In a surprise move on June 3, Croatia’s technocratic Prime Minister Tihomir Oreskovic called on both his deputies - Croatian Democratic Union (HDZ) leader Tomislav Karamarko and Bozo Petrov, leader of the HDZ's junior coalition partner Bridge of Independent Lists (Most), to resign due to an on-going row between the coalition partners over a non-confidence vote against Karamarko. Oreskovic added that he does not plan to resign.

Macroeconomic indicators for Croatia have remained promising since last year. However, the political stability required to implement long-demanded reforms has not been achieved yet. Croatia’s ruling coalition, which came into power in January, is already on the verge of collapse over a no-confidence vote in Karamarko, due to take place by June 18, which was filed by the main opposition Social Democratic Party (SDP) on May 18.

Relations between Karamarko and Petrov have become too big a burden for the government, said Oreskovic on June 3, according to Reuters. He added that if both leaders resign, the government can continue working on reforms that have already started to produce results.

Oreskovic also said on June 3 that he decided to stop the sale of a sovereign Eurobond earlier this week as he did not want to pay an additional premium for political risk. Oreskovic believes that Croatia may be able to achieve better terms next month. At the moment it is clear that this political situation has started to threaten key national interests, said the PM.

The Croatian finance ministry announced on June 1 that it has decided to issue the only Eurobond planned for this year after only the current domestic political uncertainties are settled. The ministry said it will continue to monitor the trends in international financial markets before launching the issue.

Recent speeches from Most indicate that some of the party's MPs plan to vote against Karamarko, leaving the future of the ruling coalition open to speculation. Most’s position will be decisive since the SDP can succeed in ousting Karamarko only if only five MPs from Most vote against him.

Petrov told daily Jutarnji List on May 26 that due to his political responsibilities and the burden he has become for the government, it would be good if Karamarko withdrew from his role in the executive, Reuters reported.

The previous day, Most MP Ruzica Vukovac said that “the vast majority of Most MPs will vote against confidence in Karamarko, but every day we receive some new information, so we find it difficult to decide today."

Divisions within Most mean the party’s final decision will not be clear until the vote takes place. MPs from the party, even Petrov, have previously criticised the coalition with Karamarkov’s HDZ.

Teneo Intelligence said in an e-mailed comment on May 25 that Karamarko’s dismissal would probably lead to a collapse of the coalition and cause further delays to the implementation of economic reforms.

Teneo thinks it is likely that a majority of Most’s MPs will eventually chose to abstain and thereby tacitly support Karamarko. However, the Most leadership cannot guarantee the unity of its factionalised parliamentary club and as little as five Most votes could ensure that the no-confidence vote is successful. This lack of clarity on the outcome of the vote represents a risk for both government stability and the reform agenda, according to Teneo.

The SDP announced plans to file for the vote of confidence on May 12 after Karamarko refused to resign over allegations in the local media that his wife, Ana Karamarko, had business links with a lobbyist working for Hungarian state-owned energy company MOL.

MOL owns a 49% stake in Croatian oil and gas company INA and is also in charge of INA’s management. The Croatian government, which holds a 44.85% stake in INA, has been locked in a dispute over the company’s management and investment strategy for several years.

Local media claim that the lobbyist entered into a two-year agreement with Ana Karamarko’s public relations company for a €60,000 project.

The opposition questions Karamarko’s opposition to referring the dispute between INA and MOL to international arbitration, while Karamarko argues that the result of the international arbitration could be costly for Croatia and rejects any connection between his position and his wife’s business relations.

Croatia’s independent State Commission of Conflicts of Interest also announced on May 12 that it would investigate the alleged relationship between Karamarko and MOL.

Meanwhile, the HDZ leadership is trying to keep its options open and announced that it would only take an official position after the committee publishes its opinion on the matter, according to Teneo. There is no hard deadline for the decision of the committee, but its publication is expected before the vote.

Karamarko has repeatedly rejected the allegations, and said he would refrain from any decisions involving INA until a decision had been made by the commission. He said the move was to avoid media attacks on himself and his family.

The coalition came into power in January following the November 2015 elections, and holds only 76 seats in the 151-seat parliament, giving it a very slim majority especially following Most’s loss of four MPs.

This was highlighted on May 13, when the government failed for the third week running to gather the majority needed to pass legislation after three MPs from the coalition were unexpectedly absent from the parliament. The government has to gather at least 76 deputies approve any new legislation, according to Croatian law. However, the government could muster only 75 deputies on May 13.