Recently the Croatian government received good news from the Fitch credit rating agency which kept the country's rating and upgraded its outlook from negative to stable. This proved to be a tap on the shoulder on behalf of the international agencies for the government's efforts to reduce public spending and to increase tax revenues. But is this assessment adequate? This is the question I was asking myself during my conversation with Zoran Aralica, an economist with the Institute of Economics in Zagreb. He believes that the agencies should assess more thoroughly the developing counties, especially those that do not have strong traditions in terms of democracy and do not have transparent public policies as is the case with the western economies. Mr Aralica is of the opinion that much more thoroughly should be explored how the government institutions work instead of applying the same approach as with Austria or Germany.
According to the analyst, the current coalition government, led by Zoran Milanovic, a socialist, is the first to try to do things in a transparent way. But in spite of this, the functioning of the government institutions needs to be improved, a new type policy thinking to be created. Croatia does not believe in policies or at least not that they can deliver something good, the economist adds. Besides, for the past 20 years governments in a row did not bother to change the economic model. At the moment the Croatian economy suffers from low competitiveness, growing unemployment and lack of foreign investments. A major problem, Zoran Aralica says, is the level of public debt, approaching already 50% of GDP. He again emphasised that the current government was the first to introduce new measures to reduce the "embarrassing" in his words, level of debt.
The countries from the Western Balkans and South East Europe in general lack stable political structures and talking purely about a financial crisis in them, no matter what these crises are due to, is incorrect. It is a political crisis. Of a political crisis spoke as well European Commission President Jose Manuel Barroso in his annual state of the union address on September 12 when he surprisingly proposed the EU to move towards a federation of national states. Croatia has a rich experience with federations, Zoran Aralica believes. In his words, the big difference between the former Yugoslav countries and the other communist nations was precisely the federation. The big failure of such a union is the fact that it ignored the market element, the analyst explains. In this sense, the EU will benefit a lot if it explores carefully the Yugoslav case, Aralica says.
Either way, the EU has no other option, he adds, because the foundation is laid with the Maastricht treaty in 1992 when the European Community was abandoned for the sake of a European Union with a focus on the financial sector. In the past 20 years, however, the political structure lags behind the liberalisation of the financial sector and this is why the solution Jose Manuel Barroso offers is optimal. Besides, this would balance the growing in the past years power of France and Germany.
The best thing that can happen to Croatia after it joins the EU next year is bidding farewell to the remains of socialist thinking, Zoran Aralica hopes. However, a big risk is the huge competitiveness the country will encounter after the single market opens for it and this is one of the challenges for the government. He said another very important thing, which the Croatian institutions should take into account because it proved a wrong approach in Bulgaria and Romania, is focusing on EU funds. It is necessary Croatia to think how it can contribute to the EU, what innovative ideas it could bring. He gave the example of the Czech Republic and Poland who act creatively at European level. He assures, though, that Croatia does not consider the EU membership a political panacea that could solve all the problems of the country. Membership brings a new hope and a new direction, he concluded. The entire interview with Zoran Aralica you can watch in the video.