In the past year, Croatia has made the biggest leap in strengthening the competitiveness of its economy among the new, transitional EU member states, as Adriano Milovan/Novac writes on the 11th of October, 2019.

According to a report by the World Economic Forum this year, Croatia is ranked 63rd on the list of the world's competitiveness ranking, an improvement of five places compared to the previous year.

While this is a success that should be commended, it's not enough to celebrate. Yet. There are several reasons why we have neither reason nor room for a great deal of enthusiasm.

First of all, Croatia's leap a few places on the global competitiveness scale is largely the result of maintaining macroeconomic stability, that is, low inflation. Croatia also received good marks for infrastructure, which in practice means that we are finally doing better in withdrawing money from EU funds.

But, despite the above, this is where the success story ends, and the door opens to failure, or at the very least - omissions. The first of these refers to an already chronic ''Croatian pain'', the total lack of structural reforms. Despite progress on the ladder, Croatia is still a ridiculously over the top bureaucratic country with a large public sector and an extremely slow judiciary.

The second minus concerns the unwillingness of the state and society to tackle the challenges of the 21st century, or to encourage innovation and the implementation of new technologies more strongly, without which we will only continue to go backwards in the future.

Admittedly, it cannot be said that digitalisation is not happening in Croatia, albeit slowly, nor can it honestly be claimed that that there is no innovation taking place, but all this is too slow and on far too much of a small scale. It cerrtainly is not enough for Croatia to actively participate in the fourth industrial revolution.

Because of all this, despite progress in the global competitiveness ranking, Croatia still has the most uncompetitive economy in the whole of the EU.

Yes, the country may be comforted by the fact that it continues to be more competitive than Western Balkan countries, which are not EU members. However, we must also keep in mind that on the global market, all countries are fighting for their place under the sun, and thus for the best possible ranking on the competitiveness ladder.

Croatia's position on that list ultimately depends on them and their moves, and not just our own. This, once again, means that in the future Croatia will have to be faster and better at making changes than others, and that's a difficult thing to imagine indeed. The question remains as to whether or not the country is remotely capable of such a thing.

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Croatia is gradually being woken from its Schengen dreams bit by bit, and it isn't only Slovenia's border complaint standing in the way of Croatia's entry...

As Slobodna Dalmacija/Jutarnji list/Kresimir Zabec writes on the 29th of September, 2019, the Republic of Croatia will not be part of the Schengen area for at least another two years, despite the fact the European Commission is likely to confirm that the country has fulfilled the Schengen technical requirements next week, Jutarnji list learned from diplomatic sources.

There are several reasons for this, one of them being that, apart from Croatia's neighbour to the north - Slovenia, which is blocking entry, Croatia's Schengen accession is opposed by the Netherlands, Germany and France, according to available information.

Although until recently, certain high-ranking Croatian officials have been making quite firm statements about Croatia's potential very early entry into Schengen, they are now very vague. Yesterday in Brussels, Prime Minister Andrej Plenković confirmed that "it is politically important for Croatia to receive a positive assessment by the European Commission on its readiness to enter Schengen, which is expected soon, and now it's impossible to predict when it will enter the area without internal border controls,'' according to a report from Jutarnji list.

Political criteria

It is Croatian MEP Karlo Ressler's committee at the level of the European Parliament that deals with the issue of Croatia's entry to Schengen and migration. The entry of EU member states into the Schengen area is decided by Schengen member states themselves. So, it is no longer the professional criteria that matters, but the political criteria. After confirming that Croatia has fulfilled the technical criteria, there is one Council session remaining during the Finnish EU Presidency before the end of the year, and there will certainly be no debate on Croatia.

The Union will then be chaired by Croatia, which must not place the issue of Schengen entry on the agenda of the Council session during those six months during which it will preside.

After Croatia's presidency comes the turn of Germany, which opposes Croatia's entry into Schengen, meaning it will almost certainly not put the issue on its agenda. In early 2021, Portugal will preside over the presidency, and Portugal is unlikely to intefere with the issue. Then comes Slovenia, which assumes EU presidency during the second half of 2021 and will surely pile on the pressure to stop Croatia's Schengen entry unless the still ongoing border issue between the two countries is resolved.

