Ott on the Commission’s Report: Croatia is Among the ‘Irreparables’

Croatia must permanently implement all measures for the appropriate execution of recommendations or at least adopt measures that will greatly facilitate implementation, and then the majority of recommendations must actually be implemented, states the director of the Institute of Public Finance (IJF) Katarina Ott in her review of the winter package of the European Semester of the European Commission.

In the latest current review of the IJF titled “Is There Hope for Exiting the Vicious Circle of Inaction?”, Ott reminds that in the latest report of the European Commission, Croatia is a country with excessive economic imbalances and has made limited progress, meaning it has not advanced in implementing recommendations.

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“Since the analysis for Croatia is, as usual, unfavorable, its publication in Brussels a few days ago has unfortunately sparked only a short-lived interest from Croatian media and politicians. Instead of addressing the burning issues of excessive economic imbalances and the non-implementation of reforms, a vigorous debate continued about the Istanbul Convention. This convention is undoubtedly significant, but with or without it, nothing fundamentally will happen at this moment, while the country’s exit from excessive imbalance would significantly change the lives of all citizens of Croatia,” believes Ott.

She reminds that the so-called winter package of the European Semester of the European Commission indicates the state of the entire Union and its 27 member states (Greece is excluded as it is under a special stability support regime), particularly for 12 member states (including Croatia) selected for in-depth review. The winter package builds on other European documents, and member states need to present their own national programs by mid-April, based on which the Commission will present new recommendations for member states in May.

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On about 70 pages of the winter package relating to Croatia, its economic situation and prospects, as well as progress in implementing previous recommendations, are analyzed. Results of in-depth analysis and reform priorities in public finance and taxation; debt of the private and financial sectors; labor market, social policies, and education; competitiveness and investment; and public governance are also provided.

Ott: Croatia Among the ‘Irreparables’

“In all of this, two facts stand out: (1) Croatia is a country with excessive economic imbalances and (2) Croatia has made limited progress, meaning it has not advanced in implementing the recommendations of the European Commission,” emphasizes Ott.

Namely, in-depth analyses of selected member states last year indicated six countries with economic imbalances and six with excessive economic imbalances, while only three ‘irreparable’ countries with excessive economic imbalances remain, and unfortunately, Croatia is one of them, Ott reminds, citing Slovenia as an example, which recorded imbalances last year but has since improved and no longer has them.

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She also notes that for those who regularly follow the reports of the European Commission, this winter package does not represent anything new.

“Croatian governments are given more or less the same recommendations from document to document, year after year, since before joining the Union, and the governments implement them carelessly and inadequately or do not implement them at all,” assesses Ott.

She points out that, for example, there is no progress when the Government has not even touched on the issue of “fragmentation and functional distribution of responsibilities of local units,” and progress is limited when “the new ministry has intensified efforts to sell minority stakes in state-owned enterprises and reduced the list of companies of strategic and special importance, but there are significant backlogs in passing laws that would improve the management of public property and corporate governance of state-owned enterprises.”

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“Like many previous documents that the European Commission has sent to this and previous Croatian governments, this one clearly indicates what needs to be done to move from no progress and limited progress to full implementation or at least significant progress. All measures for appropriate implementation of recommendations must be started and continuously applied, or at least measures that will greatly facilitate implementation must be adopted, and then the majority of recommendations must actually be implemented,” states Ott.

Will the Government Wake Up?

She asks how, for example, Slovenia managed to become a country without imbalances, while Croatia continues to struggle with excessive imbalances, alongside similarly paralyzed Italy and Cyprus? “It succeeded – unlike Croatia, where progress in implementation is limited or non-existent – precisely thanks to the complete and permanent implementation of recommendations,” emphasizes the director of the IJF.

She also questions whether the Government will wake up and heed the suggestions of the European Commission to draft the national reform program and the convergence program this time with the support of the Parliament and all key stakeholders (social partners, regional and local authorities, and civil society organizations), and whether it will finally pass laws that will bind this and all future governments to such more transparent, participatory, and therefore more responsible procedures?

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She notes that this is also one of the recommendations where there has been no progress, i.e., the budgetary framework has not been strengthened and new laws – on fiscal responsibility and on the budget – have not been passed, which should address many of the existing problems.

“Since this government – like more or less all previous ones – regularly justifies its sins of inaction by the lack of support for changes due to their ‘unpopularity’, it could precisely try to secure that support through more transparent, participatory, and responsible procedures,” believes Ott.

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However, she also notes that it is already mid-March, and the national reform program and the convergence program need to be presented to the European Commission by mid-April (according to Croatian Budget Law by the end of April?!), raising concerns that, as last year, these programs will be presented in Parliament already completed, without any possibility for discussion and influence, only at the end of April.

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“In that case, ‘key stakeholders’ will once again have no influence on the reform program, and thus will be able to justify the lack of interest and consequently the lack of support for reforms, while the Government will be able to justify its inaction on reforms by the lack of support. And everyone will continue to exhaust themselves in disputes over the Istanbul Convention, which few have likely even read, instead of addressing the most important issues for all our lives. But does anyone read the reports of the European Commission?” concludes Ott.