Croatia's two-year membership in EU has had best effect on export

The most positive effect of Croatia's two-year membership of the EU is a strong increase in exports, which is slowly encouraging other positive economic indicators, heard the conference "Two Years in the EU"

Addressing the event, Deputy Prime Minister and Regional and EU Funds Minister Branko Grcic said Croatia had finally moved forward six years after the beginning of the crisis, hopeful that the positive trend would continue.

EU membership has certainly contributed to that, and Croatia has mostly benefitted from the single European market and direct foreign investments, which are being re-launched, and from the possibility to use EU funding.

Grcic said that in recent months exports had been growing at two-digit rates, which he said reflected the fact that the private sector had restructured and was turning to exports.

What still needs to be done in that segment is boosting the competitiveness of Croatian products and services, Grcic said, adding that when comparing Croatia's competitiveness with that of other EU countries, one should take into account the fact that Croatia had been a member for only two years and that the other 'new' members had been in the EU for ten years, as well as the consequences of the 1990s war and political problems related to it.

The length of the membership is particularly important in terms of the absorption of EU funds because in relation to the other 'new' EU members, Croatia has been deprived in the last 15 years of investments from EU funds, which on average account for 15-20% of GDP with an effect on economic growth of 1 to 2 percentage points annually, said Grcic.

In that context, he reiterated that those who criticise Croatia's efficiency in absorbing EU funding "actually do not understand how the system works."

"The first year of the new Financial Perspective (2014) serves for contracting, proposing new operational programmes and the Partnership Agreement and Croatia was among the first countries to do it. The second year, 2015, is when funding is contracted and along with the Czech Republic, Croatia is the only country that has already published two tenders from the new Financial Perspective and the first payments can be expected by the end of the year, and they are to be accelerated only next year," said Grcic.

Croatian National Bank (HNB) governor Boris Vujcic described the export growth as "a positive surprise", notably for those who before Croatia's accession to the EU had forecast problems due to Croatia's exit from CEFTA.

Noting that EU membership itself "is not a thing that more significantly changes a society's dynamic", Vujcic said that the effects of the country's EU membership also included an increase in public debt, which due to a change of the relevant methodology alone had increased by some 15 percentage points, to 85% of GDP.

It has grown also because its calculation now includes not only the central government's debt, which accounts for 68.6% of GDP, but also the debts of the HAC and ARZ motorway operators, which account for 9.5% of GDP, and the debts of the Croatian Railway companies (0.7% of GDP), the Croatian Reconstruction and Development Bank (HBOR) (4.6%), local government units (1.6%), and Croatian Radio and Television (0.1%).

"That debt should have been serviced earlier because now we have the snow ball effect - the higher the debt, the higher the nominal GDP growth is required to stabilise the debt, and the key requirement for that are structural reforms," Vujcic said.

Speaking of the work of the central bank in the two years of Croatia's EU membership, Vujcic said that the HNB had not changed significantly "because what is good does not need to be changed," recalling that all institutions monitoring Croatia had always underlined that the six-year recession would have caused much bigger problems if the HNB had not acted the way it had.

The head of the European Bank for Reconstruction and Development in Croatia, Vedrana Jelusic Kasic, said the positive changes made in the past two years included fiscalisation, liberalisation of the energy market, more flexible labour legislation, stimulation of youth employment, a new bankruptcy act, legislation on factoring, etc.

"A lot of effort has been invested, also owing to the pressure of the long-lasting recession," Jelusic Kasic said, noting that more progress was needed with regard to competitiveness, further improvement of the investment climate and reforms, notably rationalisation of public administration.

The participants in the conference presented positive forecasts for the next two years, and Grcic, Vujcic and Jelusic Kasic said they expected the national economy to grow.

(Hina) rml

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