Croatia Braces For Year Of Cuts

By Boris Pavelic

If Croatia wants to avoid a so-called “Greek scenario”, the new government will have to cut 9 billion kuna (1.1 billion euros) from the 120-billion kuna state budget – 8 per cent.

That message from the Croatian national bank governor, Zeljko Rohatinski, sent recently to the newly elected Croatian government, illustrates the severity of the economic situation facing the country in the coming year.

That economic issues will be the main topic in 2012 is something all analysts agree on. For three years in a row Croatia has not found a real exit from its ongoing economic crisis and predictions are that 2012 will bring further problems.

Since the global crisis started affecting the country directly in 2009, Croatia’s GDP fell by almost 8 per cent. The World Bank predicts that Croatia, like other countries in southeast Europe, risks tipping into recession next year, with a 1 per cent fall of GDP and a further increase in the deficit that could reach 60 per cent of GDP.

Spending cuts ahead

The new government, led by Zoran Milanovic’s Social Democratic Party, which defeated the Croatian Democratic Union, HDZ, in December 4 elections, has announced “a diet for all”, but says this can be achieved without “painful cuts”.

Responding to the bank’s call to cut the budget by 9 billion, Milanovic’s associates have said they will try to reach that goal.

Cutting public spending, therefore, will be the first measure the new government takes to try to keep Croatia’s credit rating stable just above “junk” level, government officials have announced.

“We can’t give away a single kuna any longer,” Radimir Cacic, who is expected to become the vice-premiere in Milanovic’s government, said.

The new government has said it will present a new state budget by mid-February, reducing the budget immediately by 5 billion kuna and reaching 9 billion later in the spring.

The cuts should not affect socially vulnerable groups such as pensioners, but will target the over-staffed public sector and the privileged pensions currently awarded to politicians and war veterans, the government announced.

Politically, 2012 will start with a referendum on EU accession, scheduled for January 22.

According to the last polls published in November, before Croatia signed its EU Accession Treaty on December 9, public support for joining the EU has increased over several months to between 53 and 61 per cent.

President Ivo Josipovic, who strongly supported Croatia’s EU accession, said that he would be satisfied if the referendum recorded a 70 per cent vote in favour.

Josipovic recently also said he expected Croatian diplomats to lobby for the quickest possible ratification of Croatia’s EU Accession Treaty in all EU member states after the referendum, so that Croatia can become a full member as scheduled, on July 1, 2013.

Referendum plans

Parallel to the state budget, one of the new government’s preoccupations will be running the public campaign encouraging a high turnout in the referendum and a high “Yes“ vote.

The previous HDZ government had planned a similar campaign, but the general election then intervened in the second half of 2011. Croatia’s political class then tacitly agreed that the EU referendum campaign would re-start in full after the elections.

Croatia’s EU accession may encounter some obstacles in Europe in 2012. Several EU member states have announced they will not start ratifying Croatia’s EU Accession Treaty before the European Commission issues its first monitoring report on Croatia in the spring.

Croatia remains under EC monitoring, especially in the field of judiciary, investigating war crimes and shipyard privatisation, which will continue until it becomes an EU member state.

It remains possible that some countries could slow down the ratification process if the two monitoring reports in 2012 show Croatia making insufficient progress in these fields.

Good neighbours

Foreign policy could see intensive changes in the coming year. The new government has announced a more open approach to neighbouring countries, inspired by the EU values of good neighbourly cooperation, which the new government claims to embrace.

“In the next parliamentary term two main pillars of Croatia’s foreign policy will be positioning Croatia in EU institutions and improving relations in the region,” foreign minister designate Vesna Pusic announced.

Pusic said the country was mulling mutual withdrawal of the genocide libels that Croatia and Serbia have submitted to the International Court of Justice, ICJ, in The Hague.

Pusic’s suggestions drew an immediate positive response from Belgrade.

To fulfill that possibility, Pusic explained, Croatia and Serbia would have to reach an international agreement on outstanding postwar issues, including the fate of missing person in the war, war crimes and the return of stolen cultural heritage to Croatia.

“If such an agreement can be reached, it is better to negotiate and solve the problems than turn them into a cause for quarrel,” Pusic said.

The new government also promised to help the EU accession process of other countries in the region. It has said it will not block neighbouring countries’ EU and NATO membership ambitions in the way that Greece has blocked Macedonia for example, or in the way that Slovenia blocked Croatia for several months, citing an unresolved border dispute.

Pusic has also proposed an international conference on Bosnia and Herzegovina at which a regional political consensus should be reached on Bosnia’s accession to NATO.