BALKAN BLOG: Too early to call time on Croatia’s ruling coalition

BALKAN BLOG: Too early to call time on Croatia’s ruling coalition
Despite the behind the scenes conflict, Oreskovic’s cabinet has been pushing ahead with its reform agenda.
By Clare Nuttall in Bucharest May 5, 2016

When Ivan Kovacic, a key member of the Bridge of Independent Lists (Most), told his coalition partners to “go f*** themselves” on national television, it became impossible to ignore reports of a rift within the Croatian government.

Just past the 100-day milestone, centrist Most and the rightwing Croatian Democratic Union (HDZ) have clashed over issues from pension reform to privatisation, with tensions also reported between party politicians and Croatia’s technocratic Prime Minister Tomislav Oreskovic. It may be premature to talk about a collapse of the government, but a degeneration into political infighting would still hamper reforms and could set back Croatia’s tentative economic recovery.

The coalition, which took more than two months to form after Croatia’s November election, had a rocky ride from the start. Even before the government was voted in, Most and the HDZ-led Patriotic Coalition had clashed over ministerial appointments. Shortly afterwards, two ministers came under pressure to resign - one over a suspected tax dodge, the other after photographs surfaced of him posing in the insignia of the Ustasha, the pro-Nazi regime that ruled Croatia during the Second World War, though he has so far refused to stand down.

More recently, there have been rumours - fuelled by a series of public statements from government figures - that the coalition could be on the verge of collapse. The relationship between HDZ head Tomislav Karamarko and Most leader Bozo Petrov has reportedly deteriorated sharply, as has that between Karamarko and Oreskovic.

Petrov indicated in an April 19 interview with RTL Television that Most would be willing to walk away from the government if the reforms it wants are not carried out. He added that Most “never entered a marriage with HDZ”, Total Croatia News reported. Most’s wish list includes deep reforms to the public administration and local government, but given HDZ’s vested interest in continuing with the existing system, these are unlikely to be achieved at least in the short term.

Tim Ash of Nomura wrote on May 4 that deep structural reforms - notably much needed local government reforms - “will be held back by deep-seated vested interests in the HDZ and [the opposition Social Democratic Party] which like the politics of patronage from the status quo”.

Meanwhile, some within Most, which lost four MPs shortly after the coalition deal was agreed, claim it is being deliberately undermined by the HDZ.

Kovacic, who resigned as leader of Most’s parliamentary group in April, appears to have quit mainly because of clashes with the HDZ in Omis, where he is mayor. However, in more measured comments on April 28 he warned that most Croatians “have no idea what kind of battle Most is waging ... what kind of orchestrated attacks are being experienced by people who have only dared to try and change the political situation in Croatia”, Jutarni List reported.

Everything falls apart

“Given Most’s internal fault lines and lack of cohesion, it is likely that the group will eventually fall apart,” forecast Otilia Dhand, senior vice president of Teneo Intelligence, in an April 28 analyst note. “It appears that its individual MPs are now negotiating with both the HDZ-friendly parties and the opposition SDP ... a re-arrangement of the parliamentary majority in favour of the HDZ is the most likely scenario.”

Despite this, Petrov added on April 19 that he hoped the government would “have a chance to succeed”.

Karamarko has also taken to his Facebook page to reassure observers of his commitment to the government. In an April 20 post titled “There’s no reason to be nervous” he wrote, “Many times I publicly stressed that we have confidence in Most as our partners in government. Reforms are our common priority and as long as we have power to enforce them, this government will be stable.”

However, Kreso Beljak, president of the Croatian Peasant Party (HSS), a member of the Patriotic Coalition, sounded less confident. “A reshuffle is not the answer and even new elections wouldn’t yield anything positive. ... However, if [the current situation] doesn’t go away, then elections would be the solution,” he wrote, also on Facebook, on May 3.

Ash sees an imminent change of government as unlikely. “Few people saw much threat of near-term political risk to [the] coalition, at least for next year - opinion polls don’t support change,” he wrote following a visit to Zagreb. “The HDZ are probably quite content for Oreskovic and [Finance Minister Zdravko] Maric to address fiscal consolidation, highways debt issues, but will likely baulk at deeper structural reforms ... which might then break up the coalition some way down the line. That said, politicians like to be in [government].”

Despite the behind the scenes conflict, Oreskovic’s cabinet has been pushing ahead with its reform agenda. On April 28, the cabinet endorsed a package of 60 reform measures that included plans for privatisations and pension reforms that would increase the retirement age to 67.

In a more symbolic move on May 4, Oreskovic announced that the use of rubber stamps to approve documents would be abolished, highlighting the government’s aim of streamlining business procedures. “This should be a positive signal to businesses,” he said according to a government statement.

Perhaps most importantly for Croatians, after six long years of recession, the economy remains on an upward trajectory - at least for now. The European Commission lowered its 2016 GDP growth forecast to 1.8% in its Spring Forecast published on May 3. This was mainly attributed to the worsening external outlook, though the EC also mentioned uncertainty regarding progress on the reform agenda among other downside risks. However, the 1.8% forecast still represents a modest acceleration compared to 2015, and growth is expected to remain steady through 2017.