Croatia: Referendum paves way for EU accession
By Markus Salzmann
25 January 2012
Croatian voters approved joining the European Union in a referendum held on Sunday, but turnout was low. Despite the fact that the entire political elite and all the media campaigned intensively for a yes vote, only 44 percent of eligible voters went to the polls. Two thirds voted in favour of EU membership, with a third voting against.
The low turnout shows that the majority of the population is deeply sceptical regarding the benefits of membership. The fact that the referendum resulted in a yes vote is primarily due to a massive propaganda offensive by all the parties in government, broad sections of the right-wing opposition party, the HDZ, and business lobbies that campaigned massively in favour of the EU in recent weeks.
They stirred up fears that a no to accession would constitute an “economic and political disaster.” Government officials threatened they could not pay out pensions and would have to implement more layoffs if Croatia did not join the EU.
For their part, the opponents of accession, who came mainly from the right-wing spectrum, deplored the sellout of national values. Despite all the scepticism about the EU, this crude nationalism scared off many voters and persuaded them to vote for membership for the lack of a better alternative.
The political and business elite of the country supports the EU primarily because it hopes to get its hands on EU subsidies and encourage foreign investors. The leading European powers are also interested in accepting Croatia into the ranks of the EU. As was the case with the new memberships in 2004 and 2007, the European elite hopes to improve its access to markets and access to cheap labour in the former Yugoslavia.
Germany, Italy and Austria are already the most important trade partners of Croatia. In 2010, 62 percent of all Croatia’s exports and nearly 60 percent of its imports were with the EU. Imports from Austria alone amounted to €1.1 billion in 2010, and Croatian exports to Austria at €522 million.
Leading EU officials accordingly welcomed the result of the referendum. In a joint statement on Sunday evening, EU Commission president Jose Manuel Barroso and EU Council president Herman Van Rompuy stressed that Croatia’s accession to the EU sent a “clear signal to the wider region of south eastern Europe.” It shows “that EU membership is obtainable with political courage and on the basis of decisive reforms.”
The Croatian population has already made its own painful experiences in recent years with such “decisive reforms.” Under pressure from Brussels, all governments—whether social democratic or conservative—have enforced cuts in social standards, forced through privatisations and layoffs, and undermined public infrastructure in order to meet accession criteria.
The decision in favour of membership will lead to an intensification of these attacks on the working population. The newly elected “centre-left” coalition in Zagreb is planning drastic austerity measures to correspond to demands made by the European Union and the International Monetary Fund.
After the national election held in December last year, the new prime minister, Zoran Milanovic, who heads a coalition of the Social Democratic Party, the Pensioners’ Party, the Croatian People’s Party (HNS) and the Istrian regional party (IDS), announced “painful cuts.” To avoid a “Greek” scenario, he argued, Croatia had to slash approximately 9 billion kuna (€1.1 billion)—i.e., the equivalent of 8 percent of the total state budget.
After the defeat of the right-conservative predecessor government of Jadranka Kosor, the new four-party coalition has more than 80 of the 151 seats in the Sabor, the Croatian parliament. Currently, the government is working out a new budget to be voted on in February.
The budget deficit in the country currently stands at €3 billion and the national debt at €47 billion. The central bank governor Zeljko announced that the year ahead would be “very, very tough for Croatia.”
In order to maintain the country’s credit rating, currently just one point above junk status, government officials have agreed to cut public spending and implement tax increases. Job cuts will be especially large in Croatia’s allegedly “overstaffed” civil service. In the near future, 16,000 jobs in state administration are to be axed. Thousands of jobs are also expected to be lost in the country’s previously subsidised shipyards.
Both the public and private sectors have already undergone extensive job cuts in recent years. The previous government had slashed posts in the public sector to meet the required conditions for EU accession.
As a result, unemployment has swelled. Labour Minister Mirando Mrsic recently presented the latest unemployment figures, which list more than 315,000 of the 4.2 million Croats out of work, the highest figure since 2003.
Finance Minister Slavko Linic has proposed an increase in VAT from the current rate of 23 to 25 percent. This hits lower and middle incomes hardest. The price of basic foodstuffs and energy is reported to have risen by up to 40 percent in recent years.
Welfare cuts and layoffs are not confined to the public sector. The free market policies of the 1990s, together with the NATO-led war, caused massive economic destruction. Numerous booming industries have since been shut down. Now, as a result of the international economic crisis, many companies that had survived or were able to find foreign investors have collapsed.
Trade union president Mladen Novosel reported on SETimes that mass layoffs are already on the agenda. The American parent company of the Zeljezara steel mill in Sisak fired more than 900 workers on Thursday.
