Croatia Can Do More But Not This Year
Adelina Marini, June 2, 2015
This conclusion emerged during the several hour-long visit of European Commission Vice President Valdis Dombrovskis in Zagreb among the crowds of foreign tourists and the occupation of protesting war veterans (from Croatia's independence war from Yugoslavia). Croatia is one of the stops in the tour of the former prime minister of Latvia of the 28 EU member states aimed at saving the European Semester. The country sits together with France at the highest level before last of alert in the macro economic imbalances procedure which is of concern to the Commission but not to the authorities in Zagreb busy with far more immediate problems than dealing with procedures and rules who are clear to no one. Valdis Dombrovskis came with peace in Croatia stating many times that he had no intention to preach. This is the new line of behaviour of the European Commission - to give "ownership" of reforms back to the member states.
The problem is that there are countries where there is simply no appetite for reforms no matter if they come from the government, which means sovereignty over them is entirely national, or Brussels demands them. And Croatia is such an example. For Dombrovskis was prepared a different than the usual press room after his not very long talks with Prime Minister Zoran Milanovic, his deputy who is responsible for the economy and EU funds Branko Grcic, and the minister of finance, Boris Lalovac. The reason is that after he sent the vice president to parliament across the street for meetings with the chairmen of key for the European semester committees Grcic was to return to the press room and triumphantly announce the end of the 6-year long recession in Croatia. This was to be presented as an achievement of the government in an election year against the backdrop of protesting servants from a state-owned company which is to be closed and the war veterans.
You can talk, we don't mind
In front of the not having questions journalists Mr Grcic said that he had a very rich conversation with Mr Dombrovskis on all aspects of the European semester. "I can say that our message as a government was very clear - we remain firmly committed to implement reforms until the end of the term of this government. We are completely dedicated on this because we know that it leads to better results when it comes to economic recovery and growth", he said, as if the deputy chief of the Commission had come to hear this in order to give the excellent assessments.
As a matter of fact, Valdis Dombrovskis came to Zagreb to try and understand why is Croatia one of the countries with very low implementation rates of the country-specific recommendations. He did not miss the opportunity to recall which these recommendations were. The budget deficit this year is expected to be 5.6% of GDP and next year, if nothing changes, it will be 5.7%. The Commission fears that Croatia will miss the deadline to correct its excessive budget deficit and the procedure would not be closed by the end of 2016. The Commission's fears materialised after Branko Grcic said that Zagreb planned to negotiate with the Commission for an extension until 2017. And why not get one since France has received three extensions so far and Britain two without negotiations? But instead of understanding why the recommendations are not being implemented Valdis Dombrovskis heard that the recommendations have remained only six out of 8 last year. This was presented as success by the Croatian vice premier. To some extent it is true but not quite. The reason for the drop out of some recommendations is not their full implementation but that this year the Commission changed its methodology and is now focusing only on recommendations that can be implemented immediately and can deliver immediate results.
Valdis Dombrovskis pointed out that Croatia has serious problems on the labour market, especially in terms of wage-setting mechanisms, the collective bargaining, labour market participation, the early retirement schemes, business environment, the efficiency of public administrations. "Indeed, quite a few challenges are ahead of you", said Mr Dombrovskis, who took Latvia out of a very deep recession in two years and made it one of the most dynamically growing economies in the EU, a member of the euro area since last year. In front of the chiefs of the parliamentary committees on EU affairs, economic policy, finance and budget, regional development and EU funds the former Latvian premier recalled what he always says when asked "How did you do it": you need to do reforms quickly and without hesitation after dialogue with all interested parties.
However, Croatia is among the countries with the lowest implementation rates of country-specific recommendations. Those are the reforms recommended by the Commission. He avoided a direct answer to euinside's question what is the level of implementation of Croatia saying only that Croatia can do more. "Also in case of Croatia the implementation rates have a potential, so to say, to be better but it's, I'd say, not something Croatia is really standing out. Unfortunately it's a situation in many countries". That is why the Commission is looking for the reasons. One of them is that Croatia is in election year. Valdis Dombrovskis was told that directly by the head of the budget and finance committee, Mr Srdjan Gjurkovic (ruling coalition). With some irony in the tone Martina Dalic (opposition), former minister of finance in the previous government, praised the decision of the Commission not to enhance the procedure against Croatia because of the election atmosphere. "I believe it was a smart move not to enhance the procedure because we are in an election year", she said but underscored that, in fact, there is not and there was no desire for reforms.
Valdis Dombrovskis did not hear any comments on the essence of the European semester the reform of which is currently being discussed by the member states in preparation for the second report of the four presidents. In parliament he was told that the austerity policy had failed and that currently Croatia is paying too high interest rates on its debt - 8-9% of the budget goes for payment of interest rates - and that the EU funds are just a myth in Croatia. Ms Dalic warned that the big threat for Croatia were markets. To all this Valdis Dombrovskis answered that in order for the interest rates to be low the budget needs to be balanced. And to balance the budget one needs to do reforms. The government assured him that they accept all the six recommendations of the Commission without any comments. Moreover, the government was working on them passionately.
Valdis Dombrovskis was sent home politely and the government returned to its immediate troubles. The European semester continues to be an alien body in Croatia and Mr Dombrovskis's visit failed to change that. The media interest was feeble which means that the presence of the former premier-reformist was left almost unnoticed when literally minutes after he left Saint Mark square the war veterans broke the police blockade and stormed the square locked among the government buildings and the Constitutional court. This evoked fears in the Croatian public of civil unrest. Everything ended well after the promise of the blackmailed prime minister to negotiate with the war veterans on Monday (1 June). Right now the issue of the budget deficit is not trending in Zagreb. Valdis Dombrovskis simply had bad timing. The timing will be as bad until the parliamentary elections in the end of the year or the beginning of next year.