Between formal institutions and informal practices
Edited By Eric Gordy and Adnan Efendic
This book contains collection of articles which provide policy implications related to the problem of achieving substantive reform on the basis of harmonising legislation in Western Balkan (WB) countries with the standards of the European Union (EU). While WB states have generally been successful in adopting legal reforms that make up a part of EU conditionality, many laws remain unenforced, amounting to "empty shells." In the space between law, as it is written, and practices as they are engaged in everyday life, exists a gap, characterized by informality, clientelism, and exchange often based on strong tie relationships. Some instances of informality undermine the goal of establishing rule law and contribute to corruption. Others offer valuable solutions to persistent social problems or represent traditional vehicles of social cohesion that should be promoted. The recommendations in this book seek to address both constructive and damaging instances of informality, and to identify policy measures that can help to harmonise not only legislation, but existing informal practices on the ground.
1. Engaging Policy to Address Gaps Between Formality and Informality in the Western Balkans (Eric Gordy / Adnan Efendic)
This introductory chapter considers the interaction between formal and informal instituitons, discussing an updated theoretical approach to this complex relationship but also touching related empirical evidence from the Western Balkans (WB) states. The approach adopted in this study is that informality cannot be a priori considered as a negative phenomenon, nor linked to the WB region, its cultures, traditions, religions or mentality of people living in this European space. This chapter and following contributions draw policy makers’ attention to the fact that legal reforms in this region, including the institutionalisation of the EU rules, need to be sensitive to context, reducing informality where it is necessary by addressing the formal deficiencies that people resolve through informal practices operating on the ground, while integrating and formalising the positive contributions that are available sometimes exclusively through informality.
Keywords: formal institutions, informal institutions, informality, Western Balkan, policy
The texts in this book are products of the Horizon 2020 research project INFORM, „Closing the gap between formal and informal institutions in the Balkans“.1 The project was carried out by a consortium of of over forty researchers at nine institutions in nine countries, including the six Western ← 7 | 8 → Balkans (WB) states that are currently at various points in the process of accession to membership in the European Union. The fundamental question posed in the research was how empirical knowledge could make a meaningful contribution to assuring that the legal and structural reforms carried out as a part of the accession process could genuinely contribute, in a substantive way, to strengthening the capacity of states to govern, to consolidating processes of democratisation, and to improving the welfare, security, and confidence of citizens of these states. Thus, the main intention of every chapter is to come up with proposals for policy measures directed towards the institutionalization of EU laws and regulations based on empirical evidence regarding the relations between formal institutions generated in the process of Europeanisation of WB states and inherited and newly developed informal institutions in the spheres of politics, economy and everyday life.
The research was guided by a perception – widely shared among the researchers in the team and repeatedly confirmed informally in private conversatins throughout the region – that while states had more or less been successful in adopting legislation that harmonises domestic law with the standards of the European Union, these legislative changes frequently amounted to „empty shells“, changes adopted exclusively at the formal level that states lack the capacity or will to implement (Dimitrova, 2010). In the face of formal resolutions that fail to regulate everyday activity, informal practices emerge, and very often as the substitutes for the formal institutional defficiencies (Efendic at al., 2011). Some of these can be described as corrupt practices, in which powerful brokers are able to make use of deficiences in the institutional setup in order to divert public agencies to private purposes. Others of them, however, reflect strategies generated by citizens to accomplish necessary work in the context of institutional arrangements that fail to function. Still others express relationships of mutual support and solidarity that are both grounded in tradition and guided by necessity.
