The European Commission said on June 2 it considers that the excessive deficit procedure (EDP) against Croatia should be held in abeyance as the country has taken the necessary measures to reach the structural targets envisaged in the EDP Recommendation.

The Commission launched the EDP against Croatia in January 2014 and recommended that the country should cut the excessive deficit to 2.7% of GDP until 2016. The EDP Recommendation also requires that Croatia should reach a headline deficit of 4.6% of GDP this year and of 3.5% of GDP next year.

The EC said Croatia is expected to meet the 2014 headline target. The EDP is a step-by-step procedure for correcting excessive deficits that occur when one or both of the rules (that the deficit must not exceed 3% of GDP and public debt must not exceed 60% of GDP) are breached.

The EC 2014 spring forecast sees the Croatian budget gap reaching 3.8% of GDP this year and 3.1% of GDP in 2015.

The EU council of finance ministers will discuss the Commission's recommendations at its meeting on June 20.

The EC also published on June 2 a series of country-specific policy recommendations for each member state. It proposed eight recommendations for Croatia regarding budgetary measures, retirement age legislation, labour market, unemployment and business environment among others.

The EC recommended that Croatia should reinforce the budgetary strategy and find additional measures to cut excessive deficit by 2016. Also, measures to strengthen control over expenditure are needed. The EC recommended Croatia to present an action plan by the end of the year envisaging a more efficient tax administration.

The country should also implement the second phase of labour law reform regarding conditions for dismissals and working time and review the wage-setting system. The EC also recommended the adoption by May 2015 of legislation to accelerate the harmonisation of retirement ages of men and women and to increase the retirement age to 67.

The country is also recommended to improve the business environment by cutting administrative requirements and to present by October this year a plan for the management of state-owned companies.