Hrvoje Butković
BRIDGE Network Country Report
- Crisis Impact and Response
- Euro-crisis
Croatia is the EU’s newest member state, having joined on 1 July 2013. In the 2002-2008 period, Croatian real GDP per capita rose annually at an average of 4.5%, reaching 63% of the EU-28 average (at PPS). As a result, Croatia’s economic convergence with EU-28 income levels was similar to that in other Central and Eastern European (CEE) countries. The 2008 financial crisis and the following Euro-crisis pushed the Croatian economy into a six-year recession which reversed the income convergence process. The recession reduced output by 12% and investments by one-third; unemployment doubled, and the poverty rate increased substantially [1]. In 2015, the Croatian economy entered a period of slow but rather steady recovery. In the 2015-2019 period the annual economic growth was some 3%, which was above the EU average. Moreover, exports started to represent a growing portion of Croatian GDP; exports of goods have increased 44.6%, while those of services 25.7%. Nowadays Croatian exports exceed imports, which is a change that followed the 2013 EU accession. All of this in the 2015-2019 period influenced reduction of a debt to GDP ratio from 84.7% to 73.2% as well as increase of the employment rate from 59.2 to 66.7%. Last but not least, several years prior to 2020 Croatia witnessed a real annual wage growth of some 2% [2].
- Migration
Between September 2015 and March 2016, approximately 700,000 migrants headed for Western Europe entered the territories of Macedonia, Serbia, Croatia, and Slovenia. All four countries served as transit routes for migrants on their way to Austria, Germany, and Sweden. An insignificant number of refugees applied for asylum in the four countries. During the migrant crisis all four ex-Yugoslav countries shared the same concern that Germany and Austria might close their borders to migrants. None of the countries wanted to become a hotspot for refugees or host them over a longer period of time [3]. In 2018 Croatia adopted the UN Migration Pact despite strong protest from some parties on the right who claimed that the Pact will encourage migration by making it a human right [4].
Opening of the European labor market for Croatian citizens led to the mass emigration of the labor force. The official data in Croatia indicated that in the 2013-2018 period the country lost some 200.000 people. Moreover, recent research of statistical sources across the EU shows that the number of Croatian emigrants could be some 60% higher from the official national data. This could probably be explained by the fact that many emigrants don’t notify the authorities of their departure. The outflow of people has to some extent been compensated by close to 100.000 immigrants that settled in Croatia since 2013 [5]. Particularly worrying is the fact that many larger towns (county centers) struggle with persistent population decline due to combined effects of emigration and low fertility rates. The structure of the emigrant population leaves little hope about their eventual return. The emigrants are young and in most productive ages of their lives. Many of them are well educated. Moreover, while during the socialist period many Croats worked in the West but their families stayed in Croatia, now the predominant pattern is that of whole families leaving. Hardest hit is the medical sector where so many workers have left that the system already experiences operational problems [6].
The new Immigration Law was adopted in November 2020 and entered into force on the 1 January 2021. Accordingly, the government no longer has to decide on the annual quota regarding work permits for the third-country nationals. However, employers are obliged to request the Croatian Employment Service to conduct a labor market test before applying for a residence and work permit for third country nationals. The labor market test should confirm that there are no unemployed Croatian or other EU/EEA citizens who meet the employer’s requirements. The most liberal aspect of the new law is the so-called list of occupations which are in high demand and for which the labor market test is not necessary. The new Immigration Law should make Croatia more attractive for the third country nationals as it is aimed at simplifying the process of receiving work permits and at creating better connection between demand and supply on the labor market [7].
- Rule of Law Crisis
Croatia became an EU member state on 1 July 2013; shortly thereafter, the application of the European Arrest Warrant caused polarization on the countries’ political scene. The European Arrest Warrant (EAW), adopted in June 2002, requires the judicial authorities of a member state to arrest and extradite suspects or sentenced criminals at the request of the judicial authorities of another EU member state. Three days before joining the EU the ruling centre-left coalition MPs voted through government-proposed legislative changes that limited the previously agreed application of the EAW only to crimes committed after 2002. The government and its MPs argued that they intended to protect Croatian war veterans from possible prosecution abroad. The Commission reacted strongly and Croatia was threatened with sanctions in the form of a withdrawal of funding for Schengen zone harmonization and the introduction of post-accession monitoring. Consequently, the government backed down and a legislative amendment was passed which allowed for complete harmonisation with the European Arrest Warrant [8]. This incident right at the start of Croatian EU membership left a bitter taste, and the impression that some politicians in Croatia don’t fully understand the letter and the spirit of the rule of law principle.
