Warning: Eurozone Turbulence Ahead For Croatia

Croatia’s Prime Minister
Andrej Plenkovic

 

According to Prime Minister Andrej Plenkovic’s words on Monday 30 October 2017 at an economic conference devoted to the introduction of the euro in Croatia, Croatia aims to become a Eurozone member within the next seven to eight years.

So now what? Can the madness of Eurozone failure and struggle be stopped from infecting Croatia? The United Kingdom’s 2016 shock referendum vote for Brexit was a warning about the gap between angry voters and pro-immigration, pro-globalisation élites. Globalisation in the eyes of those that voted for Brexit would rather apply to spreading ones country’s interests across the globe than being a part of a melting-pot of countries tied by a union, such as the EU, in which pot some countries suffer while others, particularly the bigger ones, benefit. As Jean-Claude Juncker, the president of the European Commission, has memorably said in 2014 on Eurozone economic policy and democracy, “We all know what to do, but we don’t know how to get re-elected after we’ve done it.” That doesn’t sound like a prediction of radical reform. It’s a dangerous moment for Europe.

In 1992, the European Union made what the Nobel Prize-winning economist Joseph Stiglitz in August of 2016 called “a fatal decision”: the choice “to adopt a single currency, without providing for the institutions that would make it work.”  In “The Euro: How a Common Currency Threatens the Future of Europe” (Norton), Stiglitz lucidly and forcefully argues that this was an economic experiment of unprecedented magnitude: “No one had ever tried a monetary union on such a scale, among so many countries that were so disparate.”

When Lehman Brothers collapsed, in September, 2008, and the global financial crisis hit, all Western economies went into recession, but the Eurozone countries suffered the most and for the longest. The U.S. unemployment rate hit ten per cent for a single month in 2009 and is now below five per cent; the Eurozone unemployment rate hit ten per cent around the same time, and it was only in July 2017 that it fell just below that figure while in individual countries there it still lingers in double digits. The Eurozone’s economy is smaller than it was when the crisis hit and many world’s top economy experts, including Stiglitz, the euro is to blame for all this underperformance. But let’s say the euro can’t be blamed for everything economically grim in the Eurozone and if it’s not only the euro then one can safely argue that the economic politics attached to it certainly complete the picture of failure causes. Eurozone takes away the two main monetary tools a country can use to manage its economy. The first is to cut interest rates in order to stimulate demand and the second is to reduce the value of the currency in order to stimulate exports.

In Europe, the first thing that happened after the crisis was that all the bubbles popped. The “peripheral” countries suffered dramatic economic contractions, compounded by bank implosions, and had to appeal for financial assistance to avert complete collapse. To make things even darker, a complex mixture of international politics, economics, and law meant that the body that stepped in to help the crisis economies was a triple-headed entity, the Troika, made up of the European Commission, the European Central Bank, and the International Monetary Fund.

The Troika had strong views about how the afflicted economies should be fixed. They rolled into town demanding austerity, meaning severe cuts to government spending, and structural reform, meaning changes to the way a country’s economy works. They doled out money on the condition that these policies were implemented, and accompanied the package with fancy charts showing how the economy was going to recover after the austerity medicine took effect. It is, if you have a twisted sense of humour, just possible to see the funny side of these bailout-and-austerity packages, especially the ones concerning Greece. The numbers are grim, and the human realities are worse—joblessness, hopelessness, forced emigration, spikes in the suicide rate.

The pendulum swings no differently in Croatia. It has not all this time been a member of the Eurozone, but has since 2013 as member state of EU been affected by the Troika medicine, or should we say – infection.

And now we have Croatia revving to jump into the Eurozone disaster zone! One wonders how much of the revving fuel is contained in a wild notion of romanticising about the saving power of Eurozone amidst current threats of bankrupting Croatia that are unfolding in dealing with “Agrokor” disaster and corruption has been poured into the political plights to save Croatia’s government from falling – yet again!

