Cause and Effect in European Politics and Law

Slovenia and Croatia Will Import Their Problem into the EU

Adelina Marini, March 11, 2013

Another bilateral problem between Slovenia and Croatia - for the old transferred deposits of Ljubljanska banka - got an unexpected denouement. Instead of a solution, the two countries have agreed to get back to the issue later, when Croatia too will be a member of the EU as of July 1st 2013. This practically means that the issue will be imported to the Union - something which EU Enlargement Commissioner Stefan Fule has been trying to avoid all along. Quite recently, in the end of January, in a special speech dedicated to the European integration of the Western Balkans, he underscored that bilateral issues have to be solved before membership so as not to be imported into the Union. Thanks to the political crisis in Slovenia, however, the issue with the old savings will be imported.

The problem

Ljubljanska banka was the third largest bank in Croatia and among the first ten largest banks in former Yugoslavia. Therefore, it was a giant bank. Moreover, it was more a savings bank rather than just a bank. After the succession of Slovenia and then of Croatia from Yugoslavia in the beginning of the 1990s, each country has decided on its own how to handle the assets of the branches and affiliates of the bank. Croatia decided to pay its citizens their savings transferred from the Zagreb branch of Ljubljanska banka into national banks. Those are Zagrebacka banka and Privredna Banka Zagreb. According to the European Court on Human Rights, the savings of around two thirds of the clients of the Zagreb branch of Ljubljanska banka were transferred. The currency deposits that remained there were estimated to be worth 300 million German marks (DM) for which some of the savers sought their rights in Croatian courts.

According to the court's data, 63 depositors have received their savings via a forced sale of assets of that branch. Others undertook court proceedings in Slovenian courts. For its part, Slovenia took over the guarantees of the former Socialist Federal Republic of Yugoslavia over the old savings in the branches of all banks, no matter of the citizenship of the depositors.

In the past 20 years, governments in a row in Slovenia and Croatia failed to find a solution to the problem which began emerging as a very significant issue with the setting of a date for Croatia's accession to the EU - 1st of July 2013. In the summer of 2012, the governments of Janez Jansa in Ljubljana and of Zoran Milanovic in Zagreb agreed to appoint two financial experts (one for each country), tasked to find a legal solution via negotiations and to present it to their governments for approval. Slovenian expert France Arhar was appointed with a mandate until the end of 2012 suggesting that the then expectations of Jansa's government were a solution to be found by then. Mr Arhar was a governor of the central bank of Slovenia.

Croatia's expert Zdravko Rogic was a deputy governor of the Croatian people's bank. At one of their meetings in the autumn, the two came up with an agreement about the past, although in that consent the differences in approach were still evident. Mr Rogic explained then that the problem with Ljubljanska banka stemmed from the Markovic reform in former Yugoslavia when a decision was taken to move from a socialist management to something which Mr Rogic described as smelling of market economy or capitalism. With that decision banks were transformed into joint-stock companies. Although it was part of the state-run Ljubljanska banka, its branch in Zagreb was a Croatian bank. With the decision for transformation it lost its legal identity, thus turning it into a branch.

It had huge deposits as it performed more as a savings bank rather than a bank and did not meet the capital requirements vis-a-vis the volume of savings. A possible solution would have been the bank to be recapitalised. According to estimates of the two experts, by that moment in the end of 1989, 115 million Deutsche marks would have been needed for recapitalisation while the bank's capital was 30 million. Zdravko Rogic believes that if then the decision was taken the bank to be recapitalised everything would have ended in two years, two years and a half at the latest, and the problem with payment of savings and therefore Slovenia's debt would have been avoided.

His colleague Arhar clarified that Ljubljanska banka still is with big state participation which adds its debt to the overall debt of the Slovene state. He said in October that after all no one forced Croatia to transfer (meaning to pay on its behalf) the savings of the depositors. As Mr Arhar said then, Croatia had "humanitarian reasons" to do that. Currently, Slovenia is in a severe economic and political crisis. The banking system which still is to a large extent in state hands is seriously shaken and for a year there have been rumours about a bailout. As a member of the eurozone, Slovenia could request aid from its partners, but in order to get some it will have to accept the conditions of the troika (representatives of the Commission, IMF and the ECB).

Not only in terms of the past, but the two sides differ in terms of approach to solving the issue too. Slovenia insists the problem to be resolved on the basis of the treaty on succession from former Yugoslavia which means to sit at the negotiations table with all the other former Yugoslav republics, while Croatia wanted the mediation of the Bank for International Settlements.