Sluggish achievements or even backsliding in combatting corruption since the 2013 accession represent a problem for Croatia in the ambit of the rule of law. After the accession the EU’s conditionality lost much of its weight and a certain backsliding in anticorruption efforts was recorded within various international rating reports. The pattern of higher courts overturning major corruption convictions on procedural grounds raised some suspicions that the Croatian judiciary could be acting on political motives [9]. Some areas related to corruption such as lobbying and whistle blowers are still not regulated by law, while some sectors (such as healthcare) need to be better regulated regarding their anticorruption efforts. The legislation concerning the conflict of interest primarily focuses on property issues, rather than on the conflict of interest as such. One additional serious problem is the nonexistence of integrity pacts in public institutions together with clear models for their implementation [10].
Croatia was not on the list of countries that in 2021 condemned the controversial anti-LGBTQ Hungarian law that equated homosexuality with pedophilia. Ideologically, the Croatian PM Andrej Plenkovic’s government is close to the signatories of the statement against the Hungarian law, but relations with Hungary are too sensitive for such a move. In fact, on numerous other occasions when the rule of law situation in Hungary and Poland was scrutinized by the EU, Croatia abstained from voting or voted in support of the two countries. During the Croatian EU Presidency (in the first half of 2020) the spokesmen of the Presidency, Bruno Lopandic, said, “Our position is that the meaning of the procedure initiated under Art.7(1) should not be the sanctioning of countries where such weaknesses exist, but their elimination and finding satisfactory, mutually acceptable solutions through reasoned dialogue and mutual respect, which is essential for the preservation of European unity” [11]. There are many reasons for such a measured attitude. Hungary is a neighbouring country that was very supportive of Croatia during the Homeland War (1991-1995). The Hungarian oil company MOL is the majority owner of the INA oil company, which is one of the most important companies in Croatia. Last but not least, Croatia and Hungary lived together in a political union for centuries, from 1102 to 1918. This history had its ups and downs, but today it connects rather than divides the people of these two countries.
- Brexit
In 2020 an analysis made by the Croatian Chamber of Commerce indicated that Brexit is not expected to have a significant and direct impact on the Croatian economy and the operation of the country’s companies. Croatia and Britain have modest trade and economic ties, with imports of goods from Britain accounting for less than two percent of total Croatian imports. British tourists in Croatia generate 4.5 percent of the local tourism sector’s foreign exchange income. Major problems could be experienced by Croatian pharmaceutical companies, which are responsible for 15 percent of the country’s total exports to Britain [12].
At the very beginning of the Croatian EU Presidency, an orderly Brexit was agreed upon with the adoption of the Withdrawal Agreement, on the basis of which the United Kingdom ceased to be a member of the EU on 1 February 2020. The agreement regulated a number of aspects of Brexit, including a transition period that ensured the application of EU law in the UK until the end of 2020. Later in March 2020, another success of the Croatian EU Presidency, as well as wider efforts, saw the start of negotiations on a future partnership between the EU and the UK, which ended up with the EU–UK Trade and Cooperation Agreement signed in December 2020 [13].
- Differentiated Governance
- Policy Differentiation
European Monetary Union
Croatia is currently (2021) not the member of the Eurozone. The country has its own national currency the Croatian Kuna (HRK). In October 2017, the Croatian Government and the Croatian National Bank adopted the Strategy for the adoption of the Euro in Croatia. This document provides an analysis of the economic costs and benefits of Euro adoption and concludes that Croatia should introduce the single currency as soon as possible. The opponents of this program among political parties and trade unions acknowledged the fact that the EU strongly encourages all countries which satisfy the economic criteria to join the Eurozone. However, they argued that Croatia should not rush with this because only some 40% of citizens approve it. Furthermore, other non-Eurozone members currently seem hesitant about making this step [14]. The grim prospect for the country’s fiscal plan in 2020 initially raised concerns that the planned entrance in the ERM-II mechanism known as the “Eurozone waiting room” could be postponed. Still, in July 2020 Croatia was accepted into the ERM-II mechanism and it looks as it might be formally prepared to enter the Eurozone as soon as 2023 [15]. The opponents of the Eurozone membership claimed that a too-hasty entry into the Eurozone would have negative consequences for the country’s economy. They announced a referendum campaign on this issue, but by mid-2021 this campaign had not been initiated.
