Croatia: far from Euro?

Finance Minister Slavko Linic – Photo: Boris Scitar/PIXSELL

At the meeting that put together the new leadership of the Croatian Social Democrats party (currently in government), June 16, minister of finance Slavko Linic said that new rises in prices were not dependent on the ministry of finances and that the prices of food, shoes and clothing did not rise with the increase of PDV (goods and services taxes). He said that it’s to be expected that once Croatia enters the EU the price of energy will be similar to those in Europe.

Social politics that ensure everyone has cheap energy, including the ministers whose income is higher, is unsustainable. The hits created by changes in the prices of energy must in some way be alleviated by social programs,” he said.

The contradictions in this statement by Linic seem to confuse. One the one hand Linic says social politics where energy is cheap can’t be sustained and on the other he says social politics must alleviate the pressure of price rises!

How a social program could alleviate the burden of higher energy prices, and therefore the burdensome pressure on living standards, Linic does not say. It is though reasonable to assume that Linic might be considering some forms of cash assistance to families/individuals, or subsidies to industry. If so this would mean more borrowing by the government, which in turn further  spells disaster “a la Greece”.

During last week Linic said that Croatia is far from adopting the Euro because it will take a while to narrow its budget deficit to less than the European Union’s limit of 3 percent of gross domestic product (GDP).

Linic said that his government’s task in the next for years was to strengthen the economy and undertake reforms of the health and pension systems.

Croatia proposed 4 billion kuna ($700 million) in budget cuts in January to narrow the budget deficit to 3.8 percent of GDP from 5.5 percent in 2011. The government has forecast the economy will grow 0.8 percent this year, while the World Bank predicted a 1 percent decline.

It’s been almost seven months since the Social Democrats (SDP) came into government (leading the Cock-a-doodle-doo/Kukuriku coalition) and no real changes to economic trends that may indicate recovery (however small) can be seen. SDP has launched many “ideas” (programs) for reforms however these ideas remain just that; no results are visible. Even president Ivo Josipovic agrees with this.

It would not be the end of the world if Croatia does not reach the economic standards “required” to contemplate and introduce Euro as its currency; a country can be a member of European Union without adopting the Euro, however inability to improve the economy, inability to increase the buying and earning power of individual citizens amidst rising living costs is dire. It, therefore, remains to be seen whether Linic and Croatian government are actually contemplating “social programs” similar to those former communist Yugoslavia that fostered a false economy based on borrowed money and handouts where actual and adequate GDP in many cases was incidental or often overlooked. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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