Ian Bancroft in Belgrade -

Over a decade on from the signing of the Ohrid Agreement that ended armed conflict between the ethnic Albanian National Liberation Army and Macedonian security forces, this small former Yugoslav state is once again showing signs of inter-ethnic strife.

A spate of incidents - including the killing of five ethnic Macedonians in early May - demonstrated the persistence of underlying tensions between the respective communities, despite the much-vaunted success of international engagement. As Edmond Ademi, executive director of the Liberta Institute in Skopje, tells bne, "inter-ethnic relations and trust between the two largest ethnic communities are at their lowest" point since 2001.

Ademi points to failures to fully implement the Ohrid Agreement (the deadline for which passed in 2004), accusing Macedonia's prime minister, Nikola Gruevski, of demonstrating questionable devotion to strengthening inter-ethnic relations with remarks that "we respect - but don't like - the Agreement."

On the flip side, Ademi blames Albanian political parties for misusing the Ohrid Agreement for their own interests and for "making the secretariat for implementation of the Agreement an employment agency for party activists of the ruling Albanian party." Ademi holds out little hope for any positive changes under the current administration, asserting that the spirit of the Ohrid Agreement has gone, only the body remains.

Named and shamed

Aside from renaming Skopje's international airport after Alexander the Great, other provocative moves by the Macedonian government include the "mono-ethnic" and somewhat ostentatious Skopje 2014 project. With its showpiece 22-metre-high bronze equestrian statue of the aforementioned ancient warrior, Skopje 2014 - which has cost some €300m to date - invokes the spirit, if not quite the style, of classical antiquity.

Macedonia's progress towards the EU and Nato membership has remained stalled by the infamous - yet to many, tedious - name dispute with Greece, which opposes the use of "Macedonia" without some geographic qualifier, and insists upon reference to "the former Yugoslav Republic of Macedonia" (FYROM). As Ademi warns, "it's clear that without finding a mutual solution on this issue, there will be no way forward for Macedonia."

Despite December's ruling by the International Court of Justice that Greece had breached its obligation under the 1995 Interim Accord, a lasting resolution remains elusive. Assertions that the Greek debt crisis strengthens Macedonia's hand are pure wishful thinking, as the former's renewed opposition at the recent Nato summit in Chicago clearly demonstrates.

For Damir Neziri of the Community Development Institute, which promotes inter-ethnic tolerance, the problems run much deeper. "People live in two parallel societies - a Macedonian and Albanian one," he says, unaware of the other's "culture, language and traditions." Neziri points to "systematic problems" that mean school children study in "different schools, different shifts or different buildings."

External obstacles to Macedonia's Euro-Atlantic integration have had profound ramifications on such internal relations. As Neziri points out, "EU and Nato integration is maybe the only issue that all of the ethnic communities agree on... [and] the faster the country integrates, the less possibility for the escalation of inter-ethnic relations." Without the unifying orientation provided by EU accession - itself a potential victim to enlargement fatigue - the strain on inter-ethnic tensions will likely continue to mount.

Misery heaped upon misery

Macedonia's dire economic situation is another contributing factor. As Ademi notes, Macedonia is a country with 35% unemployment and 30% poverty. "Recently, The Economist placed us on top of its Misery Index."

Ademi warns that the state coffers are almost empty and the government continues to borrow at enormous interest rates, like the last one of €270m from Deutsche Bank, with a 7% interest rate. Further, instead of investing in job creation and economic growth, "the government keeps spending millions on unproductive projects."

On June 1, the International Monetary Fund (IMF) concluded its assessment of Macedonia, which was mildly supportive, saying that while economic growth has slowed (expected to slow to 2% in 2012 form 3% in 2011), Macedonia's medium-term outlook remains generally favourable. However, "to address challenges posed by possible adverse spillovers from the euro area, [IMF] directors encouraged the authorities to persevere in their pursuit of macroeconomic and financial stability, building on advances made thus far."

Indeed, without urgent reforms, Macedonia faces the continued prospect of economic stagnation, leaving its citizens ever more dependent on remittances from abroad. Neziri is highly critical of politicians exploiting inter-ethnic tensions to distract from the economic difficulties and win votes, thereby "further radicalizing the whole situation."

With continued instability in neighbouring Kosovo, there are concerns of another type of "spillover" as incidents in one place spread to another, thereby exporting instability throughout the region. Such a hypothesis pertains, in particular, to the case against partitioning north Kosovo - that such a step would ignite similar claims not only in Macedonia, but in southern Serbia, Bosnia-Herzegovina and even Montenegro. For Ademi, "all three aspects - bad inter-ethnic relations, no progress on Nato and the EU, and a weak economy - make the country very fragile; both inside and outside."

With little sign of progress on the external obstacles, full implementation of the Ohrid Agreement remains essential if Macedonia is to continue on the path of reform, particularly as Europe's carrots turn sour. Building inter-ethnic tolerance is, however, a much weightier and lengthier challenge.

Nonetheless, there is always cause for optimism. As Neziri wisely points out, "there is one thing that is true - in the business sector no one cares if their partner is part of this or that ethnic community." Stimulating business, therefore, may hold the key to building Macedonia's inter-ethnic and economic harmony.