One of the generally recongized insights that follows from this approach is that it is not productive to regard informality per se as a problem or negative phenomenon linked to the Western Balkans region, its cultures, religions, traditions or mentalities. Rather, we sensed, the problem lies in the gap between formal legal resolutions and informal practices in everyday life. This means that there exist large portions of everyday life, including meaningful portions of the political and economic spheres, that ← 8 | 9 → are not described by law. This insight takes on importance for policy (and dare we say, politics) if it is considered in the context of the historical experience of citizens in the states of Western Balkans over the past hundred years. They have confronted multiple projects, inspired from outside and bombastically announced from above, promising to fundamentally transform the institutional and social orders, which have often been short-lived, superficial, and implemented haphazardly and incompletely. Among the consequences have been popular insecurity and distrust, and these have been of longer duration than the regimes toward which they are directed. The concern is widely shared among people in the region, although it may not be apparent to EU reformers, that the current process of liberalisation and „Europeanisation“ or „Europeanunionisation“ may represent one more of these ambitious but ultimately superficial initiatives. The repeated experience is neatly summarised in a popular parody of political slogans: „Hteli smo najbolje, a ispalo je kao i obično“ („We wanted the best, but it turned out as usual“).2
The researchers on the INFORM project were guided by the belief that empirical knowledge about the gap between formality and informality could contribute to developing policy proposals that could be useful in addressing the risk that legal and structural forms could appear comprehensive but turn out meaningless, prolonging the experience of states that fail to function, and that experience chronic crises of legitimacy. Although nearly everybody, from international experts to participants in coffee shop conversation, recognises the gap on which our research concentrates, this project represents the first effort to gain systematic and region-wide knowledge about its scope, character, and meaning. The contributions in this volume elaborate the policy proposals that derive from the findings of our research, covering the selected topics in the speheres of politics, economics and everyday life. The intention of this book is not to cover all possible examples that appear on the ground, but some of the most representative recongized by the researchers comming from these three fields. ← 9 | 10 →
A new theoretical approach to formality and informality
Core concern motivating the research is the perception that in Western Balkans (including two EU countries from the region in our sample, Slovenia and Croatia), the accelerated pace of EU accession has contributed to a rush in adoption of legislative reforms proposed solely for the purpose of compliance with the acquis communautaire, and frequently passed through the parliament without debate or substantive consideration. We have referred to these, as have others, as „empty shells“, although other labels have been suggested, among them „fabricating reforms“ and „reform simulation“ (e.g. Dimitrova, 2010; Đinđić and Bajić, 2018). They describe a situation in which legal resolutions are adopted by states which have neither the intention nor the capacity to implement them. Similar to the way that Verdery (1996) described a formally socialist economic system masking feudalist and capitalist practices on the ground, the adoption of liberal policy in the post-socialist period is marked by a disjunction between the world as it is described by official policy and the world that is confronted by citizens in their everyday experience. This results in a gap between formal and informal practices, which appears to be growing as states hurry to generate legal and regulatory frameworks that do not respond to actual conditions.
This phenomenon contributes to constructing an observation that is all too obvious to people who live in the region but is frequently not apparent to outside observers in government and media: there are large portions of the system by which political power and influence operate that are not represented by the official structures of formal power and not described by law. They represent, on the one hand (in their corrupt form), ways in which gaps in the system are exploited by people in a position to take advantage of them for personal gains, and in that sense are threats to the establishment and consolidation of a rule-based system that is predictable, efficient, and bound by regulations that act to protect the interests of citizens. At the same time they also represent (in their complementary form) strategies and networks that citizens draw upon in order to accomplish tasks that are not facilitated by systems that have been established in law but not enacted into practice.
