Jakša Puljiz was appointed director of the Institute for Development and International Relations (IRMO) in Zagreb at the beginning of summer, whose fundamental mission is the interpretation of contemporary international economic, political, and cultural relations and cooperation for sustainable development of interest for the development of Croatia. Prior to his appointment, he worked at the Institute as the head of the European Policies Department and led research focused on the processes of European integration, cohesion policy, and economic development, with an emphasis on the interests of the Republic of Croatia in a global and regional context, which is why he has established himself as an excellent interlocutor on topics related to European funds, their impact on our economy, and the opportunities arising from the new Multiannual Financial Framework (MFF) of the EU, or the new EU budget, whose draft was recently presented.
Data shows that our GDP has increased by 3.4 percent compared to last year. Of course, this is, among other things, due to public investments financed by European money. Therefore, my first question for you is: how would Croatia look today and how would it develop if we had less available funds from EU funds?
– There is no doubt about it, Croatia would look worse. The overall picture of the local situation would be different precisely for that part regarding how much less European funds would be available. Now we have a development model that is fueled by ‘EU funds’, which has stimulated economic activities, and this is now clearly visible in the GDP growth. If we had a crystal ball to imagine scenarios about what would have happened if we had not entered the EU, if we still had limited funds available as a candidate country, the difference would be enormous. Pre-accession funds have a limited scope, and those were the resources we primarily used to meet accession criteria and close certain chapters in negotiations. Only after five to six years in the EU did we start to feel the real consequences of membership in the Union more broadly, in economic results based on the impact of European funds. But then the COVID crisis happened, and in response to that, the Recovery and Resilience Mechanism was established, which provided even stronger fuel to the economic engine, which continues to have a very strong effect on overall growth.
However, that fuel also had collateral damage…
– There were unwanted effects. When you find yourself in a situation where you have so much money available, but with short deadlines for use, you as a country, of course, try to utilize as much of it as possible, and then negative effects arise, such as a sudden increase in construction costs, a shortage of labor, from workers on construction sites to designers, which in turn causes delays in project implementation and a decline in the quality of their execution.
In which areas have we faced the greatest difficulties?
– We have struggled the most with investment areas that relied on large infrastructure projects. For example, even with hundreds of millions of euros from EU funds, we have not been able to significantly change the situation in the railway sector. Many infrastructure projects have been drastically delayed, which is why the effects of investments in the quality of transport services still do not meet expectations in either passenger or freight transport. It remains completely unclear when the entire corridor from Rijeka to the Hungarian border will be modernized, which is a significant missed opportunity for the faster development of the domestic economy. A similar scenario exists in waste management. In twelve years of EU membership, we have not achieved the infrastructural prerequisites for the proper functioning of the waste management system.
The situation is somewhat better with water and communal infrastructure as more projects have been completed; however, we have also witnessed many delays and other problems in implementation. Unfortunately, we have not been institutionally well-prepared for managing large infrastructure projects. In water and waste, we have left the management of the most complex projects to local and regional self-government units, for which they did not have sufficient human, organizational, and financial capacities. The central level has thus created an alibi for itself under the guise of decentralization instead of defining the organization of project implementation from the perspective of optimal efficiency.
In addition to organizational deficits, we continue to face significant challenges with insufficient capacities for design and legal affairs that accompany the preparation of complex infrastructure projects. The situation in agriculture is particularly alarming, where despite all investments, we do not see enough positive changes. Moreover, in many segments, we are recording a decline in agricultural production. There are also many challenges in utilizing the European Social Fund, which primarily finances projects in employment, education, and social inclusion, raising many questions about the effectiveness of that substantial funding and its sustainability.
The Commission recently presented a draft of the new budget for the next financial period, which is expected to look somewhat different from all previous ones, and it is already clear that agriculture and cohesion will no longer be funded as generously, primarily due to investments in security and defense. What does this mean for Croatia?
– According to the existing proposal, Croatia should have more funds available from the MFF than before, around 16.8 billion euros compared to 14.4 billion euros that we have from 2021 to 2027. So far, the situation looks good, certainly better than expected; however, it should be taken into account that these are calculations in current prices, which means that part of the value will be eaten away by inflation. Additionally, in the new budget proposal, it is not entirely clear where cohesion and common agricultural policy begin and end, as the two individually most important policies, making it difficult to analyze changes more precisely with the current information. It is important to emphasize that the Commission’s proposal gives a much higher degree of freedom to member states in thematically directing total funds. Of course, all of this applies if such proposals are ultimately accepted.
What else can be read from the draft budget for the next period?
– The biggest change is that according to this proposal, there are no longer cohesion policy programs prepared by regions that negotiate directly with the EC. Instead, regions are directed to central state bodies for discussions and negotiations about investment plans. Thus, a kind of nationalization of cohesion policy is taking place. This is not a big change for us in Croatia because we do not have regional programs, but exclusively national-level programs.
The existence of only one investment plan per member state for different EU funds should theoretically ensure better complementarity of different funds, but also simpler implementation. A significant and important change relates to the change in the payment system of funds, adopting an approach from national recovery and resilience plans, NPOOs, according to which payments are made based on progress in meeting target indicators, rather than based on consumption or realized investments. This approach can bring new value in the area related to cohesion and agricultural policy, but it is not without challenges, as evidenced by the implementation of NPOO, where there are numerous questions about the actual achievements of the effects of implemented measures.
