The Croatian flag is raised to mark its ascension into the EU
Croatia is a country forged by war. After declaring independence from Yugoslavia in 1991, the state was plunged into chaos. Over 120,000 people were slaughtered. Hundreds of thousands were displaced, and UN peacekeeping troops were deployed throughout the region in a bid to stop the bloodshed. In the end, treaties were signed – but the dismantled country was left in smouldering ruins. Poverty reigned supreme.
“There are many more steps to take, especially in the area of legal security and fighting corruption”
Almost twenty years on, Yugoslavia’s successor states have come a long way. Croatia has finally became the first of any former Yugoslav republic to be admitted into the European Union. The move marks a milestone for the region, as well as a stride forward in the EU’s campaign to expand eastward. Consequently, both parties turned out in the Croatian capital of Zagreb on July 1 for a reserved celebration to mark the start of a new era. Cannon-fire accentuated Beethoven’s Ode to Joy across Zagreb in what President Ivo Josipovic called “a great and joyful day for our homeland”.
“This is the day when we open a new chapter in the thick book of our history,” he said. “The accession of Croatia to the European Union is confirmation that each one of us belongs to the European democratic and cultural set of values.”
Not everyone in the eurozone has welcomed Croatia with open arms. During a visit to Zagreb earlier this year, EU Enlargement Commissioner Stefan Füle argued that further expansion may not be in anyone’s best interests. He made a point of mentioning that strengthening “credible policy” should be favoured over enlargement – no doubt referring to the blow in credibility the EU faced in 2007 after admitting the likes of Romania and Bulgaria. People there are among the poorest in Europe. Things in Croatia aren’t much better.
Uncertain future
As of July 1, Croatia is the third poorest country in the EU. The global financial crisis hit the country particularly hard, and things look set to get worse. Since 2009, the Croatian economy has remained stagnate at the best of times, whilst its GDP continues to shrink rapidly. It’s expected to contract by another 0.3 percent this year. Meanwhile, unemployment is skyrocketing. In 2008, it sat at 13.4 percent. This year, over one in five Croatians are out of work. Youth unemployment is even higher, and government corruption in Zagreb is amongst the highest in Europe. In 2008, FDI amounted to €4.2bn. Last year, that figure shrank to just €624m. Without investment, it’s little wonder Croatia’s national debt has been dismissed as junk.
It’s not as if president Josipovic hasn’t been trying to turn things around. He and his Social Democrat government had an embarrassingly slow start in 2011; however, the prospect of EU membership eventually pushed the administration to implement serious reforms. The government has recently launched a wave of privatisation reminiscent of those currently revolutionising the economies of Scandinavia. More locally, Josipovic has promised to implement a slightly unpopular (but vital) property tax that will boost Zagreb with revenues it simply cannot survive without. The president has also been forced to turn on former colleagues in order to appease eurozone critics. He’s shipped off dozens of Croatian and Bosnian Croat political leaders to the Hague, and launched public corruption enquiries that have led to a prime minister being jailed. As always, however, everyday citizens are biting the bullet and making more sacrifices than anyone. In May, the staff of Croatia’s biggest airline ended a strike in dismay after grudgingly accepting a nine percent pay cut. Other unions are threatening to strike over the government’s pledge to cut 15,000 public sector jobs in the near future. More personally, the government has been pressured by the likes of Angela Merkel into selling off national landmarks steeped in history as a means of downsizing costly government assets.
Oddly enough, Josipovic seems to have been able to shrug off most of the growing discordance amongst voters. He argues that Croatia should be envied for its ability to prevent the rise of extremism that has accompanied recession in some other European states, and that the country is more or less stable. Five years of recession beg to differ. Yet regardless of the country’s disappointing economic performance, the changes being made in Zagreb appear to have been enough to satisfy EU officials. At the start of Croatia’s application process ten years ago, the country failed to fall into line with a whopping 22 out of 35 chapters in the EU acquis. This year, Josipovic’s administration loosely fell into line with every single one. It was originally scheduled to join the EU around the same time as Romania and Bulgaria; however, a border dispute with Slovenia stalled negotiations for years. Some Croatians wish negotiations would have been stalled indefinitely.