These features add up to make Western Balkans a productive environment for the study of informality. Both the extended-transition characteristics ← 10 | 11 → of the states and what is often perceived to be the „tradition“ of informality in regional cultures contribute to the richness of the research environment. The perception of the existence of a „tradition“, however, could be misleading. Much of the research suggests that informal practices of long standing derive from political conditions: repeated changes of political regime over the past century, a corresponding repeated failure of regimes to consolidate formal aspects of their rule, and a consequent and apparently permanent deficit of trust in institutions. But the perception of tradition also contributes to the longevity of a stereotype, which sees informality as in some ways embedded in the cultures of the region. A homologous stereotype of „backwardness“ traces its path through the literature to Banfield’s (1958) study of southern Italy, and is neatly reproduced in a 1991 regional survey tracing the „origins of backwardness“ in eastern Europe (Chirot, 1991). In both cases the persuasiveness of the characterisation of some parts of the world as fundamentally more „backward“ than others depended on the conditions and policies that produced „backwardness,“ and tended to disappear with the disappearance of those conditions. Is informality a product of cultural inclinations? Probably if it is, then it is so everywhere, or at least in a widely varying range of cultural environments (for a wide variety of examples from around the world, see Ledeneva, 2018). And to the degree that culture inclines societies to be accepting of „bad“ informality (such as bribery and the use of connections) it does so mostly in trivial ways (exchange of gifts, obligation to help family). Our research indicates that the prevalence of informality is primarily a product of dysfunctional regulatory environments. Evidence on entrepreneurs in Southeast Europe suggests that businesspeople will engage intensively in bribery and the instrumental exchange of gifts and favours to the degree that they understand these activities as being necessary for the conduct of their business, but that when predictable and efficient legal resolutions become easily available, the volume of informal transactions declines (e.g. Efendic et al., 2018). Similarly, corrupt practices can often emerge as a consequence of a formal system seeking to expand its accessibility and reach beyond the level of its capacity.
Another difficulty confronting the study of informality in this part of Europe involves one of the problematics that lies at the heart of this collection: the close relation between the emergence of informality as a research problem and the challenges that accompany implementation of the European Union’s rule of law agenda. A consequence of this is that informality tends to be viewed exclusively as a problem to be eliminated, closely related ← 11 | 12 → to corruption and obstructing the establishment of stable and reliable legal institutions. This view is not inaccurate, but it is also not complete. It has the consequence of overlooking, in particular, ways in which many informal practices emerge as responses to the failures of formal institutions, and ways in which informality provides means for people to accomplish necessary tasks in their lives.
The mixed character of informality has encouraged the development of two opposing approaches to the problem, both of which are incomplete and extreme: condemnation and celebration. One camp advances pure formality as a goal and regards informality as a source of corruption and diversion that needs to be eliminated. The other points to the creative and „authentic“ character of informality as an organically generated set of strategies for problem solving, and encourages a view of it as a resource to build upon in the development of policy. Helmke and Levitsky’s (2004) typology represents an effort to overcome this dualism, and as such has been widely influential – it is cited by several of the authors in this collection, as it is throughout the informality literature. But this solution brings with it some problems of its own. The main problem is that in distinguishing between „good“ (law-enhancing) and „bad“ (law-subverting) informality, it maintains both the dualism and the preference for state-based solutions that characterise the literature that precedes it. The principal obstacle to knowledge here is that an overly strongly drawn distinction eludes the basic interactivity of the relationship between formality and informality, and the fact that formal institutions function (necessarily) with informal practices, while informal practices develop rule-like strategies of enforcement (North, 1990; 1990a). This interactivity is not necessarily a problem or a failure, but rather it is a resource for the generation of information. The scale and type of informal practices tell us about the limitations of formally conceived systems.
Empirically grounded research elaborated by a clear understanding of the cultural contexts in which the empirical facts emerge helps us to move beyond the unhelpful dualism that is characteristic of a good quantity of the existing research on informality. It should also be helpful, ultimately, in the development of policy. To the degree that in the accession states of Western Balkans, the European Union’s strategy of transposing formal rules from one environment to another can be viewed as having been unsuccessful on several fronts, it might be possible to conclude that among the principal sources of failure has been the introduction of formal practices into environments that have been, whether for structural, cultural or ← 12 | 13 → political reasons, unreceptive. The contribution that researchers are able to make is to draw attention to aspects of the context into which new regulations are introduced, and to encourage flexibility and sensibility.
