Slow reforms may stall Croatia - EU

For Croatia's European Union hopes, the latest Brussels catchphrase is: "We're ready when you're ready". But no one thinks Zagreb is quite ready to join the bloc yet.

The EU has all but formally sworn to take Croatia in as its 28th member. Unlike Turkey, which opened negotiations at the same time in October last year, Croatia faces no major hurdles or opponents within the bloc, where it is seen as "small and easily digestible".

But Brussels has learned from mistakes in previous enlargements and wants Zagreb to prove by its actions it is politically and economically ready for membership.

When pro-Western Prime Minister Ivo Sanader visited Brussels this month, Croatian media said EU Enlargement Commissioner Olli Rehn had given him a book, signed and inscribed "May 2009", which they took to be the date when the country could join.

But analysts say Croatian foot-dragging on key reforms - corruption, state subsidies, the judiciary and public administration - may push back its entry date.

"There is a mounting list of preconditions - the judiciary, competition, shipyards, subsidies. Not enough laws have been passed, let alone implemented," said Goran Saravanja, a leading regional analyst at CAIB investment bank.

"Only politicians, and even then only some, still talk of EU entry in 2009 with a straight face," he said. "I think 2011 or 2012 is more realistic."

A senior Zagreb official closely involved in EU talks said the country aimed to complete all reforms in the next two years.

"This is still possible but it remains to be seen what pace we'll take in 2007, which is a key year because of elections. If 2007 passes well, our optimism will soar," the official said.

But analysts say few major changes are likely before the elections some time next year, because Mr Sanader has to balance between pleasing his electorate and enforcing reforms, some of which may cause job losses. That means any newly-elected government will have to work all the harder. An EU official in Zagreb who closely follows Mr Sanader's economic policies said reforms were proceeding very slowly.

"Not many reforms are under way and, judging by the government's new Pre-accession Economic Programme, there may be even fewer in 2007. Most of (the programme) is general talk with no operational details or timeline," the official said.

Croatia would become the second former Yugoslav republic to join, after Slovenia in 2004. Romania and Bulgaria are due to join on Monday, and all other Balkan countries are now edging slowly along the road towards EU membership.

Jorn Pedersen, who heads the Foreign Investors' Council in Croatia, said the tasks were clearly known but were not being tackled.

"There are no signs of real reforms. It doesn't mean the government is not aware of the need for them, but it seems there's a fear to take action," he said.

Companies in Croatia seem preoccupied with keeping their share of the small home market rather than preparing for the fierce competition in the EU.

Governor Zeljko Rohatinski said this month the central bank had maintained macroeconomic stability and prepared the country to adopt the euro currency, but the government should do more to avoid a post-accession shock to the economy.

"Unless they use this little time left to restructure the economy, we can expect nothing good from joining the EU at the start," he said.