Few fireworks as stumbling Croatia joins a troubled EU

Reuters News
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Posted: Jun 12, 2013 8:36 AM
Few fireworks as stumbling Croatia joins a troubled EU

By Zoran Radosavljevic

ZAGREB (Reuters) - At 700,000 euros, Croatia's budget to celebrate arguably the biggest moment in its 22 years as an independent state might seem a little modest.

When Bulgaria and Romania joined the European Union in 2007, champagne flowed and thousands of cheering people poured into the streets to mark a seminal moment in their emergence from Communism.

Croatia's July 1 accession finds the country, and the EU itself, in far more somber mood.

The union's 28th member is in the grip of its worst recession since fighting its way free of Yugoslavia in the 1991-95 war.

It joins a bloc wrestling with its greatest economic and political challenges since its inception, the ties that bind frayed by questions over inequality, immigration, austerity and youth unemployment.

To many Croatians, the prize has lost its shine.

"What's to celebrate? With or without the EU, I don't know what is going to happen to us," said Stefica Pale-Valjak, who went on strike last month after her indebted employer, textile company DTR, stopped paying salaries in March.

"Even in the EU it's no rose garden right now, so how can we expect any improvement here?"

Croatia joins the EU on the back of four straight years of economic contraction and job losses.

Its credit rating has been cut to "junk", the public health and pension systems are teetering on the brink and unpaid debts of public and private companies have reached almost $7 billion.

Many young Croatians are itching to leave.

In a poll this month by Ipsos Puls, just 7 percent of Croatian respondents said they wanted to see fireworks marking the occasion. Forty-two percent said no ceremony was necessary.

Tomislav Saucha, head of the Croatian government committee in charge of organizing the celebrations, said they would showcase "everything Croatia brings to the EU in terms of culture and cultural heritage".

But he added: "We're preparing a sensible and modest ceremony, in line with the economic situation in the country."

DEFICIT CONCERNS

In an article last week headlined "Why aren't Croatians rejoicing?", the Croatian daily Novi List wrote: "Today's Europeans, particularly those on the periphery, where Croatia belongs, are afraid of what tomorrow brings."

"They feel betrayed, let down," the article said. The notion that EU membership equates to greater prosperity "is nothing but a big illusion".

To millions of tourists who flock to Croatia's Adriatic beaches, little appears awry. Well-dressed residents sip coffee in the sunshine, buy seafood and groceries in bustling markets and speed off for the weekend down sleek new highways.

But the global financial crisis has exposed the economic flaws developed during five decades in communist Yugoslavia and yet to be cast off: a rigid labor market, an inefficient public sector and poor investment climate, stifled by red tape.

"Croatia is joining the EU as an unreformed and unprepared country and the bloc will treat us as someone who urgently needs to change," said Velimir Sonje from Arhiv Analitika, a leading business consultancy in Zagreb.

Unemployment has hit 21 percent and growth prospects remain weak at best, raising concerns that the country of 4.4 million will only add to the union's economic woes.

No wonder Germany's mass-circulation Bild magazine labeled Croatia "the new graveyard for our taxpayers' money".

"Is the bloc doing itself any favors by admitting this Balkan country?" it asked last month.

The EU's executive Commission told Croatia this month it faced joining the bloc's disciplinary Excessive Deficit Procedure soon after joining because its budget deficit already breaches EU limits.

A spokesman for EU Enlargement Commissioner Stefan Fuele said past accessions had yielded "tangible results in terms of growth and jobs".

"Croatia's accession should be no exception," he said.

Croatian Finance Minister Slavko Linic told Reuters Zagreb would have to be "responsible" in terms of its finances, and conceded: "Drafting the 2014 budget will not be a breeze."

ENLARGEMENT FATIGUE

Though it will not join the euro yet, in many ways Croatia already resembles the ailing southern states at the heart of the single currency's debt crisis. Even more worrying than its parlous public finances is its poor competitiveness, inability to attract major foreign investors and over-reliance on tourism.

In May, the EU's ambassador to Zagreb, Paul Vandoren, told the government time was running out to address "the heavy regulatory burden, corruption and lengthy procedures, uncertainties in the legal environment, an inefficient judiciary and the unpredictability of administrative decisions".

The government has so far shied away from radical reform, but EU membership might force it to act.

"As a member, we'll have to stick to European procedures and calendars and make sure our policy documents are realistic, concrete and ambitious," Katarina Ott, the head of the Institute for Public Finances, a government-sponsored think-tank, wrote in a web commentary last week.

"All our documents will undergo scrutiny in European institutions and in this way Croatia will gradually get much better programs, budgets and policies."

The EU's last expansions into ex-Communist eastern Europe took place in 2004 and 2007, when the global economy was booming.

But the economic crisis that broke in 2008 has fuelled a sense of "enlargement fatigue" - that the EU might have reached its natural boundaries and is asking for trouble by taking in the once-warring states of the former Yugoslavia.

"The EU of 2013 is totally different from the EU of 2004," said former enlargement commission Guenter Verheugen, who oversaw the bloc's single biggest expansion when it took in 10 new members in 2004, including Slovenia as the first ex-Yugoslav republic to join.

"It is less united, the future looks very uncertain and most importantly, young people - normally the strongest supporters of the idea of European unity - are becoming increasingly disappointed," he told Reuters.

A Facebook group called "Youth, let's leave Croatia" has almost 60,000 members sharing tips and advice on training and job opportunities abroad.

"I'm happy we'll be able to seek jobs abroad and make more money," said Zagreb computer science student Marko Jakic. "But I'm also sad we can't do that in Croatia because our economy is bad and there are no jobs, even for us."

($1 = 5.6937 Croatian kunas)

(Additional reporting by Martin Santa in Brussels, Radu Marinas in Bucharest and Jan Lopatka in Prague; Editing by Matt Robinson and Alison Williams)