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Another Year, Another Penny

As this most adventurous 2017 ends, perhaps it is time to take a look and see where Croatia finds itself today.
When the Plenković government came into office, most observers thought that a cabinet led by a polished European diplomat and comprising several well-known technocrats is just what the country needs. And the initial tone was conciliatory, with the new PM brushing aside most political questions and concentrating on technical matters such as the tax reform.
This was accompanied with visible relaxation of the situation in the streets, as most veteran protestors dismantled their tents and went about their regular business.
Then three things happened – dark political undercurrents of nationalism and radical clericalism started resurfacing, political alliances started breaking up, and of course Agrokor, the biggest private company in Croatia, started to shake.
The government showed less than hoped for prowess in dealing with the first. It could not find its footing on issues such as Nazi salutes, position on WW II, the 1991 war, veteran requests for benefits etc. It tried forming a commission to come up with a neutral solution on “all totalitarian regimes”, but did so mostly in direct response to criticism over ignoring the negative WW II heritage. The commissions so far failed to produce any meaningful result, and the issue of Croatia’s history in WW II seems to be still open to interpretation. So there are still public discussions about how many people were killed in concentration camps, and whether a salute used by the Nazi puppet state of NDH is, in fact, a time-honored traditional salute1. This is accompanied by “wink-and-nod” condemnations under international pressure, but recurrence of NDH imagery in public discourse as soon as international attention turns elsewhere indicates that the issue is still very much present in the political environment.
This translates almost directly to political positions on Serbia and, consequently, Serbs in Croatia. Serbian Chetniks were enemies in WW II, and Serbs were enemies in the Homeland War2 . So they are, in natural progression, taken as a natural enemy today. This simplification leaves little space for basic reconciliation, which still remains needed more than twenty years after the war. Confrontational position on Serbia also weakens Croatia’s position within the EU, as it appears that its negative positions on various elements of Serbia’s accession negotiations are shaped by nationalism and rivalry, rather than on real technical objections. The new Foreign Minister, Pejčinović-Burić (also a seasoned diplomat), seems to be doing better in choosing more conventional paths of multilateralism when it comes to Serbia, but she also appears powerless to shape a new foreign policy course.
For a government led by former diplomats, Croatia is currently in a relatively strange position of having issues with all of its neighbors (except Italy). Relations with Bosnia, always complicated, were additionally soured by two major events – Croatia’s decision to construct the Pelješac Bridge and the last ever judgement passed by the ICTY. The bridge seems to have enraged Sarajevo more as a matter of ignoring its requests and desire to participate in devising a corridor to Dubrovnik, rather than a direct issue with ships that could or could not enter Neum which was pushed to the forefront for a week or two. However, the ICTY judgement and the suicide of one of the accused as it was being read, added a significant amount of oil to the fire. Relations between Croatia and BiH have never been too easy when it comes to Croatia’s and Bosnian Croats role in the 1991-95 war, and in many ways those days still defy easy explanations. But this time the issue was clear – a UN-mandated court, whose decisions Croatia previously recognized and sometimes praised, sentenced six Bosnian Croats for various crimes related to the conflict. What set off an explosion of emotions in Zagreb was the part of the judgement related to existence of a joint criminal enterprise involving the late Croatian President Franjo Tuđman, and several of his top lieutenants (all of them deceased), aimed at securing a part of Bosnia and Hercegovina to Croats and a possible secession from BiH to join Croatia. Regardless of the oft-repeated ICTY mantra that it passes judgement on individuals, not countries, this qualification was seen as delegitimizing Croatian military presence in BiH and interpret Croatia’s actions in the Bosnian war as aggression. Most Croatian politicians from the ruling coalition erupted in anger, calling the judgement “unfair”, “unjust” and many other things. Since one of the accused, Mr Praljak, committed suicide in the courtroom, he was instantly martyred to the cause. His and their justification, and righteous anger at the judgement, were proposed by many HDZ and other conservative politicians and military veterans, including PM Plenković and President Grabar Kitarović. Only after several influential European media outlets called Plenković out as “the only PM in Europe praising a convicted war criminal”, did the furor in Zagreb start to die down. By then relations with Bosnia suffered another blow, causing negative statements from Bosniak politicians and suggestions of lawsuits against Croatia by victims of those crimes. For now the issue dropped under the radar because it seems that all parties involved find the escalation counterproductive, but it remains unsolved and is likely to surface again given the slightest excuse (for instance suggestions of necessity to form a third entity in BiH, or Croat member of the BiH Presidency siding with Serbian President Vučić in public against his Bosniak partner).
Ditto for relations with Slovenia, which keep being difficult over the same issue of territorial dispute in particular after Croatia left the arbitration over the scandal with influence over members of the panel. December visit by PM Cerar did little to assuage fears that there is no rational solution to the problem. Croatia continues to refuse the arbitration decision, and Slovenia continues to insist on it, to the point that the Foreign Minister Erjavec threatened Croatia with another lawsuit, this time at the ECJ, for its refusal to implement the decision. Commentators claim that the net result is actually favorable for Croatia, in which case a lawsuit might be an elegant way out for both and Croatia certainly looks like having nothing to lose there. Also, nobody knows what will happen now that Slovenia started implementing the arbitration decision on its own, and Croatia continues to disown it. For now open clash was avoided by relations between the two EU, NATO and former YU allies are tainted and are likely to need time to recover.
