Croatia's EU ambitions get the final thumbs-up from Brussels

By bne IntelliNews March 27, 2013

Guy Norton in Zagreb -

It's been quite some roller coaster ride, with more than its fair share of ups and downs as well as thrills and spills along the way, but after the best part of a decade Croatia has finally rounded the final hairpin bend on its route to becoming the 28th member of the EU this summer.  

The EU's enlargement commissioner, Stefan Fule, on March 26 presented the third and final monitoring report compiled by the European Commission on Croatia's preparedness for EU membership at a specially convened session of the Croatian government in Zagreb. As was widely expected, the report concluded that the former Yugoslav state is - in the European Commission's eyes at least - fully prepared for admission to the EU on July 1.

The historic 15-page report focused principally on the Balkan country's compliance with three of the most challenging chapters of EU legislation - the so-called acquis communitaire - covering competition policy, judiciary and fundamental rights, and justice, freedom and security. In particular, it looked at 10 areas of non-compliance with EU rules and regulations that the EU had identified in its last monitoring report back in October.

Overall, the EU found that Croatia had already successfully resolved these issues or was likely to by the time it is due to joins Europe's elitepolitico-economic club on July 1.

On the competition front the EU acknowledged that Croatia is well on the way to addressing the restructuring of its loss-making state-owned shipyards, which have hitherto only been kept going by hefty government subsidies, an historical practice that will become illegal when Croatia joins the EU's single market. Earlier this month, the government signed off on a privatisation contract for the Brodosplit yard to local engineering firm DIV. Another yard Brodotrogir is set to be snapped up by Croatian entrepreneur Danko Koncar's Kermas Energija company, while the other major shipbuilder still in state hands, 3 Maj, is set to be absorbed by local rival Uljanik.  

Other measures that the EU wannabe has successfully implemented to the satisfaction of Brussels-based mandarins include: increasing the adoption of new legislation designed to increase the efficiency of the judiciary and reduce the backlog of outstanding court cases; the establishment and staffing of a fully-functioning, conflict-of-interest-free commission; the introduction of new statutes strengthening the freedom of access to information; fresh by-laws concerning the operations of the police; the recruitment of border officials to ensure security on the EU's latest frontier; and finalising and adopting a migration strategy with clearly defined measures for the integration of the most vulnerable groups of migrants.

The report noted that Croatia has yet to complete two further tasks - the construction of border crossing points at the Neum corridor which connects southern Dalmatia with the rest of the country via a strip of land that runs through Bosnia-Herzegovina - and the translation of EU legislation into Croatian. However, the commission reported that it was satisfied that Croatia would meet these requirements by July 1.

The clean bill of health given to Croatia's EU accession efforts should now pave the way for the governments of Belgium, Denmark, Germany, the Netherlands and Slovenia - the only EU states that have yet to definitively approve Croatia's EU membership - to give the green light to Croatia's EU entry in their respective national parliaments in the coming weeks. Both Denmark and Germany have been awaiting the findings of the final monitoring report before agreeing to proceed with ratifying Croatia's EU accession treaty, which was signed in December 2011, after Croatia first applied for EU membership in 2003 and was accepted as an official EU candidate in 2004.  

Croatia has been the first EU membership applicant to be subjected to pre-accession monitoring, by which the EU has sought to ensure that all future entrants are completely ready for membership, so that there would be no need for any post-accession monitoring as was the case with Bulgaria and Romania, which joined the EU in 2007 and then back-tracked on vital political, judicial and economic reforms.

Summing up the findings of the report, Commissioner Fule said it represented "an important milestone in Croatia's EU accession process", adding: "The report underlines that Croatia has demonstrated its ability to implement reforms in a credible, sustainable and irreversible manner. Because of that, we see no reason to continue the monitoring mechanism after Croatian accession to the EU."

At the same time, he warned that Croatia should not rest on its laurels and should continue to implement economic reforms as well as redouble efforts to strengthen the rule of law and the fight against corruption. "Croatia must continue structural reforms, not only for future entry into the Eurozone, but also to strengthen its competitiveness."

For his part, Croatian Prime Minister Zoran Milanovic said that the upbeat report represented the "end of the beginning" of Croatia's accession to the EU, saying that the country's next major policy goal with regard to the EU would be to join the border-free Schengen zone by the start of 2016. He also admitted that Croatia would have to up its economic performance if it is to reap the full benefits of EU membership. "We are a small nation, we have to be open as a country and our only chance is in open competition with the best. If we are not willing to do that then we do not belong in the EU."

Separately, in a bid to capitalise on its virtually 100% assured EU membership status, Croatia is preparing to launch a $1.5bn-$2bn, 10-year Eurobond this week following a five-day roadshow in the US. Deutsche Bank, JPMorgan Chase, Merrill Lynch and Goldman Sachs will lead manage the issue, which is expected to price with an annual yield of 5.5-5.7%.

The deal will form the first important test of investor sentiment towards Croatia since it was relegated to so-called junk investment status by the two leading US ratings agencies, Moody's Investors Service and Standard & Poor's. S&P cut Croatia's rating to 'BB+' from 'BBB-' in December, while Moody's relegated it from 'Baa3' to 'Ba1' in February.

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