Schengen Area
Croatia is not a member of the Schengen Area yet. In recent years, the Croatian government has made several changes, including increased border control measures, with the aim of achieving Schengen Area membership. Croatia has now met 281 recommendations in 8 areas of the Schengen acquis. 145 of the recommendations are related to external border control, the most challenging issue. ccording to the report, carried out by the Portuguese presidency in early 2021, the Schengen evaluation procedure for Croatia has been completed. Nevertheless, no date has been set for Croatia to join the Schengen Area. Croatia’s Prime Minister Andrej Plenkovic is hopeful that the nation could join Schengen and the Eurozone by 2024 [16].
European Public Prosecutor’s Office
The European Public Prosecutor’s Office (EPPO) is an independent body of the European Union (EU) established under the Treaty of Lisbon between 22 of the 27 states of the EU following the method of enhanced cooperation. Croatia participates in EPPO. In July 2020, Tamara Laptos was appointed by the European Council as the European Prosecutor from Croatia in the recently created EPPO [17].
- Intra-EU Differentiation
Croatia is not a member state that participates in some form of political or economic cooperation with a subset of EU member states such as the Visegrad 4 or the Benelux. Nevertheless, from the regional perspective it could be said that Croatia is among those member states which are most interested in continuation of enlargement in the region of Western Balkans. Arguably the continuation of EU enragement was a topic on which Croatian Council Presidency was most successful. At the beginning of 2020 the Croatian Presidency secured a consensus of the EU27 on a new enlargement methodology. It strengthened the political dimension of the enlargement process and introduced a reversibility mechanism in case of stagnation or backsliding in the implementation of reforms, with particular emphasis on the rule of law. The agreement on the new methodology represented a prerequisite for the opening of accession talks with Albania and North Macedonia. In May 2020 the Zagreb Western Balkan summit was held in the virtual format. The summit delivered a message of unity and solidarity between the EU and the Western Balkan countries, confirming the region’s strategic importance for the EU [18].
- Territorial Differentiation
Bilateral problems negatively affected the length of Croatia’s EU accession negotiations. From December 2008 to September 2009 Slovenia blocked Croatia’s EU accession due to a dispute over the maritime border in the Gulf of Piran and the land border on some micro locations. As a consequence, a substantial number of chapters could not be opened or closed due to the Slovenian veto. In that period the Commission worked intensively with both sides on finding a way for a political agreement. A solution was found in September 2009 when both parties agreed to accept the future ruling of international mediation of final border demarcation [19]. In 2017, the Permanent Court of Arbitration issued a binding ruling on the border, drawing the border in the Gulf of Piran, and ruling that Slovenia should have direct access to international waters in the north Adriatic Sea using a corridor crossing Croatian waters. It also ruled on several other disputed border areas. The ruling was hailed by Slovenia but Croatia said it would not implement it. Croatia stated that it withdrew from the process in 2015, citing the discovered talks between the Slovenian government representative and the member of the arbitration court as a breach of the arbitration rules. Slovenia implemented the ruling on 29 December 2017 with a continued opposition from Croatia [20]. The dispute risks complicating Croatia’s accession to the Schengen border-free area. The European Commission has said Croatia met technical criteria for accession, but Slovenia is unhappy with Croatia’s rejection of the arbitration ruling, which might affect Slovenia’s stance on Croatia’s Schengen hopes [21].
In 2021 Croatia completed construction of the Peljesac Bridge. This is a major infrastructure project that unites two parts of Croatia which were physically separated by the 23-kilometre Neum Corridor that belongs to Bosina and Herzegovina and secures its access to the Adriatic Sea. The bridge is 55 m high and 2.4 km long, with four lanes. Its range makes it one of the longest suspension bridges in the world. Its height secures normal passage of ships to and from the Bosnian port of Neum. Nevertheless, politically, the construction caused tensions between Croatia and Bosnia and Herzegovina. The boundary at land and at sea between the two countries settled in 1999 has not been ratified yet. Bosnia-Herzegovina aims at a corridor or junction safeguarding the freedom of navigation between its territorial sea and the high seas in the Adriatic, and construction of the Pelješac Bridge further complicates prospect of achieving that goal. [22].
The border between Croatia and Serbia in the area of the Danube is disputed. While Serbia holds the opinion that the thalweg of the Danube valley and the centerline of the river represents the international border between the two countries, Croatia disagrees and claims that the international border lies along the boundaries of the cadastral municipalities located along the river—departing from the course at several points along a 140-kilometre section.
