A Brief Profile of Croatia in light ot is accession to the EU in July

By Aggelos Zikos & Konstantinos Papanikolaou

HISTORICAL AND FINANCIAL ASPECTS OF CONTEMPORARY
CROATIA

Croatia was a constituent part of the former Federal Yugoslavia since
the end of WWII. The end of the Cold War and the conflict of the local
nationalist movements brought the collapse of the biggest state in
Balkans in early 1990’s. Croatia followed the example of Slovenia and
declared its independence in 1991. Until 1995, Croatian forces aided
by NATO defeated the Serbian army and paramilitary organizations in
a conflict that caused thousands of deaths and further aggravated the
relations between the people of former Yugoslavia. Croatia, which had
been one of the wealthiest parts of former Yugoslavia, suffered badly
during 1991-1995. The loss in human lives and in the economic
structures were serious enough to delay the evolution of the country
after the war for more than a decade.1

Croatia is a service-based economy (70% of GDP). Tourism is
considered as the main economic activity, given its share in GDP and
employment. Shipbuilding and chemical industry constitute about
25% of GDP and make an important contribution in exports.2 Croatia
faces major financial and social challenges in face of its entry into the
E.U. The financial and debt crisis of the Eurozone aggravate the
severe problems that already existed in the Croatian economy even
more, such as a high unemployment rate (19% in 2012), a rising
percentage of public debt (66%, in 2012) and also a high percentage

ofpopulation below the poverty line (21% in 2011). Croatia’s economy
has been in recession since 2008, thus lowering the level of GDP by
more than 10%. This makes one of the greatest challenges that both
the European and Croatian authorities have to face during and after
accession.3
Standard and Poor’s downgraded Croatia in December 2012 to
the lowest investment status, known as “junk”. The ex prime minister
Z. Milanovic rebuffed suggestions that the country would need a
bailout from the IMF.4 Moreover, Moody’s downgraded Croatia’s credit
rating from Baa3 to Ba1, citing poor economic growth prospects and
the government’s lack of fiscal flexibility. The report stated that “the
government’s capacity to re-balance the economy toward exports is
intrinsically limited. The country’s expected forthcoming E.U.
accession is a positive development… however, the European
economic environment and the government’s reform inertia are likely
to limit the benefits expected to arise from E.U. accession”.5

Croatia 28th member puzzle

CHANGES IN THE EU POLICIES AND INSTITUTIONS CAUSED
BY ACCESSION OF CROATIA

In the context of Cohesion Policy, the entry of Croatia will add two
regions in the NUTS system, the region of Continental Croatia (64.1%
of EU average GDP) and the region of Adriatic Croatia (62.1% of EU
average GDP). Although the Croatian government had previously
mooted plans to divide Croatia into five separate regions, including
one which would encompass the capital city, the European
Commission did not allow this specific way of dividing up regions.6
Regarding the financial means that will be in the disposal of the
Croatian authorities after complete accession, in the second half of
2013, the total EU funds approved for Croatia will be 687,5 million
euro. On the contrary, Croatia’s payments to the EU budget in the
same period of time are estimated to 267,7 million euro.
According to the multiannual financial framework for the
period 2014-2020, total funds earmarked for Croatia amount to 13.7
billion € approximately. Concerning the funds, the majority will be
absorbed by projects on the improvement of the transport
infrastructures (a critical sector for the economy of Croatia) and
supporting the modernisation and competitiveness of small and
medium enterprises (SMEs), which constitute the base of Croatian
economy. The rest of the amount will be absorbed by the agricultural
sector and green investments.7 The inflow of FDI particularly by the
main economic partners such as Italy, Austria or Germany is one of
the main expectations of the Croatian authorities by the partial
accession of the country in the Single Market. Foreign direct
investments declined since 2009, indicating an unfavorable
investment environment in the country.
Regarding the entry into the Schengen Zone, the low
performance of the country in the field of confrontation of illegal
immigration and organized crime creates obstacles. Several memberstates
have set stricter criteria in relation to the previous round of
Balkan enlargement (Bulgaria & Romania in 2007). It is estimated
that Croatia would enter the Schengen Zone in 2015 if the country
fulfills all the necessary criteria. Surveillance of the state’s internal
borders, surveillance of land, sea and air borders, issuing of visas,
police cooperation and protection of data are the aspects to be
integrated into the Schengen information system.8
Regarding the participation in the European Parliament, after
July 1, 2013 and the definite accession in the E.U., Croatia will
participate with twelve deputy MPs. The elections for 12 members of
the European Parliament were held in April 14, 2013 and were
characterised by a low turnout of 20,74%. The opposition centre-right
HDZ party won 6 MEP seats with 33,1% votes, whereas the ruling
SDP came second with 31,5%, thus gaining 5 seats. The nationalist
Labour Party obtained 5,7% of the votes and gained 1 seat.9 They will
then lose their posts about a year later, with a new set of Croatian
MEPs to be chosen as part of the general EU election in mid-2014.
Regarding the participation of the new Balkan member-state in the
European Council and in the Council of the European Union, Croatia
will have seven votes. After definite accession, Croatia will also hold
an additional seat in the European Commission. The European
Commission announced the placement of Neven Mimica in the EU
Consumer Protection portfolio. This placement means that the Health
and Consumer Protection portfolio of Maltese Commissioner T. Borg
will be split in two. The Croatian commissioner had been expected to
take a “Tourism” portfolio because of the country’s well-developed
tourism sector. However such portfolio does not already exist and
tourism falls under the Industry and Entrepreneurship portfolio.10

