There Will Be More European Funds, But Not Like This

Last week’s gathering of domestic R&D capacities organized by HUP ICT, ahead of the IPCEI AI call, a European program for strategic artificial intelligence projects, clearly shows what kind of financial period Croatia is entering in 2026: a period in which European money will be allocated based on excellence criteria, with an emphasis on technology and innovation, rather than as a budgetary support.

Forty Croatian companies are already preparing research and development projects worth over 80 million euros, and the Competitiveness Fund, worth 409 billion euros, opens up opportunities for them to integrate into European value chains. At the same time, the transition from passive use of European funds to competitive programs like IPCEI shows how much the financing conditions will change in the coming years. The previous stability of public finances has largely been a result of record European transfers, from cohesion funds to nearly ten billion euros from the Recovery and Resilience Facility (RRF), which created an impression of fiscal comfort.

However, the RRF is soon coming to an end, as is the current EU budget, and a proposal for a new budgetary period, which brings entirely different rules of the game, is already on the table in Brussels. For Croatia and its public finances, this means we are writing the end of a happy period. In other words, budget revenues after 2026 will be quite different.

Not only will there be less money in the coming years, but we now know that in the new budget we could be dealing with 16.8 billion euros compared to the previous more than 25 billion, but also the question of who will receive that money, based on what criteria, and who will decide on everything. Negotiations are ongoing and will last for some time, but outlines can already be read; the cards in Brussels are less favorable to us than before.

That smaller revenues from EU funds are planned for the next period is also evident in the budget projection for the next year, as well as in projections for the coming years. The items for 2027 and 2028 show significantly lower allocations for the budget item Assistance, under which all EU funds are recorded.

For the Excellent

Croatia has received just over 14 billion euros (14.6 billion euros) from the current multiannual financial framework for the period 2021 – 2027, which relates to cohesion and other EU funds. However, this was not the only allocated money. From the National Recovery and Resilience Plan (NRRP), or from the Recovery and Resilience Facility (RRF), a loan that the Commission raised to help EU member states cope with the consequences of the pandemic, we received almost 9.9 billion euros, of which 6.3 billion euros in grants and 3.6 billion euros in favorable loans.

In total, Croatia has access to just over 25 billion euros from European funds in this financial period, which is a significant amount that has fueled public investments, the budget, and optimism in recent years.

Regarding the multiannual financial framework of the European Union for the next period, from 2028 to 2034, Croatia could receive a framework envelope of 16.8 billion euros, which is the amount mentioned by the Prime Minister. Not only will there be less money, but the distribution models are changing, with decisions on the allocation of funds and financing being made centrally in Brussels, the goals are stricter, obligations greater, and one of the main novelties is that funds will be allocated based on the principle of excellence. To caricature, funds will be reserved for the excellent.

In response to Lider’s inquiry about whether Croatia is at risk of losing revenue from EU funds in the coming years due to the new design of the multiannual budget and the gradual phasing out of the NRRP, which has ‘inflated’ the current allocations from the EU, the Ministry of Finance did not provide a direct and unequivocal answer.

They only emphasized that the proposed changes for the next EU funding period mean ‘a departure from existing mechanisms for the distribution of funds’, thus confirming that the Government is aware of the upcoming changes. They also added that negotiations on the future design and distribution of funds are still ongoing and that Croatia advocates for solutions that would, simply put, bring a larger envelope and greater flexibility in usage deadlines.

– EU funds under the new Multiannual Financial Framework will enable the Republic of Croatia to maintain continuity in economic development and improve living standards, as well as further progress in catching up with more developed EU member states – stated the Ministry of Finance.

The Difference Will Be Felt

The Ministry of Regional Development and EU Funds responded to Lider that Croatia has a good starting position in negotiations.

– It is a generous envelope of 16.8 billion euros, and the available funds will be planned within a unified National and Regional Partnership Plan, which will address our national priorities within common European goals, with the aim of further economic growth and balanced development. In addition, the European Commission is proposing a new instrument called the Competitiveness Fund, which companies and research organizations from all over Europe, including Croatia, will be able to apply for – the Ministry stated, adding that this new, centralized EU instrument aims to strengthen European competitiveness and innovation potential and reduce the productivity and innovation gap between the European Union and global rivals.

– All this will provide Croatian companies with the opportunity to develop new competitive and innovative products and their placement in the global market, in collaboration with European partners – the Ministry stated.

Ariana Vela, one of the most recognized experts on EU funds, founder and director of Avelanta, notes that the difference between the previous 25 billion and the proposed 16.8 billion euros will be significantly felt in the Croatian budget, and this, she adds, will impact various sectors and the economy in general. However, she reminds us that the point of EU funds is not to, as she says, use that money indefinitely, but to position ourselves so that the added value produced from using EU money is such that we do not need it. And here we are lagging… Now that we have to adapt to new rules, the situation will be further complicated.