Less fully explored in many discussions of informality is the role played by external actors in promoting and consolidating informal practices. This dimension is frequently obscured by self-promoting stereotypes that view outside actors as bringing the rule of law to recalcitrant political actors who resist it. This perception is explicitly contested, for example, in INFORM’s research on „leaders’ meetings,“ which notes them as instances reflecting „the imprecise nature of EU’s political criteria as a source of numerous inconsistencies ranging from vague conditions that are not based on EU wide standards to contradictory application” (Markovikj and Damjanovski, 2018). In this context “leaders’ meetings” break an impasse with a bypass, facilitating short-term agreements through direct consultation between the heads of political parties. While the tactic has an obvious appeal to EU mediators as a way of overcoming obstacles in the short term, the long term effect is to substitute short-term political gain on the part of political elites for the public interest. A clear but frequently overlooked conclusion is that outside actors, working with the overall intention of promoting legtitimacy and the rule of law, are not immune to the temptation of internalising some of the informal practices that dominate political activity in unconsolidated states, thereby, probably unintentionally, undermining the institutions that they hope to promote.
The contributions in this volume shed light on some of the central characteristics of informality in Western Balkans, while also intersecting with some of the basic theoretical discussions in the study of informality generally. Some of the central characteristics of WB states that make them especially interesting as sites for the study of informality include: frequently low levels of institutional density, repeated experience of „fundamental“ structural change inspired from outside and imposed from above, and complex interaction between formal institutions that are consolidated to varying degrees and requirements for reform generated through external ← 13 | 14 → processes (in particular, through pursuit of the goal of integration with the European Union). It might be said that these are states that are seeking to establish, with partial success, democratic systems, having emerged from a period in which they sought, with partial success, to establish socialist systems. The gaps emerged where failed elements of both of these ambitious efforts to construct society-transforming political systems left ample space for the development of compensatory informal practices. Some of these practices developed into stable forms of corruption, while others made it possible for everyday needs to be met in dysfunctional institutional environments. Additionally, as some of the states of the region are new states which have recently experienced violent conflict, the issues of institutional functionality and trust in institutions become more prominent.
Chapter 1 provides a parallel analysis by Ivan Damjanovski and Marko Kmezić, who trace processes of implementation of acquis requirements in Western Balkans EU accession states. The discussion concentrates on the degree to which, in the process of undertaking legal and institutional reforms, the norms underlying these reforms have also been internalised in the accession states. Examining the fields of judicial reform, media freedom, economic reform, institutional capacity, they find that while states frequently meet conditions for legislative or organisational reform, the implementation of these reforms, and their transformation from words printed on paper to substantive improvements in the environment and daily life of citizens, are blocked by a number of factors. These include the low credibility of the accession process itself (a problem compounded by weak public information), the weak capacity of states for implementation, and political elites who act as gatekeepers, blocking the implementation of changes that do not serve their short-term interests. In addition, the legacy of previously existing nonfunctional systems has generated a powerful subterranean system of informal networks and practices, which are durable and resistant to change, partly because of generally low levels of confidence in formal institutions. Addressing this type of legacy requires sustained engagement not only in terms of generating a public case for the norms that are promoted by means of reform, but also in recognising and diminishing the power of elite social actors who are able to assume the role of veto players. The risk of continued engagement solely on the level of form, bypassing substance, is that „democracy in the region will remain an empty shell” (see Chapter 1). Chapter 2 offers an analysis of the problems of “goldplating” and partial enforcement of EU-derived regulations by Miran Lavrič, Reana Senjković, ← 14 | 15 → and Rudi Klanjšek, examining the problem through the lens of the sharing of meat produced by home slaughter. The issue involves a practice that is generally viewed positively in Western Balkans societies (including Slovenia and Croatia), as people consider domestically produced meat to be healthier and of superior quality to meat available through commercial outlets, while the practice itself is rooted in traditions of familial and communal solidarity and plays a role in religious observances. Although EU requirements in the area are in fact fairly minimal (mostly relating to health protection and animal welfare), several states used the opportunity of compliance with conditionality to introduce legislation that was considerably more restrictive than the EU demanded. This had the consequence of widening the gap between applicable law and the capacity and will of states to enforce the law, both undermining the credibility of institutions and opening up possibilities for abuse through selective or instrumentalised enforcement. The states’ “goldplating” also resonates with a sometimes popular current in anti-EU opinion, which sees reforms demanded from outside as threatening widespread and cherished cultural practices, many of which concentrate on the domestic preparation of food. Overall the discussion points not only to the dangers of “goldplating” and the overproduction of unenforceable “empty shell” legislation, but also underlines the need to harmonise formal rules to cultural values, norms, and practices that are perceived as legitimate on the local level. Implementing this recommendation requires policymakers to engage the kind of cultural knowledge that is widely shared by citizens and available through research in the social sciences.