Relations with Hungary are similarly not progressing further from previous conflicts over MOL. Now that Croatia’s position suffered a severe setback when Swiss courts rejected its appeals and expressed serious legal doubt about some of Croatia’s prime evidence, it has toned down its general rhetoric somewhat. It is not clear how this will work out in the near future, especially since the stated Croatian aim of buying back INA from MOL seems nowhere near. To make the story more interesting, local media started running articles about strong Russian interest in buying MOL’s share of INA, and sounding as if a deal is imminent.
If this comes through, and Russia manages to get back in the game over Agrokor, the whole external political dynamic might change. Russian state Sberbank claims 1.1 billion Euro from Agrokor, which Agrokor’s current management is disputing. Once this is resolved, Sberbank as the largest pre-restructuring creditor stands to control at least 12%-15% of whatever is left of Agrokor. Depending on how this is structured, Sberbank might gain significant control over the food giant that once commanded an estimated 18% of Croatia’s GDP. Furthermore, INA is reported to account for another 20% or so of the GDP. If Russian state companies, and therefore Kremlin, manage to get controlling packages of both Agrokor and INA, Russia will have a significant degree of control over up to 35% of the GDP of a NATO and EU member state, no matter how small. In an environment where every vote counts, this might come in handy one day.
And that, of course, leads to Agrokor as the most significant development in 2017. Once one of the largest East European companies, Agrokor was clearly a state project in Croatia with the company receiving state support in many ways and over the past 25+ years continuously. Apparently, it was brought down by its purchase of the Slovenian Merkator, which drained its cash reserves and pushed it into a too-expensive borrowing cycle. On the business side, the government rammed through a law on special management of companies of special interest for the state, which allowed it to take over control of Agrokor and install its administrator. This administrator quickly concluded several deals that caused various creditors to react, including Sberbank trying to start an arbitration in London which the UK courts refused to do. But this caused the Administrator to dispute Sberbank’s claim thus putting it outside of the Creditors’ Council and eliminating any influence over its decisions. So politically, it looked like the Russian influence, if not interest, is eliminated and careful restructuring can proceed safely on the western side. But as the Administrator finally presented his plan for restructuring of the conglomerate, some of Agrokor’s most important suppliers refused the plan. Also, various actors recently started complaining about unequal treatment, and there are almost weekly reports of other irregularities (such as alleged collusion between DPM Dalić, Administrator Ramljak and the US vulture fund that now controls the Creditors’ Council, favored by some media and Agrokor’s former owner Ivica Todorić).
Earlier in the year, Plenković was criticized by the opposition for supporting Ukraine in its dispute with Russia. The critics thought that this risks alienating Russia even further, without any tangible results to show for it. We, for one, believe that Plenković is probably the best Croatian expert on Ukraine-related matters, and do not think he would have acted without consultation with at least some other conservative EU governments. In that context, we see his visit to Ukraine as a consolidated message whose bearer was carefully chosen. Be that as it may, President Grabar Kitarović visited Moscow later in the year, and touched on a wide range of subjects including the Three Seas Initiative, Agrokor and various energy projects. Apparently she also offered Croatia to mediate between NATO, EU and the Russian Federation, saying that renewal of the dialogue between NATO and the RF is of vital importance. But most of those issues carry significant political caveats – political rapprochement with Russia is something that the EU and NATO are handling in gloves on highest levels, energy projects are politically sensitive both because of Ukraine and because of US, EU and other interests in diversification vs. consolidation of energy sources.
Although Croatia is not a major player in any of those, it was involved in failed Družba Adria and South Stream projects, and is now apparently moving towards the US-favored LNG terminal on the island of Krk. And even smaller projects such as conversion of an oil refinery to gas have political connotations, if the refinery from Bosnia is a major polluter in Croatia, and the Croatian Government handles the issue with Banja Luka and Moscow, avoiding Sarajevo.
So Croatian foreign policy appears more complicated today than before it became a member of the EU, and it seems to be getting more complicated instead of less.
On the economic front, although the official numbers currently do not indicate that the overall economy suffered much with Agrokor’s downfall, there are already reports of various suppliers filing for pre-bankruptcy protection. This has not influenced the overall growth, which remains strong. The government claims credit, and the opposition claims that it is a result of external circumstances. For now, major economic projects are still in announcement phase, as is the announced increased utilization of EU funds. In his New Year address PM Plenković promised that the 2018 will be the “year of reforms”, which will certainly be welcomed by at least the World Bank which recently has been calling on the government to start implementing structural reforms.