“We don’t want to specify the exact dates, but we want Croatia to become a euro zone member within two government terms in office,” Plenkovic said during the conference on 30 October 2017, continuing: “We have two key aims – one is to join the Schengen area, or rather be ready for the political decision in 2019, and the other is to join the Eurozone.”

EU members that have not yet adopted the euro are expected to spend at least two years in the Exchange Rate Mechanism (ERM) II, a mechanism aimed to ensure currency stability before joining the eurozone.

Plenkovic’s centre-right HDZ government came to power in 2016, three years after Croatia joined the EU. Croatia is still one of the poorest member states and its economy contracted steadily from 2008 to 2015, with a mild rebound in the last two years. The Croatian central bank already keeps the kuna currency in a narrowly managed float, with minor fluctuations during the year, and steps in to prevent sharp changes by intervening on the local exchange market.

The toughest challenge for Croatia to join the Eurozone will be bringing the public debt level to below 60% of GDP. It is slightly above 80% of GDP now. “Our goal is to reduce the public debt to 72% of GDP by 2020 … We are undertaking a major fiscal consolidation and this year the budget gap will be even lower than last year’s 0.9% of GDP,” Plenkovic said.

Central Bank Governor Boris Vujcic said Croatia was the most “euroised” EU country of those that had not yet adopted the euro (Czech Republic, Poland, Hungary, Croatia, Romania and Bulgaria).

“Some 75% of local deposits and 67% of local debt is denominated in the euro. Some 60% of Croatia’s trade exchange is related to the euro zone, while 70% of tourism receipts comes from the euro zone countries,” Vujcic told the conference.

It is, however, crystal clear that over time the EU  has no longer been pursuing the route of a free trade area but it became increasingly politicised, and the idea was to set up a centralised power structure in Brussels to transfer national sovereignty rights on to the supranational decision making structure. Now the EU policy is about interventionism, they try to interfere in all sorts of economic and social fields to push through all kinds of political concepts and that’s a very dangerous idea. This being so, one cannot quietly and compliantly accept Prime Miniser Andrej Plenkovic’s statement from 30 October 2017 in which he said: “We said yes to the Eurozone when we joined the EU. The reason we’re not there yet is that we still have to meet all the criteria and not because we need the political decision.” This only gives muscle to the EU political battle for survival while living standards in Croatia keep plummeting and working-age people keep emigrating in droves. What a mess! It’s a mess that can possibly be sorted to benefit Croatia, rather than the EU, by people political power. If Croatia’s government keeps referring to the EU referendum of 2012 as something Croatian people committed themselves to then the reality and people-legitimacy of that referendum needs to be re-examined. It was, after all, a referendum at which barely 29% of Croatian voters turned out for voting! Ina Vukic

Croatia Drowning Its Diaspora In EU Financial Problems

 

One would need to be totally blind, or stupid, not to see the politically orchestrated communications from the pro-EU-leaning leftist Croatian mainstream media and European Commission (EC) President Jean-Claude Juncker’s announcement mid-last week. Croatia’s so-called demographic experts say that Croatia could take at least 50,000 new immigrants in short-term to make up for the potential work-force losses that emerged through mass exodus of people due to unemployment the day before EC’s Juncker in his annual state of the union speech made an announcement regarding “swift inclusion in Europe’s visa-free Schengen area”. The fact that there was no reference to the rich and large Croatian diaspora as part of Croatia’s demographic “experts” contemplating immigration earns concern and utter disillusionment; after all, Croatia’s government’s mouth is full of calling upon the Croats from the diaspora to return to Croatia! Were this not a lip service only, there would, one justifiably expects, have been some kind of Croatian government reaction to the mainstream media immigration claims, stating its position on the progress of any plans targeting the diaspora return to bolster workforce deficit.