Croatia map

THE DEBATE ON CROATIAN ACCESSION

The accession of Croatia has been a topic of much debate, either
domestically or internationally; it has been a so called “hot potato” –
proof thereof being the numerous hard approaches put forward by
prominent analysts and pro-expansionist countries, such as an article
on the CNN entitled “Did Croatia get lucky on EU-membership?” In this
article, a prominent British researcher is quoted, expressing the view
that Croatia’s accession has been a case not only of luck, but also of
the right “friends in the right places”.11
The reasons for such skepticism, or even open opposition to the
accession of Croatia, lay in numerous problematic spots and burdens
of the -not so distant- Croatian past. For example, Srdoc and Samyco-
founders of the Adriatic Institute for Public Policy who specialize on
Croatia and its economy- emphasize the need for extensive reforms, in
order to rid the country of ill-mentalities of the past, involving the
corruption of high-ranking state officials and politicians and the
embezzlement of huge amounts of money.12 The latter derived from
various illegal activities, such as the illegal sale of passports, the
smuggling of weapons, women and drugs through the nefarious
“Balkan Route” (from Afghanistan-Pakistan through Iran and towards
Europe), bribing of officials or tax evasion. In light of these problems
and the accompanying high levels of criminality and corruption, the
writers suggest that the EU rethinks its policy of financial aid towards
Croatia and call for its association with the much needed reforms,
starting from the judiciary system. The intensity of the problem of
human trafficking is further illustrated by concerns of the British MPs,
expressed during a debate in parliament on British ratification of
Croatia’s entry treaty, in November 2012.13 The main topic of concern
was the over-expansion of Community borders which weakens border
controls – a problem that is further aggravated by the unreliability of
the Croatian police force, and potentially leads to the inflow of illegal
immigrants. In support of Croatian accession, deputy foreign minister
David Liddington stressed out the fact that Croatia has no intentions
of joining the Schengen area before 2015 – until then the British
government will be able to impose its restrictions on the number of
Croatian workers to work in the UK, whereas the EU has reserved the
ability for itself to suspend the full-membership of a country, in case
that it fails to comply with the fundamental standards of human
rights and democratic values stated in the Community acquis.
Even in pro-European countries, however, further enlargement
does not come without skepticism. For example, in a rather surprising
statement in October 2012, just a few months before the declared date
of accession, the Bundestag leader, Norbert Lammert, said that
Croatia was not yet ready to join the EU. 14 In his view, the
enlargement of the EU should freeze until consolidation and
stabilization have been achieved among the already existing members.
Although this statement was made on a personal rather than national
level, the official position of the German government was not without
reservation concerning some “remaining deficiencies” which should be
tackled “within the stated timeframe”.
On their side, Croatians are equally skeptical -but at the same
time enthusiastic- about the prospect of inflowing Community funds.
Among many concerns, the director of S&B regional development
agency, Stejpan Ribic, stresses the differences in the development of
the resulting two NUTSII regions of Croatia, namely Continental and
Adriatic Croatia. 15 The disparities within regions themselves, along
with their unequal economic dynamics, forebode their consequent
unequal access to EU aid money. Prominent Ivo Josipovi, president of
Croatia, has explained how Croatians view the EU: “as highly
developed, where everyday life is easier and more successful than in
other countries.” This makes the EU an attractive dream, whereas he
views the crisis as the only setback for a similar approach in the
future.16 After all, the referendum of January 2012 revealed that the
two thirds of Croatians are in favor of the accession, although the
turnout of the voters was low (43,67% of a total 1,955,326 voters),
thus reaffirming the tendency of low involvement of the citizens with
European affairs. Vice President of Croatian government Domagoj Ivan
Milošević expressed his conviction that the country’s participation in
the free market will boost investments. In the same spirit, Croatian
businessmen appear optimistic and stress potential benefits for
tourism and other sectors, while underpinning the various
accompanying benefits from EU funding.
On the other side lay the economists who retain their objections
and doubts, such as Zoran Aralica of the Institute of Economics of
Zagreb, who point out the numerous risks arising from participation
in the free market. Croatian enterprises lack the technical knowledge
and capabilities to carry out transactions with the new regional
markets of Europe, whereas SMEs are particularly exposed, as they
could find themselves in disadvantage in their attempt to penetrate
into an expanded market; their lack of competitiveness could have
such negative effects as losing the already existing markets they
operate in. Like many others, the economist concludes by stressing
the importance of potential inflows of Community funds, which have
to be secured through increased government readiness to draw
complete, mature and feasible plans eligible for funding.17 In relation
to political theory, this thesis seems to be in line with the findings of
Bourantonis et al., who suggest that financial transfers concerning
regional policy affect in the long-run the acceptance of European
integration by the citizens of the member-states.18
The process of ratification by national parliaments is still
pending, as a number of countries have expressed their intention to
wait until the publication of the latest progress report of the European
Commission, which is expected to verify whether Croatia has
remained faithful to its ten remaining commitments, as they were
specified in the previous report of October. By this time, the
parliaments of Slovenia, Germany and Denmark have not ratified the
Accession Treaty yet.19

