Magazine article Business Credit

Hot Spots: Croatia

Magazine article Business Credit

Hot Spots: Croatia

Article excerpt

Prior to the January referendum in which Croatians voted on whether or not to join the European Union, there was no shortage of naysayers arguing that the country would make a critical mistake by becoming a member, that foreign competitors, once they gained unhindered access to Croatian markets, would undercut their local rivals' prices. The case of the euro skeptics was underscored by the crippling debt crisis in the euro zone, which has pushed some of its members to the edge of national bankruptcy and is threatening its very essence.

Nonetheless, when the people went to the polls--in an admittedly small turnout of only about 44% of registered voters--they cast their ballots overwhelmingly in favor of joining. As many as 66% of those taking part in the plebiscite declared themselves in favor of the step. This means that, even though the Union no longer looks like the clear ticket to prosperity it once appeared to be to outsiders wanting in, a solid majority in Croatia are still convinced that their country will benefit from unhindered access to a market of 500 million consumers and from gaining about USD 2 billion annually in EU development aid, at least for the next couple of years.

By and large, Croatians seem to be aware that membership will not guarantee them success and that they need to be ready to work hard in a highly competitive environment. To an extent, though, they have already experienced some positive influences, as their once deeply corrupt government was forced to pass some 350 new laws to overhaul the country's legal system. In fact, Brussels did not even agree to enter into membership talks until after the Croatian intelligence service helped track down a former general in the Balkan wars of the 1990s, Gen. Ante Gotovina, who was eventually arrested in Spain and was convicted of war crimes by the United Nations tribunal in The Hague. A former prime minister of Croatia, Ivo Sanader, is currently being tried in Zagreb on corruption allegations.

The treaty now must be ratified by the parliaments of the 27 EU members. Once that is done, entry by Zagreb should become a reality with effect from July 1, 2013. By signing the accord, Croatia has also made a commitment to adopt the euro as its currency in place of the dinar, but this will not happen immediately, since the country must first prove its ability to meet the criteria for joining the euro zone. At the earliest, this move will be made in 2015 or 2016.

Meanwhile, though, Croatia has already had to meet tougher criteria than previous applicants because of corruption and other problems that arose in Romania and Bulgaria after these nations joined the club, somewhat prematurely as it subsequently became clear. Croatia may also be kept out of the so-called Schengen Zone for a while, the EU's passport-free travel area from which both Romania and Bulgaria have been excluded even though they have met the technical requirements, due to skeptical Northern Europeans who worry that they cannot be trusted to be reliable guardians of the Union's external borders.

Most likely, Croatia is the last new member to be admitted to the EU for years to come. This is not due to any lack of potential applicants. A whole range of countries from Serbia and Iceland to Turkey and Ukraine still show at least some interest in joining up, but "enlargement fatigue" is growing within the EU and people in more than one member state are asking whether new nations invited in will just mean more bailouts down the line. Where resistance to further enlargement is still the least pronounced, especially in Scandinavia and Eastern Europe as well as in Great Britain, existing EU member states are also not a part of the euro zone, which is increasingly emerging as the "inner core" of EU decision making. …

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