Both Bulgaria and Romania should be swiftly included in Europe’s visa-free Schengen area, said in his annual state of the union speech Wednesday 13 September, adding that Croatia also deserves full membership of the zone.

If we are to have a stronger European Union, it needs to be more inclusive too. If we want to bolster our external borders, and rightly so, then it is high time to bring Romania and Bulgaria into the Schengen area. Croatia too deserves full membership of the Schengen area as soon as all of the criteria are met,” Juncker said.

Juncker’s story emerged as a story hardly anyone foresaw. According to his claims the Eurozone is growing faster than the United States! Europe’s booming economy was near the top of Juncker’s topic list. Ten years since the crisis struck, “Europe’s economy is finally bouncing back,” the European commission president told MEPs, declaring: “the wind is back in Europe’s sails”.

The Eurozone might overall be doing better, but this masks the fact that the crisis sweeping it during the past few years has left deep scars and many wounds are far from healed. In France, the economy is expanding at an annualised rate of 1.7%, fuelled by confidence in French president Emmanuel Macron and his reform agenda, but growth continues to lag the Eurozone average. Germany’s economy remains solid, but Germans are increasingly worried about inequality and low-wage jobs. Spain has bounced back from the crisis, but inequality is rising and unemployment remains painfully high at 17% – second only to Greece. Italy’s economy is doing better, but worries remain over its heavily indebted banks. Despite the rapid pace of job creation, Eurozone unemployment remains high at 9.1%, worse than the EU 7.7% average and the US 4.3%.

Juncker’s boasting that the Eurozone is doing better than the US certainly does not seem to be supported by the actual unemployment figures. High unemployment figures ripple with negative and suppressing effects on other areas and this is at the top of the list of reasons why the Eurozone is looking for economic reforms, especially keeping an eye at the Macron’s proposals for far-reaching labour reforms in France, which would reportedly make it easier for the young and low-qualified to enter the labour market. There are those who believe that Macron’s formula of reforms could kick-off a golden age for the Eurozone, hence, it is expected that Macron will unfold a detailed blueprint of his labour reforms plans, which include a Eurozone finance minister and parliament, a couple of days after September 2017 elections in Germany.

In the push to transition the Eurozone from an imperfect monetary union into a solid economic continent is reflected in Juncker’s proposals that include significantly more help for all EU member countries so that the ones who already haven’t could to join the euro, which, he said, would truly make the EU into “the single currency Union”. He further proposed a wide range of institutional changes, including the creation of an EU finance minister and the widening of the Schengen area, in which passport-free travel is allowed and, presumably, workforce mobility between the member countries.

In a call for the presidencies of the European commission and the European council, the body comprising the member states’ leaders, to be combined and directly elected in the future, Juncker said the EU needed to be more flexible and streamlined. “Europe would be easier to understand if one captain was steering the ship,” he said.

According to the Guardian UK report Juncker also put his weight behind calls for the European parliament seats previously held by British MEPs to be elected on a transnational basis.
Juncker added that the council should adopt qualified majority voting, rather than unanimity, on foreign policy issues and drive forward in European defence. “By 2025 we need a fully-fledged European defence union,” he said. “We need it. And NATO wants it.” He also added the EU would establish a European cybersecurity agency. “Cyber-attacks know no borders and no one is immune,” he said.

Juncker told MEPs he intended to start trade talks with Australia and New Zealand, and promised to legislate to protect strategic interests from foreign purchases through industrial screening. Given the Brexit and the CANZUK proposal for increased ties between the nations of Canada, Australia, New Zealand and the United Kingdom one wonders what fight the EU might have on its hands in attempts to encroach on the traditional Commonwealth alliances. While a joint statement from the French, German and Italian governments following Juncker’s speech endorsed the move, the scenario will be most interesting to watch and keep an eye on as, indeed, it spells out new forces muscling in onto the traditional Commonwealth “unity of sorts” inclinations.

