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Croatian President Ivo Josipovic said a recent Gallup poll that found 43% of Croatian citizens would have voted 'No' in a referendum to join the EU is down to the accession process being "too long." The government is sincerely hoping, therefore, that the European Commission's latest progress report on Croatia will be the last such one before the Balkan state completes its negotiations for membership sometime in 2011.

Taken as a whole, the Commission's report released in November can be viewed much like the proverbial curate's egg - good in parts, bad in others. While it acknowledges that Croatia continues to make progress along the road to long-cherished EU membership, it also sends out a clear warning it still faces the prospect of missing out on membership in the next couple of years if it doesn't step up its efforts to implement judicial and administrative reforms, continue the fight against corruption and organised crime, and push through long-overdue changes to economic policy.

As a result, the report did not give any definitive date for Croatia's elevation into Europe's politico-economic elite. That omission prompted Josipovic to warn that Croatia faces the danger of encountering further delays to its EU accession - already the longest of any EU candidate country having begun talks back in 2005 - and of missing out on billions of euros of EU funds if it fails to put its house in order. Enlargement Commissioner Stefan Füle has already served notice that Croatia will only be permitted to join the EU if it satisfies all of Brussels' demands for reforms in a timely and comprehensive manner.

Judged badly

Among the key takeaways from the report is that the EU harbours major doubts about the effectiveness of country's legal system, noting that significant challenges remain, especially relating to judicial efficiency, independence and accountability. In particular, the report bemoans the lack of transparent criteria when it comes to appointment of judges and prosecutors, the still large backlog of cases which have yet to be heard, the slow pace of court proceedings already in progress and the lack of will when it comes to pursuing war crimes trials involving crimes committed against ethnic Serbs, many of which the EU claims have not been properly investigated. Put simply, the EU says that Croatian justice remains highly politicized, only moves forward at a snail's pace and is often blind to the needs of the country's non-Croatian minorities.

With regard to the thorny issue of corruption, which has long been a major drag on foreign investor sentiment towards Croatia, there's also a clear call for the authorities in Zagreb to do more in its struggle against graft. As the report notes, despite recent efforts, corruption remains an almost universal problem. In particular, the EU is concerned about the Croatian courts' ability to handle the increasing number and complexity of cases and notes that Croatia has yet to establish a clear track record of effective investigation, prosecution and court rulings, especially for high-level corruption. The EU also warns that there has been little progress in preventing conflicts of interest and in providing public access to information, providing fertile ground for cronyism and nepotism to flourish in the area of political funding, public procurement and the distribution of EU pre-accession funds.

On the public administration front, the EU cautions that the Croatian system continues to suffer from shortcomings, including complex administrative procedures, politicization, weak human resources management and a lack of co-ordination on a central, regional and local level.

As regards Croatia meeting the economic criteria for EU membership, the Commission's report contains another clarion call to action in a number of important areas. Top of the agenda, is the long-delayed implementation of structural reforms that the EU says have advanced at a very slow pace, especially with regard to the privatisation and the restructuring of loss-making enterprises such as the country's shipyards, which have only survived the global economic downturn thanks to a steady drip-feed of direct and indirect subsidies which do not comply with EU competition legislation.

The EU also says that the Croatian labour market remains highly rigid, with low employment and participation rates, which have declined further during the county's two-year long recession. There's also trenchant criticism of the current government's fiscal policy, which has seen loose controls over public spending at the cost of a rising budget deficit that has only been supported by an increase in borrowing at increasingly expensive rates. The EU says that the rise in external indebtedness remains a key vulnerability of the economy, which needs to be urgently addressed.

In line with other recent surveys of the Croatian economy, the EU also says the government needs to slash red tape and para-fiscal taxation to foster a more business-friendly investment climate. In short, the report warns that Croatia will only be able to cope with competitive pressures and market forces within the EU, if the authorities show the political will to reduce the structural weaknesses of the Croatian economy.

Given the parliamentary elections scheduled for the fourth quarter of 2011, experts says it's highly unlikely the current administration will heed the EU's call to cut generous welfare entitlements, for example.