- Covid-19 and the Recovery Fund
Because of the Covid-19 pandemic 2020 was particularly difficult year for Croatia, as the country experienced an economic contraction of 8.8%. This was partly due to its outsized reliance on tourism which contributes close to 20% to the country’s GDP. Both domestic and net foreign demand strongly contributed negatively to the movement of real GDP in the first half of 2020. A debt to GDP ratio increased from the 72.8% to 88.7%. Nevertheless, support for job preservation introduced by the Croatian Employment Service (CES) significantly alleviated the effects of the COVID-19 crisis on labor market trends. In the first half of 2020, the average administrative unemployment rate in 2020 was 8.9%, which was just 0.7% higher than in the same period the year before [23]. In such difficult economic circumstances, the additional EU support in the form of grants and loans from the EU Recovery Fund became the issue of key importance. At the end of these negotiations, it was agreed that on top of 12.3 billion Euro from 2021-2027 MFF in the years to come, Croatia would have access to an additional 9.4 billion Euro from the Recovery Fund. Out of those three-fourths are reserved for the grants and only one fourth for the loans [24]. In the first quarter of 2021 Croatia’s GDP picked up robustly, continuing the strong performance from the second half of 2020. On an annual basis, real GDP is forecast to grow by 5.4% in 2021 and 5.9% in 2022. This is a slightly faster recovery than anticipated, largely due to the strong upturn in the first quarter of 2021 and the positive high frequency indicators concerning consumption, construction, industry and tourism prospects [25].
- Conference on the Future of Europe
The Conference on the Future of Europe is a pan-European, democratic project during which citizens have an opportunity to decide on how the EU should develop. On 11 May 2021 the Conference on the Future of Europe was held in Croatian Parliament where the Parliament Speaker Gordan Jandroković was the conference’s host. Several successful Croatian stories were then presented to the parliament, including a project by the Sisak-Moslavina County Development Agency (SIMORA) promoting the town of Novska as the centre of the gaming industry in Croatia [26].
[1] EC – European Commission. 2016. European Economic Forecast. Autumn 2016. Institutional paper 038. November 2016. Accessible at: https://ec.europa.eu/info/sites/info/files/file_import/ip038_en_2.pdf [2 September 2021]
[2] EC – European Commission. 2020. European Economic Forecast. Autumn 2020. Institutional paper 136. November 2020. Available at: https://ec.europa.eu/info/sites/info/files/economy-finance/ip136_en.pdf [2 September 2021]
[3] Šelo Šabić, S., Borić, S. 2016. At the Gate of Europe A Report on Refugees on the Western Balkan Route. Friedrich Ebert Stiftung Zagreb. Available at: https://irmo.hr/wp-content/uploads/2016/05/At-the-Gate-of-Europe_WEB.pdf [2 September 2021]
[4] Vladisavljevic, A., Luca, A. 2018. Most Balkan States Adopt UN Migration Pact. 10. 12. 2018. BalkanInsight. Available at: https://balkaninsight.com/2018/12/10/un-pact-on-migration-disputes-in-balkan-countries-12-10-2018/ [2 September 2021]
[5] Troskat, Z., Prskalo E., Šimić Banović, R., 2019. Ključne odrednice iseljavanja visokokvalificiranog stanovništva: Slučaj Hrvatske s komparativnim osvrtom na nove članice EU-a. Zbornik radova Pravnog fakulteta u Splitu. 56: 4: 877-904.
[6] Jurić, T. 2021. Možemo li bez iseljenih liječnika i medicinskih sestara? Hrvatska matica iseljenika. Available at: https://matis.hr/dogadanja/mozemo-li-bez-iseljenih-lijecnika-i-medicinskih-sestara/ [2 September 2021]
[7] Lauren Simmonds. 2020. Croatian Law on Foreigners: Changes, Updates and More for 2021. Total Croatia News. 15 December 2020. Available at: https://www.total-croatia-news.com/politics/48946-croatian-law-on-foreigners [2 September 2021]
[8] Butković, H. 2015. The Croatian Parliament in the European Union: Ready, Steady, Go! In: Hefftler, Claudia, Neuhold Christine, Rozenberg, Oliver and Smith, Julie (Eds.) The Palgrave Handbook of National Parliaments and the European Union. Palgrave Macmillan.
