic-Radman, before Washington announced the sanctions against Dodik.

Some EU members, like Hungary, have warned that they will block any attempt by the EU to impose sanctions on Dodik while most Western countries, like Germany, have clearly said they will support the sanctions.