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Ukraine – when the shooting stops

Kyiv by Marijana Liszt

It’s been some three weeks since the Russian invasion of Ukraine started. So where are we now and where is this likely to go?

Russia seems stalled in general, but its military is continuing attacks on UA cities with increased shelling of civilian areas and facilities, leading to massive evacuation of civilians. Russian military is opening various evacuation corridors for Mariupol and other cities, so that the civilians can get out. Ukrainians, of course, because Russians are on the side of Russia in this conflict.

Stripped of high language, this basically means exodus of one ethnic group from an area. We have a term for this since the early 90’s, and I still remember a discussion in an UNPROFOR base in Pleso on whether it should be “cleaning” (me) or “cleansing” (everybody else). By now, we all know what ethnic cleansing means. Let’s have no illusions, that’s what’s happening in Ukraine now.

There are also signs of high frustration on the Russian side. The alleged second mightiest military on the planet ended up bogged down with problems Eastern Europeans recognize, but which can still surprise western members of the alliance. Poor maintenance, lack of supply of such basics as food and fuel, lack of spare parts and general logistics, failed communication, poor intelligence which claimed all the wrong things, and above all, poor morale, all make up parts of the Russian failure to secure a lighting victory Moscow clearly expected.

Likewise, the real Russian objective in this war is becoming clearer. At the beginning of the war, Russia outlined three objectives[1]: “protection of population from genocide”, denazification and demilitarization of Ukraine.

The main objective, “protection of population”, the excuse worn out since the German annexation of the Sudetenland, seems to mean occupying parts considered “Russian” and cleansing them of “genocidal” non-Russians. If that includes some factories, power plants, arable land or other useful parts of Ukraine (such as ports, or land bridges to Crimea or Moldova), so be it.

The so-called denazification, is as ridiculous on deeper analysis as it is at first glance. Much has been said about it, from Zelensky’s family history, to comparison of systems of government in Russia and Ukraine. But what it clearly meant was a regime change. Thus the (for me surprising) attack on Kyiv. Why attack a city of two million people, which you clearly won’t be able to hold? It seems so that you can decapitate the political leadership and install your own pawns into power.

The objective of demilitarization explains another thing that surprised me, the sheer amount of destruction. Although Russia is nominally concerned with the possibility of UA joining NATO, what it claimed as objective was a complete elimination of its military capabilities. It was clear from the start that 180,000 troops cannot occupy a country as big and as populous as UA. So again, why attack areas you are clearly not going to hold? Apparently, so that nobody else can use them either. It seems that Russia intends to reduce to rubble everything which it cannot keep.

But lately, the Russian negotiators changed the tune[2]. “Dmitry Peskov said Moscow was demanding that Ukraine cease military action, change its constitution to enshrine neutrality, acknowledge Crimea as Russian territory, and recognise the separatist republics of Donetsk and Lugansk as independent states.”

Apart from several obvious questions, such as who should stop doing what, who would control and guarantee any such arrangements, reparations, borders of the so-called separatist republics etc, this seems to indicate where the Russian red lines actually go.

NATO already indicated that any membership prospects for UA are remote, to say the least, and the UA leadership indicated that it is not opposed to neutrality. All fine and well, albeit somewhat reminiscent of Budapest in 1994. From that perspective, the Russian concept of “neutrality” seems to mean “we can come in, but nobody else”. That aside, this objective seems achievable.

Of course, if UA agreed to other claims, and even if Russian troops withdrew immediately (instead of staying on around Kyiv or in Kharkiv as “peacekeepers”, for instance), it beggars belief that Russia would simply let go of the southern corridor it currently holds. Of course, it may not be able to hold it for long, or even use it much, but it now controls it.

Finally, all of this would actually change next to nothing on the ground. Russia was already enjoying relatively peaceful possession of Crimea and the “DNR/LPR”, so why go to war in the first place? There are many excellent analyses of the “why”, and they mostly agree on Russia deciding it was strong enough both internally and internationally, and in a time squeeze because UA, a “non-state” was visibly strengthening its democracy (and military) with every day past. So Russia, in its own mind, had to act quickly, while the US was crippled with what Russia saw as weak leadership, and while Merkel’s successor was still getting his sea legs. NATO was “braindead” anyway, so Macron and others could be seated at the long table with impunity.

To date, it seems clear that Russia’s strategic objective is to consolidate the DPR/LPR area into one contiguous territory, and secure the land strip along the coast to Crimea and onwards to Transnistria, taking Odesa or not. In order to maintain those gains, UA’s ability to wage any kind of a war should be reduced to dust if it cannot be occupied.

However, Russia seems to have miscalculated badly. The invasion is stalled on most fronts, military gains are slight and sometimes temporary, almost the entire force set aside for the invasion is committed, and the military is running out of soldiers and equipment to send to UA. Sure, the real professional units (the dreaded Specnaz and others) have not yet been committed in full. But can Russia really afford to commit its entire military, or even a significant portion, to Ukraine? UA has only one problem, the Russian aggression. Russia has many. To add insult to injury, Russia’s military reputation is going south much faster than its troops.