An employee at Zeljezara, Antonio Lazovic reported on the same site, when he lost his job: “After 35 years, instead of the management and colleagues seeing to it that I get my pension as a man, I was fired and kicked out from the factory like a dog... I now have to go to my relatives and friends and ask them for charity so I can bring home food for my child to eat.”
Lazovic continued: “The employer reduced my salary last year by 10 percent due to anti-crisis measures. The workers expect their salary to be cut by another 10 percent.”
Currently, 200 workers at the Jadran Kamen factory in Split are on strike. The workforce of Dalmacija Vino have announced they intend to take strike action next week.
New Croatian government to implement big business measures
By Ante Dotto
13 December 2011
On December 4, the ruling right-wing Croatian Democratic Union (HDZ) suffered a major defeat in the country’s general election. The opposition Kukuriku coalition led by the Social Democratic Party (SDP) won a majority in the parliament and the right to form a government. While hailed as a “centre-left” or “leftish” alternative to the HDZ by the domestic, regional and international media, the new government will undoubtedly step up the austerity measures demanded by the financial markets.
The Kukuriku coalition is made up of four parties: the SDP, the Pensioners Party, the Croatian Peoples Party (HNS), and a regional party, the Istrian Democratic Assembly (IDS). The SDP has its roots in the former Yugoslav Stalinist League of Communists, while the last two parties of the quartet are neo-liberal parties and members of the European Liberal, Democrat and Reform Alliance. The coalition won 80 of 151 parliament seats, and SDP head Zoran Milanovic will be the next prime minister. The HDZ lost 19 seats, and retained just 47. Out of those 47 seats, 3 were determined by émigré votes—i.e., Croatian citizens living abroad, where only 5 percent voted.
The new government was elected by the votes of just over one quarter of eligible voters, on a turnout of around 60 percent, and lacks any meaningful popular support. In fact, the four parties that make up the coalition failed to garner more votes than in 2007, when they lost to the HDZ. The only difference this time is that they formed an official coalition deal in advance, thus securing more representation for the same vote count, plus the fact that the HDZ vote collapsed by some 300,000.
The HDZ has ruled Croatia consecutively for the last 8 years, and for 17 out of the 20 years of the state’s independence. The party is rife with corruption, with the Guardian describing it as “the wellspring of state-organised corruption and embezzlement on a massive scale.” Illustrating the scope of the corruption, the article continues: “Its former leader and prime minister, Ivo Sanader, is on trial on two sets of corruption charges after being arrested while trying to flee the country. Another former deputy prime minister and other senior party figures have also been charged, while the party itself is at the centre of a slush-fund scandal.”
The ultra-nationalist HDZ was justly punished at the ballot, but the Kukuriku coalition is an undeserving beneficiary of widespread hostility to the outgoing regime.
Both sides tried hard to avoid crucial social issues during the election campaign. Instead, the HDZ tried to pander to the far right with communist scaremongering. “Slowly but surely the ‘Red’ Croatia project is underway and that’s something we cannot accept,” Prime Minister Jadranka Kosor declared in September, taking aim at the SDP. For its part, the SDP sought to exploit the political scandals of the HDZ and posed as defenders of morality in politics, and an opponent of corruption.
However, the lack of any fundamental difference between the two “alternatives” was so obvious it was even the subject of commentaries in the mainstream media. Zdravko Petek, a political science professor in Zagreb, described the campaign as “horribly boring” and said that “political parties in Croatia do not differ by policy, only by ideology. For example, the difference is whether a party is closer to the Catholic Church or not. Nobody mentions how to fix the health system, education and other social issues far more important than ideology,” Petek told the SETimes of December 2.
Zarko Puhovski, a professor at the Faculty of Philosophy in Zagreb, opined toH-alter that his “expectations of the new government are undefined, because they won the elections on moral, and not political promises” and that it “remains to be seen what their programme really is.”
More-astute bourgeois observers are afraid that the failure of the coalition to spell out in advance the measures it plans to take could undermine the legitimacy of the new government when it comes to implementing its policies.
The political analyst Damir Grubisa fears that “for populist reasons, nobody wants to trigger negative reactions and emotions, so politicians choose not to say much [about the economy]. It’s questionable if that is the right choice,” he told Balkan Insight. “The public knows that many things have been kept secret and that the real problems haven’t been discussed, or necessary painful cuts mentioned.”
Analyst Davor Gjenero also warns Balkan Insight that various “veto-wielding groups” could undermine the new government’s efforts to cut spending, because the coalition hasn’t made the case for such changes during the campaign. “Veto-groups like public sector trade unions and war veterans depend on state money.... So if the [former] opposition behave as if everything is normal, and as if they don’t have to dramatically cut spending, they are diminishing their own legitimacy to do what they will have to do”, Gjenero predicts.
