Croatia Must Follow the Regulatory Tsunami of the European Union

The entire financial sector, including the capital market, is very well prepared both legally and infrastructurally for the event that will mark the entire year of 2013, Croatia’s entry into the European Union, but significant changes in market trends, whether positive or negative, are not expected, it was stated at today’s round table on the Croatian Capital Market in 2013: Challenges and Expectations organized by the Zagreb Stock Exchange Academy (ZSE).

The CEO of ZSE, Ivana Gažić, stated that 2012 was a year that market participants would gladly forget, and that given the crisis in the country and the surrounding area, significant changes in trend are not expected. Specifically, the turnover of ZSE last year fell by as much as 44 percent, reaching only 10-15 percent of the turnover from the ‘golden’ year of 2007.

A positive impulse, Gažić emphasized, would come from new privatizations, as there are securities in Croatia that can be attractive to both professional and private investors.

However, there are fewer and fewer active investors in Croatia – last year there were 10 percent fewer than in 2011 and as much as 50 percent fewer compared to 2009, noted Stjepko Čičak, a member of the Management Board of the Central Clearing Depository, adding that it should not be expected that Croatia’s entry into the EU will attract a larger number of foreign investors to Croatian securities.

Significant changes in 2013 are not expected by the president of the Management Board of the Croatian Financial Services Supervisory Agency, Petar-Pierre Matek, who stated that the Croatian system is extremely bank-centric and will remain so in the medium term. Matek expects stagnation or further decline in the industry that the agency supervises in 2013, which he attributes to ‘external influences’, such as the impoverishment of citizens during the crisis.

At the same time, round table participants state that it is now difficult to predict anything because in the EU, due to the consequences of the crisis, a ‘regulatory tsunami’ is underway, which changes the rules of the game day by day, and Croatia must follow this, as more and more issues related to European capital markets are regulated by regulations that all member states must apply, leaving fewer areas for member states to regulate themselves.

The chief economist of Splitska Bank, Zdeslav Šantić, reflected on macroeconomic expectations, stating that this year he expects GDP growth of 0.4 percent, and that, given the ‘unfortunate’ economic moment of Croatia’s entry into the EU, this event may have a negative impact on growth in the short term, as it will pose a serious challenge for some parts of the Croatian economy.

However, he emphasized that any growth would not be sufficient to quickly stop the rise in unemployment. In the first half of this year, this should not be expected; in the second half of the year, stabilization is possibly achievable, and the first signs of recovery in the labor market are unlikely to be seen before 2014, said Šantić.