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)

The Queen Hath Spoken: control immigration from Croatia, don’t come asking UK for money to help save struggling EU nations

Wednesday 9 May, Queen Elizabeth II gave her speech in the UK parliament, setting out the government’s legislative plans for the next year.

The Queen hath spoken, but she didn’t give much detail away as the announced Bills are still in draft stages and haven’t been published yet.

While there’s a long list of Bills referred to in the Queen’s speech (particularly in the area of tackling Britain’s ailing  economy) the ones that draw my attention here are the “European Union  (Approval of Treaty Amendment Decision) Bill” and the “Croatia Accession Bill”.

The first Bill seeks to end the UK euro bailout exposure. The Bill basically seeks to approve the creation of the European Stability Mechanism, a permanent means to support Eurozone countries in trouble, but exempts the UK from a new European bailout agreement between Eurozone countries.

The Croatia Accession Bill is about Parliamentary approval for Croatia to join the EU and allows for immigration to the UK from the new member to be controlled.

The Croatia Accession Bill seems set to crush much of the enthusiasm of young Croatians who voted “Yes” in December 2011 at Croatian accession to EU referendum, convinced that doors of the whole of European Union will be opened for them to seek and obtain employment, residency etc. with ease. Not that there would be a stampede of young intellectuals and professionals, or workers in general, out of Croatia after July 2013, when Croatia is expected to become a full EU member, but at least the relative freedom of movement for livelihood purposes was/is expected.

While it’s not yet clear what the “control of immigration” into UK from Croatia really means, as the full text of the Bill is not yet published, there’s an annoying feeling tingling in the air that “euroenthusiasts” in Croatia are in for a rude shock. They can thank the new Kukuriku (Cock-a-doodle-doo) coalition government for enticing them into the “Yes to EU” vote – for, employment opportunities in EU was one of the positive points the foreign minister Vesna Pusic had printed on the government’s referendum campaign brochures.

It has been clear for many years that the UK would like to reap the benefits from EU membership (e.g. ease of trade, ease of investments in EU countries, increasing its wealth though buying-up assets in EU countries, having a say in EU legislative process …), but not share too many responsibilities if things go wrong. Much hasn’t changed in the way the UK does business abroad since the days of its imperialistic and colonizing days of “glory”, it seems.

The Queen’s announcement of legislation to confirm Croatia’s accession the EU did not include the bill to commit the UK to give 0.7% of national income in overseas aid. It has been said that the UK government expects to meet this foreign aid target by next year, but has opted not to mandate itself to do it every year in law.

So it looks like UK is leading the way in the “every man for himself” battleground when times get tough. This may not be a bad approach to national survival, in fact it’s welcome in many respects but the problem is that it’s always the UK loud bells that ring – alarmingly and condemnably – when some other country’s leaders are pursuing nationalistic approaches to protecting their nation.

Croatia should learn from this and start seriously limiting the acquisition of Croatia’s assets by foreign countries, even by those that are members of the EU. All those in Croatia who had in the past twenty years been inclined to follow the hypocrisy in foreign powerful bells that labelled Franjo Tudjman a nationalist should now take pause and rethink their position for – Croatia First! Ina Vukic, Prof. (Zgb); B.A., M.A.Ps.(Syd)

Croatian economy: Political blame game net – now cast wider

Finance Minister Slavko Linic - Photo: Boris Scitar/PIXSELL

Croatia’s finance minister Slavko Linic had spent a recent week in the USA in the successful bid to sell USD1.5 billion Croatian bonds to private investors. While increasing Croatia’s foreign debt, the government says this was essential in order to create the capability of repaying due foreign debt obligations and to create an atmosphere/conditions for foreign investments in Croatia.

In his interview by journalist Jadranka Jusresko-Kero, Vecernji List, 24 April, Linic stated how domestic analysts are ruining Croatia’s rating with the International Monetary Fund (IMF) and the World Bank (WB).

Linic stated that the result from his recent visit to Washington shows that the IMF and WB have faith in Croatia’s government’s plan to lift the economy and move it forward. “Imagine, Croatian analysts believe in us less than IMF and WB,” he said. The IMF and WB believe that our government has potential to bring on the needed reforms, he added, also stating that the negative attitude of domestic analysts is destructive as it discourages foreign investments.