Now more than ever it appears that those in Croatia who at the 2012 EU referendum were not in the mood for signing Beethoven’s Ode to Joy are paving the streets with the “I told you so – EU will suck the life out of Croatian hard-earned independence and sovereignty”. While leading political parties fuel divisions on historical lines Croatia has been increasingly sucked into the Eurozone’s financial and economic problems, and unlike Ireland, increasingly neglecting its diaspora that should be its ticket to national prosperity. What a shame! Time to act! Time to pull the diaspora reins in! Ina Vukic

 

Eurozone: A Hobson’s Choice For Croatia

European Commission president  Jean-Claude Juncker welcomes  Croatian President Kolinda Grabar-Kitarovic (R)   prior to a meeting at the EU commission  headquarters in Brussels, Belgium, 30 April 2015.  Photo: EPA/Oliver Hoslet

European Commission president
Jean-Claude Juncker welcomes
Croatian President Kolinda Grabar-Kitarovic (R)
prior to a meeting at the EU commission
headquarters in Brussels, Belgium, 30 April 2015.
Photo: EPA/Oliver Hoslet

Rather often one comes across people debating, surveys taken on whether Croatia should join the Eurozone. The reality, though, is that if Croatia wants to say a member of the European Union it must join the Eurozone, sooner or later. It’s like a Hobson’s choice: Take it or leave it. To qualify for Eurozone membership every EU country (except UK and Denmark) must meet the required Convergence criteria and these are:
• Budget deficit must not exceed 3% of GDP (“Stability and Growth Pact” applies after Euro adoption/ i.e. agreement among EU member states to facilitate and maintain the stability of the Economic and Monetary Union [EMU]);
• Public debt must not exceed 60% of GDP (“Stability and Growth Pact” applies after adoption of Euro too);
• The currency should be stable against the Euro for at least two years – no devaluation;
• Inflation must not be 1.5% points above the average of the three economies with the lowest inflation;
• Interest Rates: Long-term government bond yields must not be more than 2% points higher than in the three lowest inflation member states.

 

 

Croatia has quite a bit of work to do before it satisfies the Eurozone Convergence criteria and on 30 April 2015, in Brussels it transpired from the meeting between European Commission president Jean Claude Juncker and Croatian President Kolinda Grabar-Kitarovic that Croatia does not meet the conditions for Eurozone membership – certainly not before 2020 – but aims to join the Schengen area in a couple of years.

Croatia has a natural vocation to become a member of the Eurozone, but the country has to make many more efforts to achieve that goal’‘ Juncker said, agreeing with Grabar-Kitarovic that ”the earliest date would be 2020”.

Croatia knows that it is necessary to regain control of the public finances and that its deficit is too high”. However, Zagreb could join the Schengen area in a couple of years. ”I hope that in two years inspections will have been completed and that we will have met all the technical criteria to enter the Schengen area”, Grabar-Kitarovic said, also emphasizing the importance of freedom of movement for the Croats. ”We do not want our citizens to leave Croatia, but they should be able to work and establish their own company wherever they want, just like any other EU citizen” the Croatian president said.

 

 

As expected, Croatia’s Prime Minister Zoran Milanovic brushed off a prediction from the opposition-backed president, Kolinda GRabar-Kitarovic, that the country will adopt the euro by 2020 as too optimistic, sharpening a political divide before general elections. Zoran Milanovic, of course, would not know the significance of forward planning, such as nominating a year by which to achieve the positive economic results, then focusing on achieving the plan, if it hit him in the face.

 

 

President Kolinda Grabar-Kitarovic also said in Brussels that Euro adoption in the next five years would help tie the country close to the European Union, its main trading partner and source of tourism revenue. Premier Zoran Milanovic said Croatia would join “when we are ready”! Of course, it cannot be otherwise! But it’s up to his government to ensure readiness as soon as possible because that also means that Croatian economy would pick up to a stable level. He would have done much better had he actually nominated a year by which Croatia would be ready! This way, his failings in governing and leadership are all the more pronounced.