In Chapter 3 Adnan Efendic and Alena Ledeneva confront the phenomenon of informal networking, including both household and entrepreneurial sectors. Drawing on both statistical and ethnographic evidence, they establish the motivations of businesspeople to establish and maintain informal networks, and also generate a rough calculation of the costs of maintaining these networks. While there is variation according to location, gender, education, and stage of business development, the cost of maintaining an informal network is high, ranging from 80 to 150 Euros monthly in a region where the average monthly income of the survey respondents is 250 Euros. Businesspeople report that informal networks are maintained out of necessity: not only for the cultivation of clients and the exchange of information, but also to oil the wheels of an inefficient bureaucratic and regulatory system. The cost of networking is lower in states where regulation is more transparent and less burdensome. This evidence directly ← 15 | 16 → contests the perception, derived from stereotype, that informal networks correspond to some sort of regional inclination to sociability or “mentality” – most businesspeople would prefer to work with efficient and predictable state agencies rather than having to cultivate contacts in order to secure bureaucratic resolutions. As one of the interviewed respondents nicely said, – ‘But, I wish we had a state without it…’. Conversely, in states where recent ethnonational conflict has made ethnic and religious diversity a site of contention, informal networks appear able to build and sustain relationships across cultural divides more successfully than do formal institutions, which are all too frequently the site of preferential behaviour and discrimination. The principal policy implication is that legal reforms need to be sensitive to context, reducing informality where it is necessary by addressing the formal deficiencies that people resolve through informal networks, while integrating and formalising the positive contributions that are available sometimes exclusively through informality.
The contribution in Chapter 4 by Misha Popovikj, Borjan Gjuzelov, and Jovan Bliznakovski explicates ways in which the informal practices of political parties undermine the legitimacy of formal systems of democratic representation and accountability: through the practice of relational clientelism. While a good deal of attention has been paid to such „fee for service“ practices as vote buying, the corrosive effect of informality on political representation looks more serious when it is viewed as an interactive process developing over a longer term. In a context where public institutions and public procurement fail to operate efficiently and transparently, both parties and citizens seek to form long-term mutual relationships in which help with solving practical problems is exchanged for loyalty. This type of relationship deprives political representation of its substantive content, while at the same time it consolidates politicians’ lack of interest in creating and maintaining stable and efficient institutions. What is essential in the relationship is that it is not only parties that offer incentives to citizens in exchange for votes – nearly as frequently, citizens seek out the services of parties as brokers mediating their needs and the institutions of the state. In states where political contestation is genuinely competitive, the scale of the relationships that are forme din this way may be enough to alter the outcomes of elections. The authors propose the introduction of a parliamentary oversight mechanism to monitor and control the functioning of relational clientelism. On a broader level, it might also be observed that the findings on this point reinforce two of the major outcomes of the INFORM project, that informal practices, including ← 16 | 17 → practices that are corruptive, arise from: i) an institutional environment in which formal procedures fail to address the needs of citizens; and ii) the absence of political will to eliminate (or even the presence of direct political incentives to maintain) a dysfunctional institutional environment.
Informal pressures on political institutions are also the focus of Chapter 5, in which Vjollca Krasniqi, Nenad Markovikj, Ilina Mangova, Enriketa Papa-Pandelejmoni, and Jovan Bliznakovski explore the circumvention of legal institutions of democratic representation and decisionmaking through „leaders’ meetings,“ in which the heads of political parties resolve contentious issues informally through meetings in settings like restaurants and coffee shops, sometimes with the active encouragement and intervention of international diplomatic representatives. Frequently these meetings succeed as a tactical manouevre to overcome, at least temporarily, blockages in representative institutions. For this reason they may appear as an attractive „quick fix.“ Over the long term, however, they undermine the credibility of representative democracy, replacing public interest with private interests and reducing parliaments to institutions that ratify publicly agreements made secretly. The authors propose that the constructive function of „leaders’ meetings“ – as a forum in which contentious disputes can be resolved – can be maintained, while their subversive dysfunction can be reduced. This could be achieved by bringing contact among party leaders into the parliamentary system, and encouraging this contact to be oriented toward preventing intractable disputes rather than toward ironing them out once they have developed.