Linic also said that eight years of HDZ (Croatian Democratic Union) government is to blame for the state of economy and that it is fortunate that Croatia is still able to secure foreign loans.

Reading other sources it would seem that the WB views about the potential of the Croatian government in which Linic is the finance minister have less to do with faith in the government and more with warnings.

On 24 April Croatian news agency HINA reported that in an interview for Al-Jazeera Balkans TV network World Bank Director for Croatia Hongjoo Hahm said “Croatia has had three years of negative growth, a very deep recession, the deepest since it became independent, and the World Bank’s outlook for 2012 is also negative. These are very difficult economic times for Croatia, but it is time for action for Croatia to weather this storm …

The World Bank has warned the countries of Eastern Europe and Central Asia about the negative effects of the spillover of the eurozone crisis, and Croatia, because of its close integration with Europe, can hardly avoid such a scenario. Croatia is very integrated with the rest of Europe, the integration of the Croatian financial market with Italy, Austria and Slovenia is high. The banks in Croatia are to a large extent foreign owned, and there is also great trade integration with Europe, especially with Italy. If the eurozone goes into a deeper and prolonged recession, the spillover of the crisis will have a negative impact on Croatia”.

Hongjoo Hahm has also stressed that the honeymoon period is over for the new government in Croatia and that now is the time for action.

The warnings that can be read between the lines in Hahm’s statements are stern.

Major overhaul and structural economic and fiscal reforms are essential. In particular, growth, genuine privatisation and increasing market competitiveness are faced with enormous challenges. Challenges are even greater in the reality of relatively high dependency on the government, which was deeply entrenched in the former communist Yugoslavia system and still fares strongly at the grassroots in Croatia.

As Hahm said: it is time for action and for Croatia to weather the storm.

A great storm will undoubtedly continue with processes needed to reform scandalously complex and slow bureaucratic red tape, corruption (in form of bribes) and sluggish work attitudes that seem to prevail in many key places processing licensing, approvals, registrations, etc. for any new business or investment.

Judging from what Hahm said there does not seem to be anything any domestic analysts can say that’s not already known to the world.

Linic’s criticism of domestic analysts is highly suspect. One can easily see that he may well be setting up a new culprit if his coalition government fails at needed economic and fiscal reforms. That is, time will come when he can no longer blame the old HDZ government, so he needs to find someone else, as time moves on.

In all honesty, Linic’a Social Democrats have spent many years in opposition since the beginning of Croatian independence shift (1990); between 1990 – 1999 they did nothing to influence economic reform and stamping out corruption, but rather concentrated on their own party’s political survival. When in government, 2000 – 2003, Linic was Deputy Prime Minister – again, not much done on reforms, and foreign debt increased. Again, in opposition from 2004 to 2011 – years wasted as Social Democrats failed miserably in their mandate to keep the HDZ government to serious account and push for changes.

In the interview with journalist Jadranka Juresko-Kero, Linic referred to Guste Santini, economist and analyst, when he expressed his objections to the negative views of analysts (private consultants) on problems facing the critically plunging Croatian economy. True analysts must tell the truth and work with the truth. As recent as 21 April Santini expressed his assessment of the situation as follows:

“… Local elections are before us and the Kukuriku (Cock-a-doodle-doo) coalition wants to win in local elections too.

Tax reform is not even in sight, yet. Changes in the tax system are only mild ironing out in relation to the changes that are needed and, therefore, appropriate to the Croatian economy…

What must concern us is the continued rise in unemployment. The investment cycle is just a mental construction. It is not certain that this year’s start of the investment cycle will have an effect on reducing the number of unemployed…

There’s nothing wrong with this “domestic analysis”, as far as I can see.

And, given the complex nature of the economic environment Croatia is in, it just may be that domestic analysts and economists, private operators, will be the ones (not the government rhetoric) who will, with their creativity, critique and knowhow, galvanise the nation into true economic and fiscal reform. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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