Just one month after the November general election, Croatians could be heading back to the polls as negotiations to form a coalition government have yielded no results so far.

Neither the right wing Croatian Democrat Union (HDZ) nor the Social Democratic Party (SDP) have enough support to form a coalition without the support of Most, which was expected to play kingmaker. However, Most is now pushing for a broad coalition including both major parties - a solution that neither the HZD nor the SDP favours. Meanwhile, prolonged political uncertainty could put Croatia’s fragile economic recovery at risk.

The Patriotic Coalition led by the HDZ won the largest number of seats - 59 - in the November 8 parliamentary elections, while the coalition led by the ruling Social Democratic Party (SDP) won 56 seats in the 151-seat parliament. Most holds 19 seats.

Right after the preliminary results were announced, prime minister Zoran Milanovic proposed that Most start negotiations, and the party agreed to hold discussions with both the Patriotic Coalition and the SDP’s Croatia is Growing coalition.

At that time, analysts suggested that HDZ had more chances of reaching an agreement with Most as their political agendas were more similar. Most’s reform agenda includes the reorganisation of local and public administration, reform of the judiciary, tax reform, enhancing the business environment and a more active monetary policy stance. Prior to the elections, the party said it would not enter any coalition, but will support the party which backs its reforms.

Although it initially looked like negotiations would centre on choosing a prime minister, the situation got more complicated as Most pushed for a national unity government, a proposal which was not welcomed either by the HDZ or the SDP. Meanwhile, Most has been affected by internal conflicts which led to the expulsion of one of its leaders.

On December 7, Most met with the leaders of both Croatia is Growing and the Patriotic Coalition, and called for a broad coalition that would jointly elect a nonpartisan prime ministerial candidate.

Most leader Bozo Petrov proposed that one of the coalitions would hold the post of first deputy prime minister, while the other would get the post of parliament speaker and after two years they would switch positions, according to Total Croatia News. Most would get the second deputy prime minister position.

HDZ head Tomislav Karamarko said after the meeting that the party would consider Most’s proposal, but added that rotations in government positions do not work.

“We consider that this is not good and fair toward us as the relative winners at the election. However, we are here, we will stay and talk,” Karamarko said, according to Hina news agency.

SDP leader Milanovic also did not welcome the idea of a nonpartisan prime minister, saying that it was unlikely that the proposed model could be successful.

Croatians are also unconvinced by Most’s proposal, and believe new elections are imminent. According to a poll carried out by Ipsos Puls, 65,5% of the respondents believe Most’s proposal cannot be enforced. Only 20.3% consider it could be put into practice. Moreover, 54.8% believe new elections will be organised, while 28% want new elections.

President Kolinda Grabar Kitarovic announced that a new round of consultations for nominating the new prime minister will be held next week, after the consultations on December 7 showed that none of the parties had the necessary majority to back a candidate.

The president will nominate as prime minister-designate the politician who has the support of 76 newly elected MPs.

However, time is running out as agreement is needed on a new parliament speaker to avoid early elections being called.

According to the Croatian constitution, the election of deputies to the parliament shall be held not later than 60 days after the expiry of the previous term of office or the dissolution of the parliament.

So far, the newly elected parliament has convened just once, on December 3, but it failed to elect a speaker as Most wanted the support of both the HDZ and the SDP for its candidate Robert Podolnjak. While the SDP supported Podolnjak, he turned down the proposal as he did not have the support of the HDZ. It is unclear when the parliament will next convene.

The inconclusive elections and the political uncertainty are likely to put pressure on the country’s economy which is expected to post growth in 2015 after six consecutive years of decline.

“While the politicians fiddle, actually, the Croatia macro story has been showing signs of improving – with those much better Q3 15 real GDP growth numbers posted last week, better fiscal performance and the current account helped by a strong tourism season – and Croatia should be helped by the Russian ban now on tourism to Turkey and Egypt,” Timothy Ash, a Nomura strategist in London, said in an analyst note.

“If Croatia actually had a government I think the outlook would actually be looking reasonably bright - but politicians' priorities seem to be elsewhere at present.”

The Croatian economy expanded by a real 2.8% y/y in the third quarter of the year, registering the fourth quarter of consecutive growth. The growth exceeded analysts’ expectations and recorded the strongest performance since the third quarter of 2008.