System reform

Karlo Ressler pointed out that after the decision was made that Croatia fulfilled Schengen's technical conditions, it was still a matter of political decision, and there are several things that do not benefit Croatia at all.

Namely, the reform of the Schengen system is underway, and according to the available information, the Netherlands, Germany and France are all of the opinion that a new Schengen system should be agreed first and then new members should be admitted. Knowing the decision-making system within the EU, which is slow and full of red tape, one can expect it to be a very lengthy process that could delay Croatia's accession for a significantly longer period.

Ressler therefore believes that "a potential delay in Croatia's accession would not be good for anyone because the situation with reforms will be long-lasting."

There is also the issue of Bulgaria and Romania, which have both been awaiting the Council's decision to join Schengen for five years now. Ressler notes that "there is certainly an intention for all three states to be bundled together.'' However, unlike Croatia, Romania and Bulgaria are two countries under EU monitoring, and as long as they are, they will not be allowed to enter Schengen.

The Slovenian veto

According to the currently available information, it is actually Germany who is advocating that Croatia cannot enter Schengen without Bulgaria and Romania going with it. In addition, Germany supports the Netherlands' arguments that Croatia cannot enter Schengen until it has resolved border issues with its neighbours, and Croatia has unresolved issues with all its neighbours except Hungary and Italy.

The Netherlands is also not happy with the fact that there are a great number of Croats living in neighbouring Bosnia and Herzegovina, which is not a member state of the EU, they typically have dual citizenship and, after Croatia joins Schengen, they will be able move smoothly and freely around the EU, without control. For them, this is proof that the Croatian border with Bosnia and Herzegovina, especially the part towards Herzegovina, is too porous.

Yesterday, Prime Minister Plenković cited precisely those valid arguments - the Schengen reforms and the issue of Bulgaria and Romania - as a reason for it being unknown as to when Croatia could become part of Schengen.

"In this context, it's difficult for me or anyone else to be able to give a date, but we'll hold on to and advocate for it in the EU Council based on our concrete achievements and decontextualise it from what could be some political angle being taken by any country," noted Plenković.

Despite it upholding its view, Slovenia is more than aware that it is too weak to veto Croatia's entry itself, so it is trying to push its interests with three much stronger members. However, the Croatian Prime Minister has made sure to warn Slovenia that it cannot block Croatia's Schengen membership indefinitely.

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As Poslovni Dnevnik/Jadranka Dozan writes on the 22nd of August, 2019, in her four and a half years in office as Croatian President, Kolinda Grabar-Kitarović and the President's Office cost Croatia's taxpayers 155.8 million kuna, while in the same period, 186 million kuna was spent on former president Ivo Josipović during his term.

The Croatian Government's budget expenditures reached 66.9 billion kuna in the first half of this year, and this figure suggests spending is within the previously announced annual plan of 140 billion kuna.

The half-yearly realisation is therefore now at 47.7 percent of the annual plan, but as the budget for 2019 has been increased, when compared to last year and with those 67 billion kuna included, it represents an increase of about five billion kuna in total.

Most departments and government bodies are currently spending at a pace slightly below what was initially planned. Some of this is likely to do with the Ministry of Finance and the troublesome Uljanik guarantees and the European Parliament elections.

Since the first elections are presidential ones, and President Kolinda Grabar-Kitarović is often under the auspices of the public precisely through the prism of costs (especially when it comes to her travel), it remains to be noted that the Office of the President of the Republic of Croatia's expenditures amounted to 15.7 million in the first six months of 2019, equal to about 240,000 kuna less than last year.

As previously mentioned, when considering the entire budget mandate so far, President Grabar-Kitarović's office has cost Croatia's taxpayers a total of 155.8 million kuna over the last four and a half years.

At the same time, for the four-and-a-half-year term of former President Ivo Josipović, the Office of the President cost the taxpayer 30 million kuna more, with costs of 186 million kuna (208 million kuna in all of those five years).

Thus, Kolinda Grabar-Kitarović's office has annually spent about seven million kuna less than the predecessor.

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As Index writes on the 19th of August, 2019, Croatian diplomat Elizabeta Madjarevic, whose xenophobic, racist and homophobic texts on social networks were first uncovered and reported by Index, has been suspended and withdrawn from her position at the Croatian Embassy in Berlin.