 

 

This Euro petty quarrel seems to have intensified the evident Prime Minister-driven tenseness in relations between the President Grabar-Kitarovic, who scored an opposition-backed victory in a January vote, and Prime Minister Milanovic, who has presided over a recession his entire term (since late 2011) and whose popularity is sinking fast and deep before new elections expected late this year/beginning of 2016.
In talking about the real prospects of reaching the criteria for Eurozone entry, President Grabar-Kitarovic said last week that her experience outside the country gives her an advantage over other domestic politicians on how to return the country to growth and attract investors to diversify the economy. She said the key to preparing the economy for future challenges, including the Euro, lies in more cooperation between employers and employees, and in investors willing to set up businesses in the country’s interior, away from the tourism-dominated Adriatic coast.

 

 

She has called on the Prime Minister to resign for failing to fix the economy. One doubts Milanovic will resign, however one firmly hopes he and his incompetent red lot will not make it across the winning line at the coming general elections.

 

 

So, what would be some advantages for Croatia of membership in the Eurozone:
• Will help elimination of volatile monetary exchange rates, thereby improving business confidence and exports, which would lead to economic growth in Croatia;
• Travellers, tourists between Eurozone member countries no longer have to change money (because currency is common) and save on transactions, which leads to tourism industry boost and greater consumer satisfaction for Croatia;
• European Central Bank strives to keep the interest rates and inflation as low as possible, which would lead to more investments in Croatia;
• Since all member countries have same currency prices are transparent between the countries, which makes it easier for companies and consumers to buy cheaper goods and supplies, which is linked to sustainability and good health of business.

 

 

On the disadvantageous side of being a member of the Eurozone one may see the loss of autonomy over monetary policy as a major drawback. The member countries lose the discretion of using devaluation as a means to boost exports or to borrow more to boost job creation or use fiscal measures such as tax cuts that they deem to be appropriate for their respective country. But so many countries experiencing recession and reaching the verges of bankruptcy have had such autonomy over their monetary policy and yet have made no steps forward, on the contrary, have made the economic woes insurmountably worse.

 

 

So, as far as Croatia is concerned, being a member of the Eurozone can only improve its chances of developing and retaining a vibrant economy. It’s already tied to the Euro, anyway.

 

 

Joining the Eurozone is as much a political question as it is economic. The political benefit plays out as being a part of an inner core and being a part of the Eurozone for Croatia will only cement further its political distance from the Balkan region, in which Croatia never felt comfortable and from which it differed in many ways of life. So, next time I come across a survey about whether it’s good or bad for Croatia to join the Eurozone, I will simply skip it, throw it in the bin. Of course it’s good! Look at the alternative: leave the EU and get pushed into the Balkan region, back to unrest, treachery and hell.

 

 

Unlike the government, the President of Croatia evidently has clear goals for Croatia as far as Eurozone is concerned and one can conclude from this and from what she says that she will endeavour to lift up “the game” in improving the economy, facilitate needed negotiations and partnerships in order to achieve the best results for Croatia. President Grabar-Kitarovic appears focused on stimulating domestic growth in Croatia, on assessing the consequences of reliance upon Global factors and the room for reducing any detrimental effects these have on domestic growth and economic recovery. While some will say that Croatia has no chance in turning the economic burdens (growing public debt, severe export/import imbalance, high unemployment) around, such pessimists and speculators have been proven wrong before. One may well be an optimist and say that through intensive work, reforms and efforts, the negative trends can be turned around and Croatian economy can grow even to 3 or 4% by 2020 and achieve the standards required for Eurozone. Croatia has had enough of Prime Minister Milanovic’s complacency and laziness in the matters of Eurozone standards regardless of whether Croatia becomes a member or not. After all, these standards define a good standard of living which all citizens deserve. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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