European Commission Does Not Initiate Corrective Measures

The European Commission has decided not to introduce corrective measures in the macroeconomic surveillance procedure over Croatia.

Croatia has so far avoided the initiation of corrective procedures due to excessive macroeconomic imbalances, and the Commission will reassess its evaluation for Croatia and Portugal in May to take into account the level of ambition of their national reform programs, which must be submitted by the end of April, the European Commission announced on Tuesday.

Croatia is one of five member states with macroeconomic imbalances, along with Bulgaria, France, Italy, and Portugal.  The Commission categorizes countries into four groups. The first group consists of countries without macroeconomic imbalances, the second includes those with macroeconomic imbalances, the third consists of countries with excessive imbalances, and the fourth includes countries with excessive imbalances requiring corrective procedures.

Of the 18 member states subjected to in-depth analysis, six were found to have no macroeconomic imbalances, seven countries have imbalances, and five have excessive imbalances. All countries with imbalances and excessive imbalances will be under specific monitoring, according to the degree and nature of the imbalances.

The Commission concluded that Croatia has excessive imbalances and that the weaknesses are related to the high levels of public, corporate, and external debt in the context of high unemployment.

– Modest economic recovery should facilitate corporate deleveraging, and improvements in the current account balance should contribute to reducing external obligations, but public debt is expected to continue to rise. In the banking sector, non-performing loans remain high, and its profitability is low. Further efforts and improvements in fiscal management are needed. Although measures have been taken to improve the insolvency framework and strengthen labor market flexibility, a significant gap remains that requires specific measures, particularly regarding the management of public enterprises, the efficiency of public administration, and addressing non-performing loans, the Commission states.