Speech by PM Plenković at opening of the conference „Demographics, Jobs and Growth"

Keynote speech by Prime Minister Andrej Plenković at opening of the conference „Demographics, Jobs And Growth: Navigating The Future In Central, Eastern And Southeastern Europe“.

Thank you for your invitation to the second Dubrovnik Conference of this kind co-organised by the Croatian National Bank and the International Monetary Fund,

I would like to give my special welcome to the  Deputy Managing Director of the International Monetary Fund, Mr Tao Zhang, and thank him for being here with us. I also ask him to take back to Washington DC our best regards and congratulations to Christine Lagarde for her new job as the president of the ECB. In the years ahead of us, her name and job will become a household name in Croatia.

Dear Governor of the Croatian National Bank, Mr Vujčić,

Dear Minister Marić,

Dear Prefect of the Dubrovnik-Neretva County, Mr Dobroslavić,

Dear Member of Parliament, Ms Sanja Putica,

Dear Member of European Parliament, Ms Dubravka Šuica,

Ministers, governors, policy makers, officials,

I am very pleased to welcome you in Dubrovnik on behalf of the Croatian Government. I understand you hada very charming introduction to today's conference yesterday evening in an ambiance which is always enchanting for everyone that comes to Croatia and to Dubrovnik.
 
I believe that this second Dubrovnik Conference can be seen as an incentive for further cooperation to "tackle challenges in achieving stronger, more sustainable, balanced and more inclusive growth".
 
​This topic is especially important for Croatia. 

As the youngest member of the European Union, we are at a point when advantages of membership start to leave their positive mark. At the same time, while our citizens enjoy the benefits of the freedom of movement as one of the fundamental principles and liberties within the EU, Croatia is facing serious demographic challenges.
 
And exactly for that reason, today’s conference will be very important for us. In order for us to continue the economic recovery, we expect to hear what policies we can use to identify and deal with challenges and risks in the labour market.
  Let me start by highlighting some of our recent macroeconomic and structural achievements. Those are very important for the process of Croatia’s convergence towards the EU average and our efforts to join the euro area, all with the aim of accelerating economic growth and thus increasing the growth of the GDP.
 
In its report, at the end of February this year, the European Commission confirmed Croatia’s progressin implementing structural reforms. It also confirmed that Croatia no longer has excessive macroeconomic imbalances. 
 
In the first quarter of 2019, positive trends continued and Croatia’s GDP grew at 3.9%. This is almost the highest rate recorded in the last eleven years.
 
As a result of prudent fiscal policy and GDP growth, the general government debt share continued to decline. In the last three years, that is in the mandate of our  Government, was reduced by almost 10 percentage points. In 2019 we expect the positive trend of public debt cuts to continue and fall to 71.6%.
 
After the budget surplus in 2017 of 0.8%, Croatia again had a budget surplus in 2018– this time of 0.2% of the GDP. Those of you who are following Croatia more closely and for a longer period of time will understand this is not a common event.
 
The expectations for the surplus were more ambitious, but the Government, I am talking about the 2018, had to cover one-off costs related to financial guaranteesissued by our predecessors to Croatian shipyards.
 
The last recorded unemployment rate was 7%. It is half a percentage point lower than the average ratein the euro area. This is its new lowest levelsince Eurostat began to publish data for Croatia in 2000 and 10 percentage points less than 4 years ago.
 
Two out of the three leading credit rating agencies have put Croatia’s rating back into the investment level. 
 
The European Commission's Summer projections 2019 also recognized the acceleration of Croatia’s economic growth by revising our economic growth forecast from 2.6% to 3.1%. This is more than double the economic growth of the whole EU.
 
Economic recovery, increase in exports, declining unemployment, persistent fiscal adjustment and a strong decline of external debt significantly reduced the previous vulnerability of the Croatian economy. These are all indicators that within our triangle of fiscal consolidation, structural reforms and investments – here I mean both public and private – indeed bring results.
 
