Ten Events That Marked 2015 in Croatia (Part 1)

Although the elections marked both the beginning and the end of a year dominated by politics, the key event was the exit from a long-standing recession. Due to a combination of various circumstances, Croatia entered a period of GDP growth and some form of economic recovery, which may not last long.

It is said that man is the only being capable of choice. It is also said that if you want to mess with someone, give them the option to choose. According to this theory, Croats were messed with twice this year. First, we had presidential and then parliamentary elections, and given the actors we could choose from, everything led to the well-known saying in Hugo’s video game: ‘Choose a number, you will surely be wrong!’
For the political scene, this seemed to be a lively and dynamic year: we changed a president for a president, and with the breakthrough of Most, we experienced a complete turnaround in the parliamentary elections that no one expected. We would say that it is never boring in this country.

You can read more about 2015 as the year of exiting the recession in the holiday double issue of Lider, and now we bring you the first five events that marked the year we have just said goodbye to.

1. End of the Recession
If we believe the theory that GDP growth is the official indicator of exiting the crisis, we can say that in 2015, Croatia slowly left behind a seven-year agony during which GDP cumulatively fell by 12 percent, and then in 2015, it modestly but continuously grew (in the third quarter, it grew by 2.8 percent compared to the same quarter in 2014). Therefore, it was not a statistical error. Economic analysts attribute this to the growth of personal consumption, an increase in industrial production, a record tourist season, and greater coverage of imports by exports. And it is precisely that stubborn export, which has been growing despite being neglected by the political elite all these years, that contributed the most to the signs of recovery. In any case, GDP was certainly this year’s mantra of the ruling coalition that called itself Croatia Grows in the elections, equating GDP growth with its own work, which sounds somewhat pretentious to most citizens. Some entrepreneurs claimed to feel the effects of GDP growth in their business, but ‘ordinary mortals’ do not feel significant changes in their standard of living. If personal consumption increased by an average of one percent annually, it would mean that a Croat with an average salary of supposedly 5640 kuna this year ‘splurged’ with as much as 56 kuna more than last year. He still needs a bit more argument to believe that Croatia is truly growing.

2. Adris’s Sale of TDR
In June, we witnessed one of the largest business transactions in the history of independent Croatia. Adris sold the Tobacco Factory Rovinj (TDR) and the companies Hrvatski duhani, iNovine, Opresa, Istragrafika, and shares in Tisak to British American Tobacco (BAT) for 505 million euros. Now, with almost four billion kuna, Adris can do whatever it wants in Croatia and the region: expand its tourism portfolio, buy another insurance company like Slovenia’s Triglav, there was also talk of buying ACI, the Port of Rijeka, and even entering the financial sector. After all, it has earmarked four billion for investment from 2016 to 2018. However, anyone familiar with Adris’s way of doing business and the conservative policy of its largest shareholder Ante Vlahović knows that it could take a while for an ‘investment resolution’ to materialize. The consequences of this transaction will be felt much sooner in the tobacco industry, as well as in the retail and distribution market. Whatever Adris takes on, it cannot bring close to the high profit rates that the tobacco industry provided, especially not tourism, and in Croatia osiguranje, Adris has a lot of work to do before that company starts earning seriously. Restructuring in Adris’s Management can be expected, and changes in ownership structure are not excluded. Namely, two months ago, speculation arose in public that the second-largest shareholder Plinio Cuccurin, who left the Management at the end of last year, intends to carry out a hostile takeover of Adris with a Czech fund. The speculation suddenly quieted down, the spirits have calmed for now, and Ante Vlahović, although he has lost the tobacco business, is anything but ‘smoked out.’

3. The Franc Case
The currency that rises without the ‘African plum’ is a long-standing topic that peaked in 2015. The state decided to abolish debtor slavery and passed the most anticipated law of the year – the one on the conversion of loans in Swiss francs. With this decision, it joined the rare countries that stirred the banking waters. Banks immediately stood up due to potential losses. Although conversions have not yet been carried out, they have so far reported losses of 4.5 billion kuna, and they announce eight. However, Finance Minister Lalovac was not deterred – he had prepared a tax on the credit activity of banks. This tax of one percent on profits of 400 billion kuna in 2014 would easily solve the problem of the Swiss franc. Banks certainly took Lalovac more seriously than they did former Prime Minister Jadranka Kosor in 2011, to whom they sent lower-ranking bankers to a meeting about resolving the Swiss franc issue, but they still reacted with threats and filed a constitutional lawsuit. Borrowers in Swiss francs received calculations, and some were unpleasantly surprised by even higher installments and greater debt because some banks applied ‘their interpretation of the law’ and higher interest rates than those they offered. Due to public pressure and the Franak Association, they decided to make new calculations according to which the loan installments would not be so high. The government may have won the battle for the Swiss franc, but a war with banks is brewing due to the arbitrary determination of the fixed part in variable interest rates for old debtors in euros. The epilogue will follow.

4. Most ‘Shattered’ the Political Duopoly
Coalition with the left, coalition with the right, grand coalition, minority government, new elections, Most’s prime minister, non-party prime minister, the collapse of Most, SDP out of the game, SDP back in the game, closing the door to the Patriotic Coalition, opening the door to the Patriotic Coalition, we agree, we sign, we disagree – and so on indefinitely. The real action with plenty of twists began with the parliamentary elections in 2015 and negotiations between Most and the Patriotic Coalition and the coalition Croatia Grows. Those wittier whose ideas spread through the internet wilderness would say ‘mosturbation’ at work in the scenario ‘How Božo Stole Croatia’. Because, for all this, the new young political star – psychiatrist and would-be Franciscan Božo Petrov, who with his party Most received significant voter support and emerged as a third political option and decided to mess with the big players. He entered politics innocent, but we doubt that an innocent can exit. The savior – a bridge to change, wants what is difficult for the more experienced – for the wolf to be full and the goat to remain whole.

5. Financial Benefits
Interest rates and new taxes marked yet another financial year. However, given that the FED has just raised interest rates, it is clear that 2015 will be the last year of cheap money – and for us relatively cheap refinancing. Without adopting a public debt management strategy and with rising interest rates, we will quickly go bankrupt: in 2016, total obligations are not yet enormous, around 13 billion kuna, but in 2017, debt repayment obligations will amount to around 30 billion kuna! This year’s low interest rates have mainly helped the USA, which is recording record employment, but not the EU, which is still struggling in some quagmire of non-growth and lack of real recovery. What would happen to Croatian exports if the EU had truly recovered, as thanks to demand, commodity exports from the EU increased by more than 10 percent… Along with low interest rates, consumers were pleased with lower taxation of wages. When it comes to income tax, the government clearly aimed to relieve the lower and middle-income taxpayers to increase purchasing power and boost personal consumption as one of the four components of GDP growth. That indeed happened. And the abolition of the highest rate for the richest was left for the second term.