Croatia – new kid on the EU block

by Mira Karadzhova

Croatia celebrated its accession to the EU on July 1, 2013, to the sounds of Beethoven’s Ode to Joy and fireworks in the presence of the country’s leaders and EU officials. The latest EU enlargement, however, raises a number of questions not only about the future of Croatia but also about the EU in general.

The long road to the EU

Croatia’s EU membership came true after prolonged talks under the cloud of unconvicted war criminals and border disputes with Slovenia. The country became the EU’s 28th member state ten years after it filed its application and nine years after its neighbour Slovenia joined the bloc in the so-called big bang enlargement, which opened the door to another nine countries. This was followed by the accession of Bulgaria and Romania in 2007. Croatia is only the second ex-Yugoslavian country to get aboard, as for the Western Balkan states membership is not exactly around the corner, yet.

Dropping ratings

Despite the enthusiasm on the political scene, credit rating agencies are not so optimistic about the effects of the EU integration on the Croatian economy and the accession prompted some rating downgrades and warnings about future rating updates. In August, Moody’s voiced doubts that Croatia’s economy will not enjoy the full benefits of the EU membership and said it did not expect it to return to growth any time soon. Although Croatia’s income ranks it in the upper-middle class of the EU, its economy is not competitive enough, as it relies on domestic demand, has sluggish growth and is indebted.

EU Funds

Bottlenecks ahead

 And yet, will the accession revive the economy? After joining the EU, Croatia now has access to cohesion and structural funds, which could give a breath of fresh air to the country’s economy. However, if Croatia’s administration is not ready to absorb them, the country could find itself giving more to the EU than it actually gets. The country, however, can avoid these traps if it has learned the lesson from the woes of Bulgaria and Romania in absorption of EU funds. The reasons behind their low absorption rate could be found in the inefficient administration, untrained employees and poor knowledge of EU standards. So far Croatia has done well with pre-accession funds with an absorption rate of 70% as of June 2013, up from 37% at end-2011, Deputy Prime Minister and European Funds Minister Branko Grcic said. Given the example of recent EU newcomers, one cannot help but wonder whether Zagreb will mothball reforms and lose its pre-accession momentum, or will seek to turn into a country of more efficient administration and healthier economy. While logical, the comparison between Bulgaria, Romania and Croatia is not entirely justified, as the newest EU member claims to be a country of a different order. Its GDP per capita of 8,500 euro, as shown by Eurostat statistics for 2012, puts it on an equal footing with Hungary, Poland, Slovakia and the Baltic countries. By comparison, Romania and Bulgaria report GDP per capita of 4,400 euro and 3,700 euro, respectively. Meanwhile, Croatia differs from its SEE peers in terms of wages, too. The minimum salary in the country was 401 euro in July 2013, according to Eurostat data – well above 159 euro in Bulgaria and 179 euro in Romania.

Total allocations of cohesion policy

Who’s next?

Nevertheless, Croatia’s European integration is a milestone in the recovery from the Yugoslavia wars in SEE as a whole. The price of the membership was the rigorous reforms, which took Croatia seven years to implement. Currently, there are four SEE candidates on the waiting list: Montenegro, Serbia, Turkey and Macedonia and three potential candidates: Albania, Bosnia and Herzegovina and Kosovo. If everything goes smoothly, Croatia’s EU membership could further motivate the Western Balkan countries and Turkey to join the EU faster. If all those countries come on board, the EU would see its population grow by 100 million people, an increase of 20% compared with the current figure. This means not only a bigger territory, but also a bigger internal market. However, in the light of the recent political uncertainty and human rights issues in Turkey – the strongest economy among the would-be EU members – its EU future is growing dimmer. Now the dice are rolling and at some point it will be clear which will be the next SEE country to join the EU. Serbia, which opened accession talks in June 2013, has declared its ambition to overtake its neighbours and be the next to jump on the wave of EU enlargement eastward. While further enlargement is not high on the EU agenda due to growing economic concerns and the eurozone debt crisis, it is still one of the bloc’s main instruments to strengthen its positions as a global leader, both in political and economic terms.