In addition, the Ministry of Foreign and European Affairs' inspection suggested, and as Jutarnji list reports, the most severe disciplinary measure should be imposed on her, which is complete dismissal.

To briefly recall, Elizabeta Madjarevic championed the idea of a ''pure'' and "white Europe", expressed xenophobic and homophobic views, claimed she was against the idea of universal human rights and at one time accused German Chancellor Angela Merkel of suffering from a "lack of her own culture".

The Croatian Ministry of Foreign and European Affairs (MVEP) swiftly responded to Index's report and promised action, stating that diplomats are supposed to comply with Croatia's official policies.

Croatia's responsibility to protect its reputation abroad has seen severe action taken against Elizabeta Madjarevic.

We'll continue to update you on this situation as and when news becomes available.

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In Croatia, one forgotten parasitic socialist relic has remained, and that is politicians holidaying in state residences, at least according to one of Croatia's singers-turned-presidential candidates, Miroslav Škoro.

As Poslovni Dnevnik writes on the 11th of August, 2019, the presidential candidate pointed out that Croatia's leading people within the government enjoy a handsome income and that they can pay for holidays anywhere, and that they don't need to be doing so in state residences.

Presidential candidate Miroslav Škoro made the post on Facebook, aiming for the summer holidays of some of country's leading people, who often take such breaks in state residences.

''Over recent days, we've heard that the leaders of the state, the president and the prime minister, are on holiday. Where? She's at the Peneda military facility in Brijuni, and he's at the Costabella state villa in Opatija. They're both paying for their holidays at a privileged price,'' wrote Škoro, in a post which began with his aim to put an end to the practice of politicians spending their holidays in state residences should he be elected.

''Everyone in Croatia wishes they could afford to spend their holidays in Brijuni and Opatija for themselves and their families at the prices and in the conditions under which our politicians get to, but that's just their privilege. I will put an end to this practice,'' wrote Škoro.

He noted that the leading people of the state have handsome enough incomes for them to be able to pay normally for holidays anywhere at all, and most importantly of all - at the regular rates that everyone else has to pay.

''State residences should be placed on the market and this relic of socialism of holidaying in state facilities should be abolished,'' concluded Škoro, in a Facebook post that will surely earn him respect from the public.

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As Index writes on the 26th of July, 2019, Prime Minister Andrej Plenković and Finance Minister Zdravko Marić presented the fourth round of tax reforms for the mandate of the current government today, which in their words brings a total tax relief of 3.75 billion kuna.

At the beginning of the presentation of the contours of the fourth round of tax reforms, the PM recalled that "his government started with the policy of relief for the economy and citizens from the very beginning", N1 reports.

"In the fourth round [of tax reforms], total relief in the next year will amount to 3.75 billion kuna" said Plenković.

No tax for under 25 year olds

"We've decided on another measure of tax relief, which means that persons under the age of 25 will be fully exempt from tax obligations, and those from 26 to 30 years of age will get 50 percent off," said Plenković.

"Those who enter the labour market and have freedom of movement will gain a certain type of position in their early stages of active business life, enabling them to realise higher levels of income and stay in Croatia," the prime minister added.

Taxes on sweet drinks, more excise on cigarettes and alcohol

"There will be a change in the taxation of non-alcoholic beverages by the share of sugars added. We will try to reduce their consumption, especially by children, in order to have a positive effect on their health," said Plenković. Excise duties on harmful tobacco products, as well as alcohol, will also be increased.

VAT in the hospitality sector slashed to 13 percent

"VAT on food for hospitality facilities will be reduced to 13 percent. We're taking this measure to maintain the level of income from tourism,'' the PM stated.

"Croatia can go enter the fourth wave of tax reforms based on the achievements so far and the fact that we have a clear direction for strengthening the economy and the [tax] relieving of citizens and entrepreneurs. I'm expecting suggestions and criticisms through the process of public debate and consultation. Each of the measures can take effect before January the 1st, 2020, through by-law acts,'' the prime minister said.

Marić: This is a stimulus for young people

Finance Minister Marić, speaking about tax relief for Croatia's youth, says they have tried to push one measure through the tax system.