[9] Butković, H. 2021. Croatia – The Government should take Citizens Seriously. In: Kaeding, Michael, Pollak, Johannes, Schmidt, Paul (Eds.) Euroscepticism and the Future of Europe – Views from the Capitals. Palgrave Macmillan.
[10] Butković, H. 2017. Rule of law and anticorruption in the context of the EUs conditionality – the cases of Croatia and Moldova. In: Andreas Kellerhals and Tobias Baumgartner (Eds.). Rule of Law in Europe – Current Challenges. Schulthess Juristische Medien.
[11] Zsiros, S. 2020. Croatian EU presidency: ‘we don’t believe in sanctions on Hungary and Poland’. Euro news. 20.01.2020. Available at: https://www.euronews.com/2020/01/20/croatian-eu-presidency-we-don-t-believe-in-sanctions-on-hungary-and-poland [2 September 2021]
[12] Xinhua. 2020. Croatia doesn’t anticipate direct negative Brexit impact: analysis. Xinhua. 30.01.2020. Available at: http://www.xinhuanet.com/english/2020-01/30/c_138743762.htm [2 September 2021]
[13] Butković, H. 2020. Hrvatsko predsjedanje Vijećem EU-a: U sjeni pandemije Covid-19. IRMO Auktualno. No. 7. 2020. Available at: https://irmo.hr/wp-content/uploads/2020/06/irmo-aktualno-7.pdf [2 September 2021]
[14] Butković, H. 2021. Croatia – The Government should take Citizens Seriously. In: Kaeding, Michael, Pollak, Johannes, Schmidt, Paul (Eds.) Euroscepticism and the Future of Europe – Views from the Capitals. Palgrave Macmillan.
[15] European Commission. Croatia and the Euro. Available at: https://ec.europa.eu/info/business-economy-euro/euro-area/euro/eu-countries-and-euro/croatia-and-euro_hr [2 September 2021]
[16] Etias.info. 2021. European Commission grants Croatia Schengen approval. Available at: https://www.etias.info/european-commission-croatia-schengen-approval/ [2 September 2021]
[17] European Public Prosecutor Office. 2021. Croatia – European Prosecutor. Available at: https://www.eppo.europa.eu/en/croatia [2 September 2021]
[18] European Parliament. 2020. Outcome of the Zagreb EU-Western Balkans video-summit of 6 May 2020. 11 May 2020. Available at: https://epthinktank.eu/2020/05/11/outcome-of-the-zagreb-eu-western-balkans-video-summit-of-6-may-2020 [2 September 2021]
[19] Butković, H., Samardžija, V. 2014. Challenges of continued EU enlargement to the Western Balkans – Croatia’s experience. Poznan University of Economics Review. Vol. 14. No. 4. 91-108.
[20] Morgan, Sam. 2017. Croatia and Slovenia continue maritime dispute after arbitration ruling. EURACTIV.com. 3 July 2017. Available at: https://www.euractiv.com/section/enlargement/news/croatia-and-slovenia-continue-maritime-dispute-after-arbitration-ruling/ [2 September 2021]
[21] Reuters. EU court should not intervene in Croatia/Slovenia border dispute: adviser. 11 December 2019. Available at: https://www.reuters.com/article/us-slovenia-croatia-border-idUSKBN1YF0WX [2 September 2021]
[22] Bickl Thomas. 2019. Bridge over Troubled Waters: The Pelješac Project, China, and the Implications for Good-neighborly Relations and the EU. Croatian Political Science Review. Vol. 56. No. 3-4. 2019: 50-78.
[23] EC – European Commission. 2020. European Economic Forecast. Autumn 2020. Institutional paper 136. November 2020. Accessible at: https://ec.europa.eu/info/sites/info/files/economy-finance/ip136_en.pdf [2 September 2021]
[24] Butković, H. 2021. Croatia – The Government should take Citizens Seriously. In: Kaeding, Michael, Pollak, Johannes, Schmidt, Paul (Eds.) Euroscepticism and the Future of Europe – Views from the Capitals. Palgrave Macmillan.
[25] EC – European Commission. 2021. European Economic Forecast. Summer 2021. Institutional paper 156. August 2021. Accessible at: https://ec.europa.eu/info/sites/default/files/economy-finance/ip156_en.pdf [2 September 2021]
[26] Croatian Parliament. 2021. Future of Europe – Successful Croatian Stories. 11 May 2021. Available at: https://www.sabor.hr/en/press/news/future-europe-successful-croatian-stories [2 September 2021]