By the end of 2012, a solution to the problem, even at expert level, was not found. With the entering into 2013, though, the pressure on both countries increased greatly because it threatened to postpone Croatia's EU accession on time. The dispute moved on political level with regular meetings between the first deputy prime minister and minister of foreign and European affairs, Vesna Pusic, and her Slovene counterpart Karl Erjavec. In the end of January and the beginning of February, however, the political crisis in Slovenia expanded and was threatening to topple the government. Erjavec himself, as a leader of one of the coalition parties, had put a deadline, February 22nd, to withdraw his support for the government. The events unfolded very fast and at the moment there is an outgoing cabinet under Janez Jansa and a lack of clarity whether there will be early elections or the second largest force in the country will succeed in forming a government, led by Alenka Bratusek.

The developments did not leave too many options neither for Zagreb nor for Slovenia for an exit from the situation.

The solution

In the past weeks there was a talk that the solution was very close. Before the final breakup of Janez Jansa's government, the foreign ministers of Slovenia and Croatia announced that they had reached an agreement of four points, but they refused to show it to the public until their premiers had approved it. Last week, the two sides announced the agreement during parallel sessions of their governments. It is a memorandum of understanding, according to which the two sides agree the solution to the problem with the old savings in Ljubljanska banka to be sought on the basis of the succession agreement. Croatia made a concession on this issue as its resistance before was due to fears that this would take a lot of time and would prevent Croatia from joining the EU on the 1st of July.

Now this issue is not on the table as Croatia promises that it will freeze (the word in the memorandum is 'stay') the court proceedings in Croatian courts and in exchange Slovenia will start immediately the ratification procedure. Separately, the two countries agreed the future negotiations to continue under the auspices of the Bank for International Settlements (BIS). Today [March 11], the prime ministers of Slovenia and Croatia - Janez Jansa and Zoran Milanovic - met in the Slovene town of Mokrice and officially signed the memorandum. No fanfares and not too much joy in the eyes. In spite of the expectations that the ceremony will be attended by European Council President Herman Van Rompuy, this did not happen. Mr Rompuy only sent a statement in which he says that by choosing the path of dialogue, tenacity and compromise the two countries have succeeded to turn a new page as EU members. Their constructive approach, the statement reads, is a sign of maturity.

Of maturity spoke Slovene PM Janez Jansa too, who assured that everything possible will be done for the smooth ratification of the Croatian treaty which can happen even by the end of the month or the beginning of April. The deadline for presenting the ratification instruments is June 3rd, as said in an interview with this website Paul Vandoren, the head of the EU delegation in Zagreb. If by then the instruments are not deposited in Rome, Croatia will not be able to become the 28th EU member on July 1st.

At their brief news conference in Mokrice Prime Minister Milanovic looked impatient and did not have too much of a desire to respond to questions. He constantly invited his Slovene counterpart to answer saying afterwards that he had nothing to add. He was much more garrulous at the cabinet session on March 7th when he said that the issue of Ljubljanska banka continued far too long than it should have. The premier underscored a number of times that it was a matter of trust and concluded that throughout the whole time he could not see in what way the court proceedings caused a tempest in Slovenia since Croatia never benefited by them. Those are proceedings that take a lot of time, he said, but underscored "now we are where we are". This gives us an opportunity to solve on the basis of good will a problem which has been on the agenda for over 20 years. Now we are going together in the EU, Milanovic concluded.

EU Enlargement Commissioner Stefan Fule also welcomed the agreement last week saying that it was an important signal for the region as the two countries have again demonstrated that bilateral issues could and should be solved via negotiations if there is good will. Alas, the solution to the problem is yet to come and Zoran Milanovic preferred the word trust rather than will. From the reactions in Zagreb it becomes clear that there still is fear that it is possible the Slovene side not to fulfil (rather unconsciously) its part of the deal. The biggest concern is whether after being ratified, the treaty of Croatia will not be subjected to approval in a referendum as well, for the initiation of which are needed only 2500 signatures. And in a month another 40 thousand signatures have to be collected for the vote to take place.

It seems that in the remaining few weeks by July 1st the tension in Croatia will be very high, especially given the fact that the country has to hold elections for the European Parliament on April 14th, local elections on May 19th, to finish the outstanding tasks demanded by the Commission and in the meantime to handle the severe economic troubles. If everything is fine and Croatia does manage to join in time, this will be another "import" of a bilateral problem after the accession of the Greek part of the island of Cyprus in 2004 with an unresolved dispute which not only hampers but blocks the accession negotiations with Turkey. Of course, the Slovene-Croatian issue is not of the scale of the problem with Turkey, but it is telling about what the EU can expect from the unfolding of the eurointegration process in former Yugoslavia. Negotiations are already underway with Montenegro and it is expected talks to start with Serbia as well, if the EU leaders agree to that in June. Then the Kosovo case will surface in full on the horizon.

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