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The Legacy of the Old Yugoslav Lady

Published on , , Sofia

Witnesses claim that Slovenia has a sea where, however, there is only one ship because, if a second moors, she would be in foreign waters.” I remembered this old joke, which of course was made up by neighbouring Croats, as it was in fact Slovenia’s territorial claims that caused a halt in Croatia’s EU negotiation process not that long ago. The problem was that in the times of ex-Yugoslavia no border was drawn between these two former republics and, according to the Croatian side, it should cross the small bay, thus depriving Slovenia of access to international waters in the Adriatic, while Slovenia in turn insisted on getting a larger stake of the bay.

In the end, the two countries agreed that an international arbitration should solve the issue and in the meanwhile Croatia managed to close all negotiation chapters, sign the accession treaty and wait for it to be ratified by the rest of the EU member states before becoming officially a member of the bloc next July. And in this very moment, when the road to membership seemed clear, Croatian newspapers started publishing articles titled “Slovenia is threatening Croatia’s EU accession” and "Zagreb's road towards Brussels no longer seems that levelled". The reason: the disagreement over the Gulf of Piran was not the only problem inherited by the two countries from Yugoslavia’s split up.

The new issue, which is actually not new, is about the former Ljubljanska Banka – one of the biggest financial institutions in the former federation, where some 130,000 Croats also had savings as it was considered more safe than any domestic bank. Back in 1989, however, the bank unites all its subsidiaries in Ljubljana and in the end of 1991 pulls out from the Croatian market. Some of its Croatian clients move their savings to the two largest domestic banks – Zagrebacka Banka and Privredna Banka Zagreb - and at a later stage manage to get their money back as part of the so called old currency savings scheme.

But some of them do not withdraw their money – estimated to be worth some 310 million Deutsche Marks. As the federation fell apart, the bank was declared insolvent and in 1993 Slovenia’s Parliament passed a law, according to which all currency savings, by foreigners, were part of the heritage of ex-Yugoslavia, because before that they were guaranteed by the national bank of the latter. After the bancruptcy of the bank, the Slovenina government creastes the existing even today Nova Ljubljanska Banka and all controversial assests are left outside it. In 1997 a new law is passed, under which the claims of Croatian citizens are banned in Slovenia. Two year later Ljubljana agrees the issue to be solved via arbitration in Washington. The idea is not implemented as Croatia is facing elections the same year and President Franju Tudjman is terminally ill.

Neither in 2001, when an agreement on succession of former Yugoslavia is signed, nor in 2004, when both prime ministers - Janez Jansa (Slovenia’s current prime minister too) and Ivo Sanader - were set to agree but argued instead, so the issue remains unsettled. Peace is temporarily reached during the mandates of Jadranka Kosor and Borut Pahor, but as Jansa steps into office again the issue comes up on the agenda again. Croatia’s Foreign Minister Vesna Pusic was quick to assure that the ratification of the accession treaty was not linked with the resolution of the Ljubljanska Banka issue and announced that both countries had selected representatives – Zdravko Rogic for Croatia and France Arhar for Slovenia – who are expected to come u in the autumn with a settlement.

Croatian media commented that it is not even clear what kind of a solution is sought, as Slovenia is not going to step back from its position. In the same time Brussels said that the issue was bilateral and should be resolved between the two countries. Before that, another attempt to resolve it by the Bank for international Settlements in Basel failed. And while Pusic was explaining that the ratification was not threatened, her Slovenian counterpart Karl Jerjavec said in Brussels that the unsettled problem could delay the ratification in the Slovenian parliament. “Personally, I would like to see Croatia in the EU as soon as possible, to have the treaty ratified. The prerequisite for it however is to settle the issue with Ljubljanska banka, as Croatia took these obligations under chapter 4 (on free movement of capital),” Jerjavec said before the EU foreign ministers meeting in Brussels.

Croatia, in turn, insists that chapter 4 is closed and the country has been implementing its obligations under it. Ljubljana, however, criticises its neighbour of stimulating the trials against Ljubljanska Banka. “Let’s leave it all to dialogue. I am sure that both sides could find an adequate solution, so let us wait for the Croatian side to complete its commitments under chapter 4.” It is expected that the first meeting between Rogic and Arhar will take place in end-August, and by then the negotiations will remain in dire straight. The fact is that even if Slovenia wanted to repay the old savings of Ljubljanska Banka, it would be very difficult due to problems with its financial system. The country’s two top banks – Nova Ljubljanska and Nova Komercijalna Banka Maribor - have serious issues with bad loans, as only to save Nova Ljubljanska (the successor of Ljubljanska Banka) between 1.5 billion euro and 3.0 billion euro are needed.

According to the bank's CEO, Bozo Jasovic, the bad loans, which account for 20% of its loan portfolio, equal to some 3.0 billion euro. The state has already injected 381 million euro to increase the bank’s capital and is trying to find a strategic partner by the end of the year for its 25% stake in it. Despite all this, the fear that Slovenia is going to ask for a bailout from the EU, remain. Besides that, the country could not avoid a political crisis even after the early elections in December, as Prime Minister Jansa introduced some unpopular measures and at the moment the main problem is that he would hardly get enough support to put the so called golden fiscal rule of the EU into the Slovenian constitution. The vote on it is postponed for the autumn, as it could be bound by a confidence vote.

The reasons are summed up by the independent analyst Andraz Grahek in the Financial Times blog: “How do you bring an OECD country with a public debt to GDP of less than 60 per cent and a budget deficit that could range between 3 and 4 per cent of GDP to the brink of losing all access to capital markets and filing a request for a bail-out with the European Commission? Easy. Just ask the Slovenian political leadership.”
Another analyst – Croat David Genjero - also says in the FT that actually both countries were exaggerating the problem in order to mask other issues on the political scene, especially in Slovenia, but all in all Croatia’s accession was not threatened.

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