Croatia centre-left to take power as economy sinks

Reuters News
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Posted: Dec 01, 2011 12:58 PM
Croatia centre-left to take power as economy sinks

By Zoran Radosavljevic

ZAGREB (Reuters) - A centre-left opposition bloc is on course to take power in Croatia on Sunday but faces a tougher fight to revive the ex-Yugoslav republic's flagging economy before it joins the European Union in 2013.

Voters look set to punish Prime Minister Jadranka Kosor's conservative HDZ for corruption scandals and rising unemployment.

The opposition bloc, led by the Social Democrats (SDP) of former diplomat Zoran Milanovic and known as Kukuriku, is forecast to win a majority of the 151 seats in parliament, according to a poll on Wednesday by Ipsos Puls.

The HDZ, Croatia's dominant political party since independence in 1991, is polling a distant second.

Milanovic, 45, would take the reins just as Croatia, a tourist hotspot of 4.3 million people on the Adriatic, faces its deepest economic downturn as an independent state.

His first task will be to avert a credit rating downgrade by introducing a lean state budget by the end of March.

Milanovic has said he expects "sweat, but no blood or tears."

He told Reuters on Thursday: "Croatia is in a financial crisis. We will have to face up to the fact that we have been living beyond our means."

More than two decades after it split from Yugoslavia in a 1991-95 war, Croatia is due to join fellow ex-Yugoslav republic Slovenia in the EU in July 2013.

The country's economy boomed over the past decade on the back of foreign lending and services that largely replaced its socialist-era industry.

Sleek highways were carved through the countryside to the Adriatic coast and the property market thrived. But governments failed to curb lavish state spending, cut red tape or reform the labor market. Now it appears the debt crisis has hit much harder than expected.

"DRASTIC REFORMS"

The Kukuriku (cock-a-doodle-doo) alliance, which took its name from a restaurant on the coast where the party leaders agreed to join forces, says it plans a combination of austerity measures and steps to revive industry and attract foreign investment.

It has not ruled out turning to the International Monetary Fund as a "last resort" to cope with the fallout from the euro zone crisis.

The HDZ government won praise from the EU for pursuing an anti-graft campaign over the past two years that saw former party leader and prime minister Ivo Sanader in court.

But the extent of government graft uncovered has hurt the party's standing, with a number of senior party officials arrested or questioned over alleged slush funds diverting profits from state firms or doctoring public tenders.

Now Croatia's poor economic shape is causing concern in Brussels, where enthusiasm for further expansion to the poorer countries of the Western Balkans was already waning before the sovereign debt crisis shook the foundations of the union.

Despite the fact they are not joining the euro zone, "more and more EU governments and parliaments are starting to think about the economic performance of new member states," said a senior EU diplomat in Zagreb, who declined to be named.

Despite an otherwise stable banking sector, one small local lender collapsed last week because of mismanagement. Soccer players from two Croatian Premier League clubs have gone on strike over unpaid salaries.

Many shop windows in the capital Zagreb are pasted with closure or discount notices.

Unemployment stood at 17.4 percent in October. The biggest national union, SSSH, estimates that at least 20,000 workers have lost their jobs since 2009, while another 15,000 are working without pay.

"The new government must immediately start drastic reforms," said Vladimir Ferdelji, a local businessman who heads the national managers' association. Otherwise, he said, Croatia risks going the way of Greece.

"This will mean street protests, unstable government, devaluation of the kuna, a massive rise in unemployment, unless we make big changes," Ferdelji said.

Polling stations open at 7 a.m. (2 a.m. EDT) and close at 7 p.m., when exit polls will follow. An official, preliminary count is expected by midnight.

(Reporting by Zoran Radosavljevic; Editing by Matt Robinson)