"The tax system can't solve all our problems, but it has to and should give some incentives, and that's the goal of this measure.

We want young people in the early stages of their working lives to have extra benefits and stimuli. This is one incentive, and over the years it does not have to mean that salaries will decrease. A young person can advance in a company,'' he said.

He does not yet know whether this measure will be limited to contracts for an indefinite period or for all types of employment, and it is already known that the measure will not apply to authorship contracts and honorary jobs.

"We're talking about 380,000 young people and not everyone is caught in the scissors of income tax, so, this is something that will reflect on 250,000 young people,'' he said.

Will the salaries in the hospitality industry rise?

Asked if the reduction in VAT on food preparation in the hospitality industry will increase salaries, he said: ''the intention of all of these measures is to broaden the number of taxpayers. The biggest emphasis is placed on the hospitality industry because those operating in that field are primarily small and medium-sized companies. I don't want to induce too many expectations with myself or with others. It's on them,'' said Marić.

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As Marija Brnic/Poslovni Dnevnik writes on the 20th of July, 2019, after Croatian Parliament ratifies the Croatian Government's cabinet reshuffle, Andrej Plenković's "ship" will probably carry in sailing just as it has until now right up to the end of his mandate and an unfortunate situation such as the country assuming the EU presidency under political instability, will likely be avoided. That all looks great on paper, but it doesn't change anything at all as far as the state of the Croatian economy is concerned.

PM Plenkovićs ''new people" are Marija Vučković, Vesna Bedeković, Ivan Malenica, Gordan Grlić Radman, Josip Aladrović and Mario Banožić.

When it comes to what might be positive for Croatian business, judging by the first estimates, would be an attempt by this group of new Croatian ministers to distinguish Croatia's infamous negative business and investment climate and the absolutely tragic public perception of the state management system.

"Political stability is a prerequisite for economic growth, so it's most important that after the reconstruction of the government, that the continuity of the economic policy that goes in the direction of tax breaks for entrepreneurs remains as it is. If the staff changes in the government contribute to improving the business climate and making life easier for businessmen, then we'll support it,'' stated the Croatian Chamber of Economy's Luka Burilović.

Among the first comments on the changes in the government were made by Gordana Deranja, the president of the Croatian Employers' Association (HUP), she wants to sit tight and wait for another few days, when the first, concrete steps of Croatia's brand new ministers can be seen.

"It is the right of the prime minister to appoint their people, and I can only say that it's important for them to be aware of the situation and that there needs to be continuity in the implementation of reforms," ​​claimed Deranja.

Businessmen haven't had too much of an issue with the fact that most of Plenković's newcomers didn't leave much of an impression at all, and the public didn't hear their goals - yet. Partly because, according to all the information available, they had been selected at the last minute, and partly because the prime ministers' approval for all of the important decisions in the work of their respective ministries was an absolute must.

The ''new'' Tomislav Tolušić (former state secretary at the Ministry of Agriculture) Marija Vučković, has made it clear that no major changes have been made in her line of work, and that the continuity of the policy led by her boss will be a must. Eventually, as she herself says, it will likely be upgraded, and that is precisely what Mladen Jakopović, the president of the Croatian Chamber of Agriculture, expects of her.

"She is a very meticulous person, who counts all the decimals in their exact details and holds all of the rules and regulations close to her, we'll all be satisfied," stated Jakopović, adding that an important phase of negotiations is now underway. Since Vučković was Tolušić's most trusted person, no major personnel changes are expected within that ministry.

Although the former minister of labour, Marko Pavić, became somewhat unpopular because of his lobbying against the referendum initiative "67 is too much" (a retirement age issue) and Josip Aladrović is a supporter of pension reform, he has not yet wanted to be open about his position, but has asked to wait for the votes to be counted and verified in order to ''do what will be essential for pension reform in future''.

Petar Lovrić, president of the Association of Independent Businessmen and Employers, announced that he will immediately request a meeting with the new minister of labour to discuss not only the bad management of the pension system, but also the need for relief for employers when it comes to the burden of sickness, because it is absurd that employers need to pay for health insurance and sick pay.

