Ruling SDP loses Croatia election but opposition HDZ fails to win it

By bne IntelliNews November 9, 2015

Andrew MacDowall in Zagreb -

Croatia’s conservative opposition has eked out a narrow victory in parliamentary elections on November 8, but having fallen well short of a majority after running a lacklustre campaign and with a new right-leaning grouping of independents set to play kingmaker, tricky coalition negotiations lie ahead. The ruling party, widely seen as having squandered its mandate, hopes to cling to power by assembling a broad parliamentary alliance.

Whichever party claims the prize of forming a coalition, the victory could be something of a poisoned chalice. The government’s election campaign slogan might have said, “Croatia is growing” again after six consecutive years of recession, but the pace is meagre and neither side seems willing to push the painful reforms that might accelerate it.

With 99% of the vote counted, the opposition conservative Croatian Democratic Union (HDZ) was set to win 59 seats in the 151-seat parliament, with the ruling Social Democrats (SDP), who won a thumping majority in the last election in 2011, just behind at 56. A new right-leaning grouping of independents, the Bridge of Independent Lists (Most), has 19 seats, potentially giving it a kingmaker’s role. Until recently seen as a natural partner for the HDZ, it increased its demands on potential coalition partners over the last week of the campaign, making bringing it into government tougher. HDZ figures have scoffed at the group’s demands, while bne IntelliNews understands that the SDP may be more willing to negotiate, from its weakened position. A bne IntelliNews party source says that there's "all-out panic" in the HDZ now, as they see Most leaning towards the SDP.

Too close to call

Initial exit poll results suggested a dead heat between the two main parties, increasing the chance of a grand coalition touted by some diplomats as the answer to Croatia’s woes. But an HDZ-Most coalition, a minority government, or a rainbow coalition headed by the SDP, are also possibilities. It is touch-and-go whether any of these scenarios would provide a government able to last out its four-year mandate.

The first choice kingmaker is still Most. A grouping of youngish figures including popular mayors from Dalmatia, it could be this year’s “third option” that traditionally emerges in Croatian elections. Most has demanded concrete promises of reform and even the PM position for one of its senior figures as a condition for entering the coalition.

Four other parties will enter parliament: the regional-liberal Istrian Democratic Party (IDS) with three seats, the hard-right regionalist Croatian Democratic Alliance of Slavonia and Baranja (HDSSB) with two; a party led by Teflon ex-SDP Zagreb major Milan Bandic two; and anti-establishment Zivi Zid and Uspješna Hrvatska (led by an ex-president and an ex-economy minister) one each. To this add eight representatives of national minorities vying for the attention of both parties.

Despite topping the poll, the result will come as a disappointment to the HDZ, given the weakness of the economy; a party source had said that the party was aiming for 85 seats including coalition partners.

It has been a topsy-turvy few years. A year ago, the SDP-led government seemed to take a second term for granted, but this confidence was punctured when in January the HDZ’s Kolinda Grabar-Kitarovic won a surprise (and tight) victory in the presidential election, beating the SDP-backed incumbent, and the conservatives seemed set to repeat the triumph in the parliamentary vote. 

With Prime Minister Zoran Milanovic appearing belatedly to have realised he was not a shoo-in for re-election, the government unleashed a number of populist economic measures, while portraying the HDZ as a blast from a corrupt and harsh past. The HDZ was ejected from power in 2011 under a cloud of corruption that saw ex-PM Ivo Sanader put behind bars. Sanader was recently freed on bail pending retrial, but the taint of graft still clings to the party in the popular perception; that it is back on the brink of power after less than five years is to many a sign of the magnitude of the government’s failings.

But conversion of Swiss franc loans into Croatian kuna, debt relief for the poor, and the hiring of US consultant Alex Brown all contributed to the SDP closing the gap on the HDZ. The economic recovery has also arrived in the nick of time, with the economy forecast to creep forward by 0.8% this year and 1.0% next, according to the International Monetary Fund (IMF). The government hoped that this, combined with measures like loan conversion, plus dislike of the HDZ and its eminence-grise leader Tomislav Karamarko, would outweigh the three previous years of recession and apparent directionless drift on its watch.