In a nutshell, this means that we are spending more responsibly, investing more and that we are becoming more efficient. 
 
We are proud of these achievements. However, a lot remains to be done.
 
These results are positively perceived by the international community, and here I especially think of the financial community and economic experts, and that is a source of motivation for us to continue with the implementation of the necessary reforms.
 
Starting from the main objectives of the Croatian Government Program and taking into account the recommendations of the Council of the European Union, as well as the findings of the European Commission, our economic policy of this year's National Reform Program relies on three goals:
 

1. strengthening the competitiveness of the economy
2. linking education to the labour market and
3. sustainability of public finance,

 
We will achieve these goals through the implementation of structural reforms in key areas:
       - in public administration, through modernization and digitization, and easier and faster administrative procedures, 
       - in the judiciary, through smart regulation and legal security and predictability, 
       - in the education system, through a thorough reform which will enable young generations to be more competitive, on the internal, European or global labour market.
      
Another strategic goal of the Croatian Government, in the field of economic policy, is the introduction of the Euro as the official currency.

Together with the Croatian National Bank, we have devised a Strategy for the adoption of the euro that has undergone a public debate from Autumn 2017 until its adoption in May 2018. In pursuit of this goal, we intensified our activities in the preceding period, which has resulted in significant progress. 
 
The most recent step that we have undertaken was the sending of a letter of intent to enter the European Exchange Rate Mechanism (ERM II). We sent this letter to the countries of the euro area, Denmark and the EU institutions. We have prepared thoroughly, politically as well as diplomatically, of course, notwithstanding the work of the Minister of Finance and the Governor of the National Bank. 
 
Thanks to these efforts, this letter of intent has been positively received by the Eurogroup. It happened exactly on 8 July, and this was our first step towards the ERM II, which precedes the introduction of the euro.

We also achieved remarkable progress in the reduction of macroeconomic imbalances which allowed us to apply for the ERM II.  
 
Our letter of intent was accompanied by a very solid and carefully drafted and crafted Action Planof six areas and nineteen policy measures which we believe that our lineministries and Croatian National Bank can deliver in the course of the next twelve months. 
 
Our preparations for the entry into the ERM II and consequently, the eurozone, are the key elements that contributed to the overall crucial guidanceof Croatia’s economic policy when it comes to the international institutions.

Our membership of the eurozone will place Croatia in the EU’s narrowest circle of integration. It will symbolize our full integration and affirmation in Europe, together with the ambition to join the Schengen area where we are also making a very strong progress, and we are expecting a concrete recommendation by the Juncker's Commission on our admission into the Schengen area soon.
The next big challenge for us is the Presidency of the Council of the EU, a unique situation for our country –only seven years of membership and already at the helm of the Council. That will happen during the first semester of the 2020. We, as the youngest member, have prepared our priorities, and they will include the following:

• balanced and sustainable economic growth, strengthening of the competitiveness and creation of quality jobs across the EU
• connectivity and digital transformation
• the transition of the EU to a low-carbon and circular economy, resistant to climate change, with particular emphasis on the conservation and sustainable management of waters and on the issues of protection and preservation of the marine environment
• strong and reliable external border protection, which is also a prerequisite for free movement within the EU. Croatia is one of the countries on the so-called Western Balkan or Eastern Mediterranean route. So we understand pretty well what it means when only one land migratory route is active, given the experience we had in the 2015 and 2016.
• a comprehensive approach to migration, with a special focus on completing the reform of the common European asylum system, and also
• addressing negative demographic trends, especially when it comes to the emigration of young people. 

 
One of the key priorities will be to reach a quality agreement on the EU’s Multiannual Financial Framework for the period 2021–2027. We will insist that the available funds continue to finance priority areas for the benefit of our citizens: for a newcomer we still require quite a lot of funding for the agricultural policy and rural development, cohesion development of all regions, security and education. But we would also like to tackle the new challenges that the EU is facing in the context of the post-Brexit EU, as well as the context of the fourth industrial revolution.
 