The former minister had no desire whatsoever to listen to that issue. Lovrić believes that a short-term solution to the problem would be to put the current finance minister in the position of vice president for the economy because he highly values Zdravko Marić, but in the long run, he says this isn't the best solution, because the finance minister is primarily concerned with the budget and should therefore strive for the stronger authority of the economy minister.

Mario Banožić didn't really make how he intends the state property ministry clear in his recent statement. When he sees the analysis, he says, then he'll know more. Mladen Pejnović considers that the ministry's focus on property had been wrong up until now, and that the enterprises were unfairly neglected.

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The introduction of the euro as Croatia's official currency, thus replacing the Croatian kuna, has been the subject of much talk and heated debate. While some are completely for the move for practical reasons, others are sad to see the kuna go, seeing the introduction of the euro as a loss of Croatia's precious identity, which was so hard-won.

The debate about Croatia's imminent entry into the formerly highly problematic Eurozone continues to go on, with frightening memories of the Greek crisis still fresh in many a mind. Some are even demanding a referendum on the adoption of the euro, but the truth of the matter is that Croatia had to agree to adopt the euro eventually in order to join the European Union, of which it became a full member back in July 2013. Love it or hate it, it's happening - but when?

Croatia has officially sent its letter of intent to the appropriate bodies, as well as a list of promises to reform many key areas in the country's usually draconian national policies. The country's letter was met with a positive reaciton from the powers that be, and Croatia now has a mere twelve months to implement everything asked of it in order to enter the ERM II, a sort of pre-euro waiting room, in which it will remain for around two years.

As Poslovni Dnevnik writes on the 15th of July, 2019, the aforementioned letter of intent that Croatia sent to Brussels regarding Croatia's planned introduction of the euro was assessed by Finance Minister Maric as one of the most important moments in Croatia's recent history. It is possible, as he himself says, that the euro will become Croatia's official currency at the beginning of 2024, as he said to RTL.

"It's difficult to say which year it will be, but I'd say that [the above mentioned date] is possible. We've taken over the obligations to fulfill some of the [prescribed] measures. We have to do this ourselves to boost economic growth. The year you've mentioned is realistic,'' the minister confirmed.

He also announced what many, especially those working in tourism, have been wanting - a lower VAT rate from January the 1st, 2020.

"We have pledged to continue reducing the parafiscal charges. One of the relief measures is the lowering of the VAT rate as of January the 1st, 2020. We're well on track to find space to give a new ''flywheel'' to employers to be able to pay their employees higher salaries. When it comes to what shape that will take and which way it will be done, we'll have to wait a few more weeks. When we do everything, I will first present it all to the President of the Government, the Croatian Government and the parliamentary majority, and then we will go public with it all,'' the minister stated.

The final decision when it comes to Croatia's entry into the Eurozone lies with the Eurozone's member states, and the European Central Bank.

Make sure to follow our dedicated politics page for much more on the political scene in Croatia, as well as Croatia's pending Eurozone entry.

As Novac/Martina Klepo/Augustin Palokaj writes on the 7th of July, 2019, a meeting between Eurozone finance ministers took place in the Belgian capital of Brussels, during which the formal request made by the Republic of Croatia for entry into the Eurozone, ie the so-called ERM II exchange rate mechanism, was discussed. This is the first step towards the introduction of the euro.

The letter of intent was sent by the Republic of Croatia to European institutions on Thursday by Finance Minister Zdravko Marić and Governor of the Croatian National Bank Boris Vujčić on behalf of the country. Croatia was in turn provided with numerous reforms it had to ensure were done.

As can be revealed unofficially, it seems that the Eurozone's finance ministers will formally accept the Croatian request, just as they did one year ago for Bulgaria, giving the Balkan country the green light to initiate the introduction of the euro and replace the Bulgarian lev.

If we're judging from the case with Bulgaria, the Eurozone's finance ministers will set a time frame of about one year in which the country will have to take certain steps which we've already reported on and linked above, and carry out the domestic task it has committed itself to in order to enter the ERM2. Each country must remain in this sort of ''waiting room'' for at least two years before actually entering the Eurozone.

Despite the fact that back in January this year, Valdis Dombrovskis said that Bulgaria's upcoming ERM2 entrance was to be expected ''in the middle of this year'', an official call for that has not yet arrived.