A sinking ship
At this point, Croatia’s economy appears to be dead weight on the EU’s already sore shoulders. New powers given to the ECB have improved things slightly, and Mario Draghi is ready to do “whatever it takes” to get things back on track. But the state of the eurozone is only worsening. So far in 2013, output has fallen by 0.2 percent – marking the sixth consecutive quarter of recession. Meanwhile, the GDPs of most EU states are dropping like stones. France, which boasts the continent’s second largest economy, saw its GDP contract by 0.2 percent. The GDPs of Italy and Spain fell by 0.5 percent, and the bank crisis in Cyprus led to a decline of 1.3 percent. The only EU country that isn’t deeply suffering is Germany, whose GDP has risen by a measly 0.1 percent this year. That miniscule increase is just enough to allow Angela Merkel to continue dictating austerity measures to harder-hit eurozone countries. Merkel has been perhaps the most vocal of EU leaders wary to accept Croatia into the union.
“There are many more steps to take, especially in the area of legal security and fighting corruption,” she claims. Merkel predictably declined her invitation to celebrate Croatia’s formal admittance into the EU, saying she was too busy. That’s because Europe is still on the brink.
The annual eurozone GDP is forecast to contract by at least 0.4 percent by year’s end (on top of 0.6 percent last year). Not everyone is performing so badly. Latvia, whose GDP should grow by almost four percent this year, is expected give the single currency a boost by finally being allowed to join the euro in January. That said, even a boost from well-performing nations won’t be enough to curb unemployment. Greece and Spain are currently suffering under unemployment rates of 27 percent. Youth unemployment in Spain is even higher, at 56 percent. Even Germany is sitting atop an unhealthy 7.6 percent.
The only way is up
Almost all of Croatia’s exports are sold within the eurozone, so it makes sense for Zagreb to embrace its new EU membership. Because many Croatian companies export to non-EU Balkan states, however, domestic firms might also face financial meltdown under the new EU customs duties they’ll be forced to follow. In order to avoid these new taxes, some Croatian companies have already moved abroad. Tourism may also suffer slightly.
Dubrovnik has long been a coveted tourist destination for Russians and Turks; however, EU accession now means visas must be scrutinised. This will chase some tourists away, slicing away much of the summer income that Croatians need to survive the winter. Yet by and large, Croatia will make up for these losses with a little help from its new neighbours. Over the next decade, Zagreb is already scheduled to receive €11bn in structural aide.
Croatia’s EU membership is limited; it will not be allowed to join the euro, nor will it be given free movement in the Schengen zone. Yet its admittance could earmark a turning point after twenty years of financial hardship. According to Johannes Hahn, the European Commissioner for Regional Policy: “EU regional funds will account for up to 70 percent of public investment in Croatia” now that it has been formally admitted. After a five year-long exodus of investors, this will be the lifeline Croatia’s economy has been desperately waiting for.
Beethoven aside, celebrations were relatively mute in Zagreb on July 1. President Josipovic pegged this down to his people’s awareness that EU admittance is only the first step on a long road to economic stability.
“We are realistic. We know that membership will not solve all our problems,” Josipovic said. “But it is a good opportunity for us and I hope we take advantage of it.”
Yet Josipovic remains confident that plenty of good will emerge from his country’s new EU status. On the other side of the fence, eurozone expansionists are hoping Croatia’s membership will encourage its former Yugoslav neighbours to apply, too. Leaders from Serbia and Bosnia even joined the reserved festivities in Zagreb as a show of their intent to follow in Croatia’s footsteps. Critics may yet still be proven correct in their presumption that Croatia’s economy is dead weight being tossed onto the eurozone’s sinking ship.