Chapter 6, by Vjollca Krasniqi, Enriketa Papa-Pandelejmoni, Armanda Hysa, and Gentiana Kera, interrogates the space between formal rules and „how things get done“ in everyday life. The authors conceive of formality and informality as interactive, with informal practices emerging to respond to shortcomings in formal institutions, and correspondingly providing information about the successes and failures of the formal sector. The authors explore the frequency of use of informal practices and the pursuit of „connections“ and mediation, both in the everyday sphere and in relations with political institutions such as parties, noting that informal mediation is sought most in those fields where formal rules fail to function equitable and efficiently. The phenomenon is most pronounced in areas such as access to health care, education, public services, and employment. These observations are of value to policymakers for two principal reasons: i) they contest the stereotypical view of informal networks as somehow ← 17 | 18 → responding to cultural and traditional predispositions of citizens of Western Balkans states, and ii) they underscore the point that the most successful strategy for comating (bad) informality is not through repressive measures, but rather by providing citizens with the means to access public services and benefits without the need for mediation.
In tha last chapter, Chapter 7, Mirza Mujarić and Ismet Kumalić offer an overview of how EU observers have assessed reform processes in Southeast European states, as well as a comprehensive survey of how several post-socialist states, including ones both inside and outside the INFORM sample, developed strategies to confront the problem of informal employment. The scope of their review is broad and the evidence takes diverse forms, but it may be possible to draw out some unifying observations that are relevant to the development of policy. Principal among these would be that states have generated a consensus that informal („under the table“ or „cash“) employment has consequences that reverberate throughout the formal institutional system, undermining the rule of law while also depriving public budgets of tax income, depriving workers of protection in the areas of social welfare, safety and health, and increasing future burdens on the public in the form of unfinanced obligations for health and elder care. Enhanced inspection and enforcement was partly successful in addressing issues related to informal employment, but the most productive initiatives were ones that met the following criteria: i) they provided legal avenues by which workers could seek employment and, in the case of migrant workers, regulate their eligibility to participate in labour markets; ii) they made the process of complying with labour law faster, simpler, and less burdensome for employers, thereby reducing both transaction costs and the perceived benefit of informality; iii) they integrated campaigns to inform the public of the need for compliance and the means to achieve it. In general these insights converge around the principle that informal practices emerge as consequences of inefficient regulation and unmet needs, and that while enforcement is of course a necessity, the successful assertion of the rule of law also requires transparent procedures for addressing unmet needs, bureaucratic processes that make compliance easier rather than more difficult, and widespread knowledge and understanding among the public about the interests and purposes of formal regulation. ← 18 | 19 →
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1 INFORM is a project that brings together teams from nine European countries – Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro, Serbia and Slovenia – to conduct multidisciplinary social science research on formal and informal institutions in the Balkans. The three-year research project, launched in March 2016, is carried out in the framework of the Eruopean Union’s Horizon 2020 research and innovation programme under grant agreement No. 693537. This book is one of the outcomes of INFORM project, in which the authors provide empirical evidence and related policy implications from the interactions of formal and informal institutions in the process of Europeanisation of the Western Balkan states, including the spheres of politics, economy and everyday life.
2 A recent iteration of the slogan appears as the title of an analysis of transgender equality initiatives in Serbia by Jelena Simić, „Hteli smo najbolje, a ispalo je kao i obično,“ Peščanik, 28 December 2017, available online at: https://pescanik.net/hteli-smo-najbolje-a-ispalo-je-kao-i-obicno/.