The length of this process depends on the country itself, ie, what it will need to engage in to ensure it can fulfil the measures it has committed itself to in order to enter, so it may take longer than a year if needed. The goal of Croatia's authorities, of course, is to enter the ERM2 within one year, and officially enter the Eurozone, thus abandoning the kuna and adopting the euro as its currency, by 2023 at the latest.

During that period, Croatia should also join the banking community, increase measures to prevent money laundering, and take other measures as preparations for entry into the eurozone. Among the most important measures are the need to improve the performance of statistics, greater public administration efficiency, and reduce business barriers. These measures are not only related to the Eurozone, but are also part of the specific recommendations that the European Commission has provided to Croatia in the context of convergence reports.

When asked if there are any political obstacles to entry into the Eurozone, and if any such things are expected, Prime Minister Andrej Plenković said during his stay in Brussels that he didn't expect anything like that "at this stage".

However, this doesn't mean that Slovenia, for example, won't create issues and barriers for political reasons, ie, for Croatia's continued refusal to accept the decision in the dispute over the border. Slovenian politicians have often made it clear that they will not support Croatia's entry into the Eurozone or Schengen because, as they believe, "Croatia violates the principles of the rule of law".

However, the question is how much Slovenia will manage to gain the understanding of other member states in that regard. For the European Union, it was important to prove that the euro as a currency was still attractive and that the Eurozone's expansion continued despite the Greek crisis that seriously jeopardised the eurozone and threw the euro into troubled waters.

Croatia will also be able to count on the technical and financial assistance of the European Union during the process of introducing the euro. The European Commission has also proposed a special fund for this purpose, and Jean Claude Juncker, President of the European Commission, announced that such assistance will be offered during a recent visit to Zagreb.

Entry into the Eurozone is one of two key strategic goals Croatia has had since joining the EU six years ago, in July 2013. For Croatia, joining the Eurozone is much more than just a financial issue.

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Much has been made, both in a negative and in a positive sense, of Croatia's intent to join the Eurozone and introduce the euro as its official currency. While the move has remained unpopular in the eyes of many residents of Croatia, a proportion of whom desire a referendum on the matter, the Croatian Government insists that it's a done deal and was part of the package Croatia has to agree to in order to join the European Union back in 2013.

Rumour has it that Croatia will not join the Eurozone for a good five years yet, but even so, some members of the government have itchy feet.

As Poslovni Dnevnik writes on the 3rd of July, 2019, Finance Minister Zdravko Marić and Croatian National Bank Governor Boris Vujčić have made it abundantly clear, Croatia has just twelve months to meet the necessary requirements for the country's entrance into the Eurozone, a concrete move planned within the next few years.

Croatia will have just one year to fulfil its promises given in its pledge for entry into the European Exchange Rate Mechanism, a kind of official ''lobby'' on the way to the introduction of the euro as the official currency. As was recently reported, a letter of intent for Croatia's full entrance into the ERM II was sent by Zdravko Marić and Boris Vujčić will be sent by the end of this week, which the Croatian Government is expected to authorise today.

Just what have the pair promised in their letter? It can be revealed that the letter contains promises to fulfil nineteen measures from six key areas. This was confirmed yesterday by Minister Marić after the session of the National Council for the introduction of the euro.

"In the letter, we have expressed our intention to enter the exchange rate mechanism, but at the same time, we put on paper, as an obligation, what we'll make sure is done over the next year. These measures concern the strengthening of the capacity and quality of the Central Bureau of Statistics, the prevention of money laundering and the financing of terrorism, the improvement of the business climate, and the improvement of business conditions in Croatia through the further reduction of parafiscal charges and the area of ​​state property,'' the Finance Minister stated.

He added that Croatia's announcement of entry into the European Exchange Rate Mechanism on Monday should be one of the topics of a regular Eurogroup meeting.

"The better we do our homework, the better and more positive the effects will be for all Croatian citizens," he added.

The finance minister reiterated yesterday that Croatia's entry into the ERM II is a step towards the introduction of the formerly problematic single currency, and Croatia will remain in that exchange rate mechanism for about two years, during which the Maastricht criteria will be tested.

However, not everything lies in Croatia's hands, when it comes to the entrance of a country into the ERM II, the existing members of the Eurozone and the European Central Bank have the final decision.

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