Croatia flag

THE PROCESS OF NEGOTIATION: POINTS OF FRICTION

One major issue that hampered the process of negotiation has been
the border dispute between Croatia and Slovenia, the latter
demanding that the issue was settled before the accession. As a result,
the negotiating process was frozen for 10 months, until April 2010
when Slovenia decided to vote in favor and without prejudice of the
international mediation in the border dispute. 20 The dispute dates
back to 1991, when the two countries became independent from the
Yugoslav state. Slovenia’s main concern has been a possible inhibition
of its access to the sea, due to its restricted coastline.
The next major issue was the referral of numerous Croatian
citizens to the International Criminal Tribunal for the Former
Yugoslavia (ICTY), for war crimes they had committed during the war
of 1995. After all, the insistence of the EU on the rule of law and
respect for human rights is indicative of its requirements, not only of
its member-states but also of its partner-countries, with which it
maintains commercial relations (the case of Russia is such an
example, as it is one of the major energy suppliers of the EU, whereas
it has often been blamed for infringements of the human rights of its
citizens). In the end, the Croatian government decided to fully
cooperate with the Hague tribunal, acknowledging that the overseeing
of Croatia’s adaptation efforts by the EU bodies has been crucial for
the implementation of necessary reforms.21
As already mentioned, a monitoring report on Croatia by the
European Commission is expected to be published in March 2013, in
order for the level of preparedness of Croatia to be defined. According
to the Commission’s previous report in last October, a number of
obligations require further efforts by Croatia, so that it will be fully
prepared by the declared date of accession, i.e. 1st of July. The issues
under question are the following: signing of a privatization contract for
the Brodotrogir shipyards; implementation of proposed measures for
the better functioning of the judicial system; adoption of new
enforcement legislation, in order to ensure better execution of court
decisions; establishment of the Conflict of Interest Commission;
adoption of a new law on the access of information; adoption of bylaws
to ensure the implementation of police law; construction of border
crossing points at the Neum corridor; achievement of recruitment
targets for better border police controls; completion of migration
strategy for the optimal integration of migrants; full translation of the
Community acquis before accession (114,000 out of the 144,00 pages
have been translated so far); accreditation of the agency for payments
in agriculture.22