Ain't broke, don't fix it

The SDP and its allies argued that swingeing reforms and austerity were never needed in Croatia, and that it has been painstakingly rebalancing the economy towards sectors such as metals, pharmaceuticals, ICT and electronics, and away from over-reliance on construction, which fuelled the 2000s boom but then crashed. It has eased restrictions on “strategic” investments. It also disputes the IMF’s (and analysts’) assertion that the economy has shrunk every year since 2011. The consensus, however, is that has done too little to liberalise the business environment, pare back labour legislation, and tackle rising public debt, despite its comfortable majority.

The question is whether the HDZ is much more willing to push reforms. Its campaign messaging increasingly veered away from economic policy and towards nationalist messages and boilerplate attacks on the SDP for its status as heir to the Croatian branch of the Yugoslav Communist Party. Karamarko has hinted that the left never wanted Croatian independence, and in rallies regularly cited the name of wartime leader, late president and HDZ founder Franjo Tudjman, of whom he was once an opponent.

The concept of left and right in Croatia is more historical and cultural than economic. One HDZ source with close knowledge of Karamarko says that his party is essentially a socialist one, with a voter base that is both socially conservative and sceptical of economic liberalism. And while the SDP is theoretically social democratic, it has attracted the votes of liberal urban voters who support reform but shun the HDZ’s social policies and tub-thumping.

Senior HDZ sources tell bne IntelliNews that the party will implement pro-business policies, and in particular ensure that Croatia keeps its fiscal deficit within the 3% mandated by the EU.

But promising harsh austerity and free market reforms does not go down well with Croatian voters, so the party took a softly-softly approach, they say. “In spite of not being too persuasive, the HDZ is more likely to implement policies that are pro-business, such as tax cuts and clamping down on bureaucracy,” says one HDZ figure from the last government, on the liberal wing of the party. “On the other hand, SDP have already publicly stated that they do not believe major reforms are needed and their track record has proven that. A large portion of voters may agree with that policy.”

The truth is that few outside Karamarko’s close inner circle know what the leader’s concrete plans are should he become prime minister. A former head of Croatia’s internal security agency and interior minister, he plays his cards close to his chest, even keeping who would take senior cabinet posts vague, allegedly in what appears to have been a successful tactic to keep all his troops hungry.

Even many critics concede that Karamarko is aware of his limitations, and would seek to appoint seasoned experts – albeit from within the HDZ fold – to senior positions, reassuring investors and the EU and Croatia’s neighbours, with whom Prime Minister Milanovic has often picked fights. Grabar-Kitarovic, a former minister of European affairs, ambassador to the US and assistant secretary-general of Nato, is widely expected to take command of foreign policy, including attending sessions of the European Council.

Post-election complications

President Grabar-Kitarovic could play an important role in the formation of the next government, and is likely to turn to the HDZ to form a government first.

The parliamentary arithmetic is difficult, but slightly less complicated than it might have been Two other contenders for the “third option” moniker have faded – the environmentalist ORaH (a split from the SDP), and the anti-establishment Zivi Zid (“Living Wall”) have faded, the former not even entering parliament. Groupings led by political big beasts – former SDP-backed President Ivo Josipovic and former economy minister Radimir Cacic, and Teflon ex-SDP Zagreb mayor Milan Bandic – are expected to scrape seats in their strongholds.

To simplify things somewhat, the small but influential liberal-left Croatian People’s Party (HNS) of Foreign Minister Vesna Pusic and Economy Minister Ivan Vrdoljak at least decided to stand inside the “Croatia is Growing” coalition.

Government figures who talk up the SDP’s chances of hanging on do so partly on the basis that there are more parties amenable to coalition with it in the new parliament. The long campaign is not over yet.

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