Croatia: Dreaming of no-strings membership
1 December 2011
On 4 December, voters in Croatia will elect a new parliament. A few days later, Zagreb is set to sign its accession to the European Union. However, before it officially becomes part of the EU in July 2013, the country will have to implement far reaching reforms, which neither the government or the opposition appear ready to announce to their fellow citizens.
Croatia is not Greece or Spain. Prime Minister, Mrs Jadranka Kosor, is neither George Papandrou or José Luis Rodríguez Zapatero. The leader of the social-democrat opposition, Zoran Milanovic, is certainly not Lucas Papademos, Mario Monti or Mariano Rajoy.
The debt, unemployment, recession and endless political scandals that have rocked Croatia, a modest Mediterranean country on the edge of Cental Europe, which is now knocking on Europe’s door, clearly have no influence on the fate of the euro. Even Der Spiegel, which is renowned for its critical positions, is convinced that Croatia still deserves its ticket to Europe, which has not been obtained without effort.
The economic situation in Croatia is getting worse, but, Europe and Washington, faced with much more serious problems, are not unduly bothered that Croatia’s public debt is very close to the limit authorised by the criteria for euro convergence (it has already reached 57% of GDP). Nor that unemployment continues to rise, even at the height of the tourist season, and that Croatia has not reported any sign of economic recovery. And finally, that its sovereign bonds, which are already offering yields of close to 7%, will be severely tested for the first time on 15 March.
Not yet on the brink of bankruptcy
Croatia is close to (if it has not exceeded them already) the indicators that prompted the European crisis, even if it has less debt than Greece, fewer jobless than Spain where unemployment is setting new records, and lower rates of interest on its sovereign bonds than Italy. In fact, Croatia has less debt than most Eurozone countries, but growth has ground to a halt, reforms along with investment in new technologies have been frozen, and investors have turned their backs.
Between now and its accession to the EU (in July 2013), it will have to conclude the privatisation and restructuring of its shipyards. And, if there is no significant change, its public spending deficit will continue to grow (it currently stands at between 15 and 17 billion kunas – 2 to 2.3 billion euros), and it will take Croatia 77 and not 7 years to join the Eurozone.
Croatia is not yet on the brink of bankruptcy, but with current policies, it only has three or four years grace, points out Zeljko Lovrincevic, the economic adviser to Jadranka Kosor. According to Mate Crkvenac, a former minister of finance in the 2000-2004 social-democrat government, the economic situation is even worse than it was in the year 2000, and Croatian living standards have declined by at least 20%.
When "big" countries are being struck by crisis, it can be an advantage to be a “small” state, unless, like Croatia, you just happen to have the only economy in the region that has fallen victim to recession – a situation that is made all the more problematic by the fact that for many years Croatia, along with Slovenia, was a motor for regional development. "Small" countries are less contagious than their larger peers (for proof look no further than the fear inspired by Italy, which is the Eurozone’s third largest economy), but once it has joined the EU, Croatia will be subject to the same rules.
It follows that Zoran Milanovic, who the polls have tipped to win the general elections on 4 December, will be obliged to fly to Brussels just after the vote, as Mario Monti and Lucas Papademos did before him. Thereafter, if the budget monitoring measures recently proposed by Brussels are accepted, he will also be obliged to submit his government’s budgets to the European Commission, even before they are approved by the Croat parliament.
The new Spanish Prime Minister Mariano Rajoy has publicly pledged obedience to Brussels and has linked the future of Spain to the European Central Bank. This is not the case in Croatia, where we are dreaming of an entry into the Eurozone that does not require any further commitments. We are told that nothing will change – notably with regard to the privileges enjoyed by certain categories of the population – or at least there will no price to pay. "No one will be laid off," or so they say. In the meantime, a whole year has been wasted. And, for Croatia, the wake-up call could prove to be unpleasant