 


References

1Tanner, Marcus (2001), “Croatia: A nation forged in war”, Yale University Press
2International Monetary Fund, Republic of Croatia and the IMF, 20-04-2012, available at:
<http://www.imf.org/external/country/hrv/>3The report of the European Bank for Reconstruction underlines that “overall lack of competitiveness
in the economy, accession may help to revive confidence and investment.”
4 Bloomberg News, Croatia Debt Rating Cut to Junk by S&P, 14-12-2012, available at:
<http://www.bloomberg.com/news/2012-12-14/croatia-debt-rating-cut-to-junk-by-s-p-on-lack-offiscal-
resolve.html>
5 Reuters News, Moody’s Downgrades Croatia, 31-01-2013, available at:
<http://www.rE.U.ters.com/article/2013/02/01/ratings-croatia-idUSWNA000XJ20130201&gt;

6 EU Observer, available at: <euobserver.com/regions/1175989>
7Position of the Commission Services on the development of Partnership Agreement and programmes
in the republic of Croatia for the period 2014-2020, available at: <http://bit.ly/YE0RWH&gt;

8 Croatian Times News, Croatia Could be in Schengen by 2015, 07-02-2011, available at:
<http://croatiantimes.com/?id=16990&gt;
9 EURACTIV, Croatia’s First European Election Marked by Low Turn-Out, 15-04-2013, available at:
<http://www.euractiv.com/elections/low-turnout-marks-croatia-europe-news-519099&gt;
10 EURACTIV, Croatia Handed EU Consumer Protection Portfolio, 26-04-2013, available at:
<http://www.euractiv.com/enlargement/croatia-commissioner-attributed-news-519388&gt;

11 CNN News, Did Croatia Get Lucky on EU Membership?, 21-01-2013, available at:
<http://edition.cnn.com/2013/01/10/business/croatia-eu-accession&gt;

12 EU Observer, EU Should Stop Funding Croatia’s Corrupt Networks, 17-01-2013, available at:
<http://euobserver.com/opinion/118760&gt;
13 EU Observer, British MPs Question Croatia’s EU Credentials, 07-11-2012, available at:
<http://euobserver.com/enlargement/118118&gt;

14 Euractiv, German Skepticism on EU Enlargement Hits at Croatia, 15-10-2012, available at:
<http://www.euractiv.com/enlargement/german-enlargement-skepticism-hi-news-515410&gt;
15 EU Observer, Miffed Croatian Region Fears Unequal Access to EU Money, 15-10-2012, available at:
<http://euobserver.com/regions/117598&gt;
16 Euractiv, Europe? An Opera With a Happy Ending, Says Croatian President, 06-06-2012, available
at: <http://www.euractiv.com/enlargement/europe-opera-happy-croatian-pres-news-513133&gt;

17 Southeastern Times, Η Ένταξη της Κροατίας στην ΕΕ και η Οικονομία, 05-08-2011, available at:
<http://www.setimes.com/cocoon/setimes/xhtml/el/features/setimes/features/2011/08/05/feature-05&gt;
18Buradonis, D. & Kalyvitis, S. & Tsoustoplides C. (1998) “The European Union and Greece: Political
Acceptability and Financial Transfers”, στο Politics, Vol. 18, No. 2, May 1998: pp. 89-99.
19 EUROPA, Treaty of Croatia’s Accession to the E.U.-Ratification Process, available at:
<http://www.delhrv.ec.europa.eu/?lang=en&content=3935&gt;

20 BBC News, Slovenia Unblocks Croatian EU Bid, 11-09-2009, available at:
<http://news.bbc.co.uk/2/hi/europe/8250441.stm&gt;
21 EURACTIV, Croatia Sees Breakthrough in EU Talks, 15-06-2010, available at:
<http://www.euractiv.com/enlargement/croatia-sees-breakthrough-eu-tal-news-495240&gt;
22Commission Staff Working Document, Comprehensive Monitoring Report on Croatia, 10-10-2012,
available at:
<http://ec.europa.eu/enlargement/pdf/key_documents/2012/package/hr_analytical_2012_en.pdf&gt;

Original post: <http://eeep.pspa.uoa.gr/publications/policy-briefs.html>

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