Business

Croatia and the EU - what difference has a year made?

Croatians celebrate the country's entry to the EU, 30 June 2013 Image copyright Getty Images
Image caption Economic progress since joining the EU has been disappointing, say many Croatians

Fireworks, fanfares and a massed chorus of Ode To Joy heralded Croatia's entry to the European Union last year. But the champagne moment did not last long.

The country is still stuck in a seemingly endless recession that would tempt even the most sober-minded Croatian to reach for a stiff shot of rakija.

It now seems unavoidable that Croatia will stagger into 2015 in recession for the sixth successive year. And finding the way out is proving a far from simple task.

Over the past month, analysts have been raising the possibility of Brussels and the International Monetary Fund offering an economic aid programme. But that would depend on Croatia making big cuts to public spending and encouraging new businesses.

Image copyright Thinkstock
Image caption Tourism, to Adriatic towns like Dubrovnik, remains a key part of Croatia's economy

At this point the first step seems unlikely. Cutting public spending would be political poison ahead of a general election due to be held towards the end of next year.

As for helping new businesses, Croatia still seems to be finding its feet after decades as part of communist Yugoslavia.

And though EU membership theoretically brings access to various funds for small and medium enterprises, actually getting hold of the cash can be a challenge.

'Illiterate'

Ivo Friganovic raises his eyebrows and takes a ruminative puff of his cigarette as he considers the conundrum facing Croatian business owners.

He is the senior director for innovation at HAMAG-BICRO, a government agency that looks to foster the growth of new businesses, focusing on scientific and technological fields.

Before EU accession he warned that Croatia was "illiterate in business terms" - and he is disappointed to find that little seems to have changed.

In particular he is frustrated that the country has yet to take advantage of EU structural funds to give companies a push in the right direction.

"We are still in the process of preparing all the documents which would allow us to use structural funds from the European Commission," he says.

"We are speaking about a little over a billion euros a year. That would open enormously better funding for the development of new products by SMEs [small and medium-sized enterprises] in Croatia."

Image caption Croatia has been slow to take advantage of EU funding, says Ivo Friganovic

'Difficult balance'

At least local expectations of EU membership were low in the first place. An accession process that dragged on for more than a decade took the shine off the initial romance.

But the financial crisis that swept across Europe in 2008 left only the most blindly optimistic believing that membership would prove a panacea for Croatia's economic ailments.

Still, Hrvoje Marusic, the Deputy Minister for Foreign Affairs and European Integration, tries to cast a positive light on the country's EU adventure.

He points out that some gains have already been made. Exports to EU member states rose by 15% in the first year of Croatia's membership.

"We finally have become part of the single market, with all its freedoms," he says.

"Business owners tell me they are very optimistic and feel immediate benefits, that it is much easier doing business than it was prior to membership."

But those freedoms come with responsibility. Croatia now has to conform to the stringent demands of the economic policy co-ordination programme, known as the European Semester.

Image copyright Getty Images
Image caption This summer, the Swedish furniture giant Ikea opened its first store in Croatia

For a country - and a government - used to making its own decisions, this has been a hard adjustment to make.

"We didn't prepare well enough for being economically competitive in the European market," admits Mr Marusic.

"We have to find the difficult balance between budgetary discipline - austerity - and growth. In the past, economic policies were quite irresponsible. But the Semester is a very good instrument for being more disciplined."

The EU 'big bank'

Even long-time cheerleaders for Croatia's EU project seem a little jaded by the experience of membership.

The president of the local branch of the European Movement, Natasa Owens, says the gap between ideal and reality has been hard for some people to take.

"I met my expectations, because I think I was quite knowledgeable about what to expect," she says.

"But lots of citizens had the wrong idea and the wrong expectations. They were just viewing the EU as a big bank that would help us without us doing our own job."

Image caption Selling to EU countries is now easier for some companies, such as Brist Olive Oil

But if the experience of the first year following EU accession has come as an unpleasant surprise for some, Ms Owens believes that membership will still provide long-term benefits.

"It will take time just to understand that we are part of one big system. We now have the opportunity to use the law and other advantages to be in favour of business or everyday living.

"We have to concentrate on our problems - do our job at home - and then we can move on and have more benefits from the EU."

Help needed

For some, membership is already an uncomplicated pleasure.

In the small town of Vodnjan, Irish architect Paul O'Grady proudly welcomes visitors to the showroom he designed to display and sell the high-end olive oil produced by his Croatian father-in-law, Silvano Puhar.

Image caption Silvano Puhar is one of several olive oil producers in Istria hoping to become more well-known

After tasting the various styles of the peppery, golden-green liquid, few customers leave without a bottle or two. But sales of larger quantities to EU member states have suddenly become a lot easier for Brist Olive Oil.

"There isn't the huge amount of paperwork any more. It used to be very complicated," says Paul.

Brist is one of a number of olive oil producers in Istria, in north-east Croatia, hoping to gain wider recognition for the quality of their creations. So far, EU membership seems to be working in their favour.

"I think the EU is driving the producers here to be more professional," says Paul.

"Combined with that, there's more optimism from the younger generation - they are now starting to see there's a chance to get investment and support for rural products."

But even here, there are still reservations. Paul says it should be much easier to apply for EU funds, and suggests that Brussels should take some of the responsibility for guiding Croatian businesses through the process.

A period of adjustment was always to be expected - especially considering Croatia's tumultuous recent history.

But to make a success of its EU membership, this small country is going to need outside help - even if that does not go as far as a bailout.

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