THE DECEPTION OF HIGH GDP GROWTH: How Croatia Squandered 11 Billion Euros from the EU in Ten Years

In the past ten years, Croatia has managed to squander around 11 billion euros. This is the amount of money that has been paid from European funds to date. This may sound harsh to some, as that money has not disappeared. Work has been done and is ongoing throughout Croatia, perhaps more than ever. This has led to the construction sector being overstretched and unable to complete all jobs, which has drastically raised the cost of work. Kindergartens have been built, investments have been made in schools, hospitals have been modernized, sports halls, swimming pools, community centers, bridges have been constructed, cities have received bypasses, and almost every village can now boast modern traffic solutions with roundabouts that eliminate congestion even in Slavonian villages where there has never been traffic jams. All of this contributes to the growth of social standards.

Investments without Multipliers

However, the problem is that the majority of European money has ended up in such projects that engaged construction operations, and all suppliers benefited – from cement factories and brickworks to furniture manufacturers and importers of sophisticated equipment. But once the facility is built, when the construction site is cleaned, the ribbon is cut, and the building or road is put into operation, there is too little ‘added value’ left. Only the builders move on to a new construction site, to a new community center or roundabout. The multiplier of these investments is too low; GDP has only increased once, during construction, the newly created value is too small, and exports will not increase by a single euro. Consumption may rise slightly.

It should be noted that it is logical that Croatia has developed over the past decade, since joining the EU, on the engine from Brussels. European funds are not the only reason for entry, but they have certainly been an excellent boost for joining – for every citizen, but even more for politicians, who have made good use of all European benefits for themselves. The problem is that Croatia is not developing according to the old and well-known Chinese proverb: If you give a man a fish, you will feed him for a day; if you teach him to catch fish, you will feed him for a lifetime. The European Union has dumped fish worth 11 billion euros into Croatia over ten years, but it has not taught us how to catch that fish, nor have we strived for knowledge.

Reforming – Cementing

For example, in a state that is corruptly intertwined to the very top of the government, where even European ‘fishing inspectors’ from Brussels see that the judiciary is one of the sore spots for efficient and fair business, a key project in judicial reform is investing in the Justice Square, as if unifying Zagreb’s judiciary with a cloth will wipe away all the deficiencies in a system that operates according to laws, but according to the laws of nepotism and party loyalty. In a similar way, problems in equally corrupt healthcare are ‘solved’; simply purchasing a new CT device will not make it any more accessible to the average patient.

The government produces and implements reforms – wherever it can – by cementing the existing state and ‘reforming Croatia without changes’. After all, GDP movement data does not show that we have learned anything in these ten years. Excluding one-off inflows from the EU, Croatia’s GDP grew only 1.8 percent last year, which is more than half less than in the period between the financial crisis and the pandemic and just a little more than a third of the growth in 2016, the last year of Milanović’s term.

Crumbs from the EU for Entrepreneurs

All of this is reflected in the distribution of 6.5 billion euros from the National Recovery and Resilience Plan (NPOO). Only 20 percent of this money is intended for entrepreneurs by 2026, and they are fighting for just as much alongside the public sector. The government assures that this is the ‘entrepreneurial maximum’ that could be extracted from the EU, but more capable negotiators (even from the accession negotiations) could have negotiated better conditions if they had only wanted to. Because when an entrepreneur receives one million euros in ‘live money’ for expanding production, he can easily return that amount in five years, even for building a roundabout. According to this logic, we would get new jobs, new revenues (which would generate additional taxes for the state), increased consumption, GDP growth, and – after five years – a roundabout. According to the current model, we only get a roundabout, but immediately. However, the collateral benefit in this case is gratitude towards the government that has ‘secured’ the money from the EU and hopes that voters will honor that next Wednesday.

Without EU Money, Croatia Grew Only 1.5 Percent Last Year

EU money began to be felt in Croatia from 2015 with the first payments of 278 million euros, in 2018 it exceeded one percent of GDP, and last year, with payments of 2.7 billion euros, it reached 3.5 percent of GDP, or even 10.8 percent of budget revenues. However, when excluding the pandemic year 2020 and the two subsequent years in which the decline was compensated, the total of 11 billion euros paid did not reflect in GDP growth. Without payments from Brussels, the ‘record GDP growth in the EU’ of 2.8 percent shrank to 1.5 percent. Even in the successful year of 2019, GDP grew by only 2.2 percent on its own, Croatian power. Otherwise, Plenković took office in Banske Dvori in mid-2016, the year in which GDP increased by 3.6 percent (without the EU – by 3.5 percent), and that was his record, not counting the two recovery years after COVID – 2021 and 2022.

A Family with Two Children and One Salary on the Edge of Poverty

For years we have lived in the deception that everything is getting better: pensions and salaries are growing record high (but so are prices, especially food), we have the highest GDP per capita ever (because 400,000 people have emigrated)… This deception was so convincing that the ruling party received more parliamentary mandates even in the midst of the pandemic than four years earlier, so there was no reason to change such a strategy. And today, it is better than ever. This mantra is only occasionally shattered by some statistical data, such as the one about the risk of poverty rate, which fell from 19.4 percent (2014) to last year’s 19.3 percent, with the lowest risk of poverty being 18 percent in 2022. An additional interesting fact is that the ruling party boasts that they have raised the average salary by 65 percent in two terms, but the poverty threshold has risen by 70 percent during that period. The median salary today is 1059 euros, which means that half of the employed earn less than that amount. The poverty risk threshold for a four-member household with two children is an income of 1037 euros. Enough for a smart person.