During the campaign, Milanovic was trying to balance between opposing opinions within his coalition and broader divisions within the ruling class by issuing equivocal, uncommitted statements. Especially on the question of whether or not the new government will have to turn to the widely despised IMF for loans in the next period, he variously claimed that “it would not rule it out as a last resort” and that “the IMF is not a witch”, implying it could be approached when needed.
At the same time, he sent signals to the financial capital that his government could be entrusted to pass and implement the types of austerity measures advocated by the markets. Slobodna Dalmacija reports him saying that the new government will have only 50 days to prevent the downgrade of Croatia’s credit rating and that continuing to borrow at interest rates of over 7 percent, as is now the case, would be “tantamount to suicide”. Milanovic frequently called for “belt tightening” and “living within our means”, without ever specifying what this meant in practice.
Others in his party, however, spoke out more candidly in support of big business. Slavko Linic, who served as vice-premier in the SDP-led centre-left government of 2000 to 2003, and will almost certainly be the new finance minister, is on record saying that the country will inevitably call the IMF in 2012 to “help balance the budget” and find those areas where savings and “painful cuts” could be implemented. He is quoted in the business magazinePoslovni Puls saying: “The IMF has interest rates far lower than Croatia could ever get in the outside market. We need to be clear about what our economic interests are, and we shouldn’t be afraid of the IMF.”
At a recent expert roundtable on the insolvency problem in the Croatian economy, Linic said the problem could be solved in six months, but only if 20,000 to 30,000 firms went bankrupt first. “It will be a cleaning, quick and efficient,” he said.
Every objective indicator points to Linic speaking for the real intentions of the Kukuriku coalition and the SDP, leaving no room for the vacillations and compromises made up to now by Milanovic. The new government will have to contend with a disastrous economic legacy, with national debt soaring to Italian or Belgian levels, and unemployment of almost 20 percent.
Croatia’s economy has stagnated since the global crisis first made itself felt in 2008. Back in July, Zagreb’s Privredna Banka stated that Croatia was “the only ‘new European’ country that hasn’t yet started economic recovery”. GDP growth this year was at this point estimated at a sluggish 1.0 to 1.5 percent, but Zagrebacka Banka has since calculated the growth of the last two quarters to be only 0.2 to 0.5 percent.
The National Bank closed a small bank last month (Credo banka), and is keeping another four smaller banks “under surveillance”. Apparently, Credo banka was closed not because it was insolvent, but because it was suspected of criminal practices. But the closure fuelled public fears that the whole banking system is in trouble. On November 29, the public broadcaster published unverified but disturbing speculation that savers had shifted “tens of millions of euros” from their bank accounts.
At the same time, a public opinion survey by the Ipsos Puls agency shows that majority of people will have no patience with Kukuriku government, with most expecting “significant changes” within a year, or even six months, and over 60 percent opposing cuts in social spending.
On the other hand, the pressure from capitalist financial circles is relentless. Speaking on behalf of the markets, Goran Saravanja, the main economist from Zagrebacka Banka, said that the “next government will have to present a credible plan for budget deficit reduction, in accordance with the Law of Fiscal Responsibility” and “implement structural reforms...to raise the GDP... if we are to save our credit rating.”
However, Jutarnji List calculated that, even if all public sector wages were frozen, the next budget’s expenditures will increase by 1.1 billion kuna. According to the banker Zeljko Rohatinski, the country’s debt servicing costs will rise by 2 billion kuna next year, which means the budget is burdened from the outset with an additional 3.1 billion kuna, or some €400 million—1.2 percent of GDP.
It is clear that the new government will have to start a wholesale attack on the living standards of the majority of the population with its first budget, just as other Social Democratic parties around Europe are doing, and in line with the austerity policies implemented by the Croatian SDP during its last period in power (2000-2003).
In addition to pressure from the banks, Croatia is also confronted with a host of demands from the European Union to radically revamp its economy. On December 9, Croatian government representatives signed a treaty to join the European Union in 2013. Just two days earlier, the European Bank for Reconstruction and Development’s (EBRD) issued its Transition Report 2011 for Croatia in Zagreb. The main demands raised in the report were the necessity for the intensification of the process of privatising state-run companies and the opening up of the country’s infrastructure to private investors.
At the same time, the EBRD report noted that there had been a marked decline in support for the free-market economy and capitalist democracy in those transition economies (former Stalinist countries that adopted the free-market system two decades ago) that had experienced a deep decline in the latest crisis (e.g., Croatia).
It is this erosion of support for the market economy and parliamentary democracy that lies behind the decision of the Croatian government to beef up its state apparatus. A report in the Jutarnji List on December 2 detailed how the Interior Ministry had ordered €320,000 worth of anti-riot and civil unrest equipment, including batons, shields and tear gas, last year. This is how the incoming government is preparing to deal with a new wave of popular social protest.
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