In economic and financial affairs, our activities will focus on promoting initiatives that encourage reform processes and convergence among Member States.
 
We will also focus on initiatives that strengthen the international economic and financial role of the EU, including the strengthening of the international role of the euroand mitigating the negative fiscal effects of demographic trends. Our activities will also focus on the completion of the banking unionand the capital market union.
 
The Croatian presidency will be strongly committed to strengthening the capacity of customs servicesat the external border of the EU, and in the area of tax issues. We will also seek the possibility of improving the existing VAT-system through the work on current legislative proposals which are in the pipeline.
 
Let me give you some examples of what my Government has done in order to tackle these issues which are challenging the Croatian society: 

We have started to raise parental allowances – in mid-2017, we increase them by 50%, with an additional increase planned in mid-2020. 

• By April next year they will increase by 110% in comparison to 2017. 
• In the central government budget we more than doubled (+110%) the amount for parental allowances in the last two years. 
• We have signed more than 200 contracts financed from the EU funds for building new kindergartens and improving working and living conditions within them.
• In 2017 and 2018 alone, there were 5.300 subsidized loansfor young couples. By the end of 2020. We expect that 20 thousand families will have their new homes.
• These measures, among others, achieved first results since some negative trends were changed – in 2018 there were 400 births more than in 2017. It is a small step forward, but the important thing is that it reverses the trends.
  • We will prepare more ambitious demographic policy strategies and concrete measures, which will also go in the direction of the last six months of parental leave tobe delineated to full sallary,
  • we will enable home work for parents of young children and
  • at least minimum of 10 days of paid leave for fathers.

 
We are fully convinced that our efforts in reversing demographic trends will produce results and that positive demographic trends will emerge in the years ahead.

We have recognised that the issue of demography is not only a national issue. We have looked at the comparative statistics and I raised this issue at the EU Summit in Sibiu in Romania where it appeared that half of the EU members are facing negative natural growth. Half of the EU members have a similar or even worse problem than Croatia. 

That prompted us to insist and suggest that the EU Strategic Agenda, which was adopted at the June European Council, entails the issue of the demographic challenges. It was based on the Croatian amendment and thanks to it the EU Strategic Agenda now for the first time has this issueas a task, which is a pan-European task. A task where we clearly understand what the national competences and what the EU competences are. But we feel that there should be a way found on how the EU policy-making, as well as the EU budgetary resources, should complement the efforts that we are making at the national level. I think that this initiative has gathered a lot of support among many EU member states, as well as a lot of understanding within the Commission and the Council. 
When we started back in October 2016, we had only 9% contracted EU funds in the national envelope, and now, even less than three full years later, we are above 70%, which means that 7.5 billion euros have been contracted during this Government's term.

I will just mention a very unique event which I attended recently, on 1 May: a Conference organised by the Polish Government to celebrate the 15th anniversary of their membership in the EU, attended by all the Prime Ministers from the 13 new member states. I told to the Polish Prime Minister that I think he should have let the media inside because it would have been extremely important for the countries of Southeast Europe, who are aspiring to become members, that they could hear a very sober analysis, with a reasonable time distance, by the Prime Ministers of the Central and Eastern European countries.

The résumé goes very simply – our countries made such a big leap forward since they joined the EU, that they can barely be compared to what they were before 2004.

This advantage – where 365 billion euros were transferred to the countries of Central and Eastern Europe – signifiedsymbolically and strongly what the convergence really mean for the concrete living and economic standards of the citizens of the Central and Eastern European countries.

This point is critical for Croatia because our buzzword is basically to speed-up the catching-up. This is our motto and this is what we are trying to do as fast as possible. I would welcome it if some of your conclusions and takeaways from today's conference will help us to navigate smarter and faster.

Thank you very much for your attention!



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