– Our biggest problem is that the entire state heavily relies on EU funds and that there are numerous public and private sector investments that use that money, and we will soon have almost nine billion euros less. If or when that happens, economic activity will decline because only the construction sector will have about five billion euros less work, if we consider that at least 50 percent of all allocations are works, and even more than that. This will undoubtedly multiply to other segments of the economy – claims Vela, adding that it is very important to timely assess this situation and think about the adjustments we need to make ‘when this balloon deflates, so we do not have a strong decline’.

However, this mainly refers to public investments; investments by entrepreneurs are a different matter, and regarding this, Vela believes that entrepreneurs should not be accustomed to ‘investing only if they receive EU money’. Their investments must be sustainable and without EU money because that is the only thing that makes sense, and EU funds are there to increase their profitability and ensure earlier returns.

– When it comes to entrepreneurs, my insight into the market indicates that entrepreneurs currently have a significantly larger number of serious investments ready for which there are insufficient EU funds or none at all. If we consider that entrepreneurs give at least three of their own euros for every euro received, we can conclude that there should be no problems regarding sources or cash flow for serious investors – emphasized Vela. When asked whether there is a real danger that Croatia will become a net contributor to the EU budget in the 2030s before completing the cohesion transition, she expressed doubt and added that if that happens, it will mean that we are so good that we do not need EU money.

Natalia Zielinska, an expert on EU funds and president of HUP’s Association of Professionals for EU Funds, responded on behalf of employers. HUP is, she says, very aware that there will be less funding available in the next budgetary period, but that this is a bigger problem for public investments than for the real sector, for which not much should change because opportunities will exist.

However, what will be financed will change. In the new period, it will not be important what Croatia wants to finance, but what the EU wants to finance. In addition, the EU will pre-determine where the money goes; all member states will have the same priorities, determined ‘from above’ in Brussels.

No More Easy Money

– Priority areas for investment should be closely linked to STEP technologies, which relate to AI, semiconductors, clean technology, and similar. Therefore, we must follow trends and strategies and develop at least part of these priority technologies by connecting with larger partners. Defense will certainly be in focus due to the new geopolitical situation, but this does not limit other activities; on the contrary, it opens new markets for software companies, manufacturers of various components, and even the textile industry. All of them can channel their products into new, priority economic branches. Circular economy and renewable energy choices are certainly in focus, but this is again an opportunity for traditional industries to develop and introduce process innovations while also thinking about developing new products – emphasized Zielinska.

She emphasizes that Croatia has so far offered very few allocations for entrepreneurship and reminds that even within the NRRP and RRF, there have not been stable programs that the real sector could rely on.

– This year’s call for R&D has been opened for the first time in five years, and in the creative industries, we had only one call for digitalization and strengthening market position – notes Zielinska. In other words, the new rules could be a better opportunity for the real sector.

The next period, explains Ana Fresl, a consultant for EU funds and founder and director of the company Projekt jednako razvoj, will be a kind of hybrid instrument that will contain elements of classic cohesion policy and reform elements of the NRRP or RRF, and users, mostly from the private sector, are aware that ‘easy money’ will no longer be available and that complex tenders and uncertain payment tempos are coming.

– Most users, especially from the private sector, are aware that the RRF period, with its speed, simpler rules, and less bureaucracy, was an exception, not a new rule. However, this does not mean that a return to classic funds is necessarily a step backward. Companies and investors value the transparency and stability that the classic cohesion framework brings, and they are ready for a more serious system if they are provided with predictability, transparency, and partnership with the administration – notes Fresl and proposes three concrete changes that will help both users and the system: clear announcement of tenders in the next three years, simplification of procedures, and even distribution of funds throughout the period.

What is particularly important for investors is that we are returning to the reimbursement model of funds, experts from Apsolon explain, and this will almost certainly slow down some private projects. Many companies have used funds from the NRRP for faster investment launches and to relieve liquidity, and a return to the cost reimbursement model will create significantly greater pressure on liquidity.

In addition, there may also be potential delays in the disbursement of funds and increased financial risk for companies that cannot wait for cost reimbursements, especially SMEs, which consequently means postponing or abandoning investments.

Return to the Reimbursement Model

– The greatest burden on cash flow will be reflected in capital-intensive projects and infrastructure projects. It can be expected that investors in the next period will focus on more conservative financing models and financing projects through credit lines from HBOR and commercial banks, so it is crucial to ensure the availability of financial instruments to be simpler and tailored for lending to small and medium-sized enterprises – explain in Apsolon.

Everything that is happening today with European funds flows directly into the core of the Croatian economic model. In recent years, growth has been stable, investments strong, and public finances solid, but the reason for this is not the organic strength of the economy, but a combination of unusually generous European transfers and inflation-inflated budget revenues. An anomaly, not a permanent structure.

Entering a new financial period changes this. Croatia will not be without European money; there will be money, but less, it will come more slowly and under stricter rules. The space for easy financing of public investments is narrowing, and the transition to a reimbursement model will increase pressure on private companies and test their ability to carry projects with their own capital.

As if that is not enough, it should be emphasized that the transition to funds that reward excellence, rather than just geographical and statistical need, will put the focus on the capacity of the administration, which is a stress test on which it has fallen countless times…