Domestically, the main issues stayed open for the fourth year in a row. The reform of the curriculum, once a national project started under the SDP government, is more controversial than ever, with more and more ultraconservative notions being raised in the context. All this controversy prompted Plenković to appoint himself to head the Commission for Curricular Reform, seen by most as a highly unusual move as this post is usually occupied by an expert in education or at least an active practitioner. This also caused more than one public rift with his own Minister of Education, who repeatedly stated opposition to certain individuals only to see them appointed by Plenković to positions in the process the Minister is now supposed to lead.
This also seems to indicate Plenković’s supreme confidence in his latest coalition partners, the HNS, who hold the Ministry of Education and who have entered the government on the premise of education being the national priority. The Minister of Education is nominally a non-partisan person, and the HNS so far seems content to allow this process to continue, including its minister being continually and publicly overruled by the PM.
The same goes for issues of WWII symbolism, war veterans, Serb minority, near collapse of the health system, lagging agricultural reforms, and other issues.
But for all that, Plenković’s majority remains very slim, and any change in balance in the HNS or the minorities might bring his government down. As both of these groups promote more progressive political views on a number of issues than most of HDZ’s conservative or ultra-conservative backers, there seems to be constant danger that one of them will see themselves as too compromised and decide to pull out. Which is why many commentators wonder why he keeps avoiding elections, when his party holds the biggest lead over its main opponent SDP in a decade. Although there does not seem to be a conclusive answer, many believe it might be linked to his personal numbers and his apparent tiff with his own right wing. For now, the right wing seems to be winning on most fronts, as the government keeps expanding veteran rights, various conservative positions on human rights and so on, which the conservative side of HDZ campaigned on.
On the opposition side, there does not seem to be a viable alternative. The main opposition party, the SDP, seems to suffer from both lack of policy and lack of leadership, and its numbers keep dropping. General wisdom in Croatia prophesizes that the Socialists will always have their 20% of the general vote. But although in December their numbers actually dropped below that for the first time in decades, the SDP does not seem closer to any change that would enable it to start cultivating new support.
Most, who twice partnered with the HDZ only to be kicked out of the Government by Plenković, keeps losing popular support and is now down to just under 8%. It seems that their initial popularity was with two main groups of voters – the conservative HDZ voters disappointed by Karamarko’s HDZ, and general protest vote. But as Plenković presented a more mainstream HDZ this electorate went back to its main preference, and protest votes now disappointed by Most are turning more and more towards Živi Zid.
Živi Zid continues as a general populist party, without any clear policies except opposition to most mainstream standards, and propensity to theatrics. However, polls indicate that their approach resonates with increasing numbers of voters as they ended the year as the third party in Croatia with over 13%. As they keep actively refusing to partner with any major party it seems clear that their support is indeed mostly based on protest. It also means that their seats in the parliament remain a wild card who could offer support to any idea at any moment, but has so far declined to do so.
The HNS, previously the staunchest ally of the SDP, split into two factions. The main one joined the HDZ and is now participating in the Government, but several most prominent deputies including former ministers Pusić and Mrak Taritaš formed their own party, Glas (The Voice). Glas has recently joined forces with the IDS, Pametno and some other small progressive parties. This may form the basis for a new left bloc, that might provide a credible partner to the SDP which keeps positioning itself towards the centre. Judging from their current numbers, they are still not likely to threaten any of the main parties, but will likely stay present. Just how much is yet to be seen.
The current Government offers an impression of being led by modern but politically inexperienced practitioners, who so far seem unable to translate their considerable experience into actual policies. But so far they have been lucky in that their opposition seems prone to basic mistakes (such as neglecting their own deputies who then deflect in a crucial moment) and still unable to find a common voice to consolidate their ranks.
However, results for Croatia are mixed: general impression of a modern, EU-type conservative government helped the country consolidate some main economic parameters. Coupled with generally positive international surroundings, this has helped Croatia avoid major slumps and maintain growth on several macroeconomic fronts. On the negative side, it quickly became obvious that it was not able to stand up to various extreme right groups and ideas. This led to a situation where Croatia is becoming increasingly isolated internationally, and is beginning to be seen as “part of the problem, not part of the solution”. For such a small country dependent on international exchange, such isolation can be fatal. Also, Plenković himself so far does not seem able to get a proper grip on his party, and has also started exhibiting some traits that might alienate him from some of his support.
Prognosis for 2018 seems to offer much of the same, as most issues do not appear any closer to a resolution. Economically, much will depend on resolution of the Agrokor problem (and in particular its international dimension, which so far seems completely neglected) and the INA situation. If Russia manages to regain its footing in Agrokor, and to buy MOL’s share of INA, it is also likely that Croatia’s international position may start to change as well on a number of topics (from Bosnia to Ukraine and sanctions).
Politically, much will depend on several main issues: whether Plenković manages to establish further control over his party, whether the SDP manages to find a voice and a way of presenting it, whether other opposition groups manage to consolidate, and whether Croatia avoids further international missteps. But it seems clear that most political energy will be concerned with preservation of the status quo, which will leave very little for any eventual reforms. And reforms are necessary if Croatia is to progress, or even just stop regressing.

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