Russia also missed a step not using the economic levers it had over many smaller countries and some politicians. Whereas last year Russia could’ve used its shares in various European companies to shake local economies, its economic advantages are burnt to a crisp by the harshest sanctions in modern times. Also, its advantages apparently were not used properly in preparation for the war. Guessing why is beyond me, but it might have something to do with the ability to plan realistically.

In addition, and with much more severe long-term consequences, Russia underestimated the international resolve. It clearly did not expect “the political West” (to borrow a phrase from a friend) to agree on such crippling sanctions that stand to reduce Russia’s economy to early 20th century in a matter of weeks. Nor did Russia expect the international community to turn against Russian actions so quickly and in unison. Even China seems uncomfortable with Russia’s actions, and when the US said Russia asked China for help, Beijing “heard nothing of the sort”. (On top of everything, it would be highly embarrassing for China to suffer intelligence leaks because Russia cannot keep its lines secure and western agencies hear everything they say.)

Apart from a handful of client states, Russia is increasingly isolated, impoverished and close to bankruptcy[3]. So the Putin regime may well wonder what it has to show for this adventure, and unless it can come up with at least a few shiny beads, its survival might be in question.

Which is why most analysts expect Russia to escalate, rather than draw down the conflict. Current regrouping around Kyiv, attacks on Dnipro and even shelling of Lvov, indicate Russia’s increasing commitment, not withdrawal, whatever Russian negotiators say. But Russia’s tactics are getting increasingly brutal, with indiscriminate shelling of civilian areas (a phrase Russian political and military leaders would do well to research) and mounting civilian casualties.

It also seems that nobody in Moscow is considering national or personal responsibility for any of this. But the international community should have at least an idea how to treat Russians responsible for the war once the shooting stops. (A side note: I keep saying Russia, and not Putin, because although there is clear resistance to this war in Russia, and although it is a certain limited circle waging this and other wars, the war is still an act of the state, an act of a collective and not of an individual. It’s not just Putin doing this.)

All of this begs the question how does the war end? We’ve seen many excellent articles over the past two weeks on various options, covering everything from Russia’s total victory and a push onwards into Moldova or a NATO-Russia devastating conflict, to overthrow of Vladimir Putin, UA victory, and restoration of international peace (although not necessarily the order as it was).

General wisdom claims Ukraine will not be able to defeat Russia. That is based on sheer size of Russian armed forces, many times that of Ukraine, and the fact that Russia is a nuclear power, which Ukraine is not. But at least several credible scenarios suggest that Russia might not be able to win outright.

What does Russia need to stop shooting? A victory? Something that looks like it? A serious defeat? What of those can Ukraine and the world achieve and live with? If I had to guess, I would think that the real end will come once Russian advances stall completely. And that it would take the form of various lines of partition (Crimea not open to discussion, territories Russia considers independent to be treated one way, territories under Russian military control another, etc.), with complicated maps and lots of color shading. My guess is that Russia will try to consolidate its grip on areas east of Dnipro if possible, or just the east and south strips if wider aims remain out of reach.

If Russia secures the southern corridor (in the process also making Ukraine a landlocked area, with other implications), it might consider it prudent in the immediate future not to attempt to conquer Ukraine entire but secure its gains and concentrate on the future. This calculation could include an immediate push towards Transnistria, or a repose of several years to regain breath, calm down the international furor, regain some of the lost prestige (“we might be bad guys, but we are great warriors so you better be nice to us”), and the like.

But once Russia stops shooting, it will attempt to get back into the international community somehow, and the IC would do well to be prepared to answer such attempts.

From the most immediate perspective (be that in weeks or in years) the EU and the US also need a response to UA and those who will watch their actions. It seems that this response will have to be on unprecedented scale and with unprecedented political engagement. Or rather, precedents that comes to mind are the divided Germany, Cyprus and post-conflict transition societies of Western Balkans.

If Russia offers to stop shooting tomorrow but keep its troops in the south and the east as peacekeepers, what does the IC say? Do we press UA into accepting peace now, with a promise to solve problems later? It seems clear that Minsk 1 and 2 are dead, but it is the nature of international agreements to be remembered in subsequent arrangements. So some elements are likely to survive. And so on.

The ideal situation from European integration perspective (regardless of whether the ultimate aim is a full membership or a strategic partnership) is to have one administrative system which operates throughout the country. Right now, that does not seem likely.

How does one integrate a country where a part is controlled by someone else? There are precedents in Cyprus (a success), Serbia and Kosovo (“postponed successes”). How does one integrate a country divided by a wall? Look to Germany. All of those processes included some really difficult political questions, and UA is likely to raise some of the same. If Russia stays present in Ukraine under some peace arrangement and under whatever guise, the international community needs to decide how to treat it. Will it have a veto, will it be ignored, will it be allowed political and financial influence, will it participate in possible transitional administrative arrangements?

In addition, Ukraine is already badly hurt by the war and it will need to be rebuilt. Hopefully modernized at the same time, perhaps along the lines of the Marshal Plan. Unless Russia is pushed out completely, there will be questions on how to approach such problems in the east, from systems interconnections to airport locator codes, payments, insurance, licensing, billing, security services competencies and jurisdictions, etc.

This is on top of regular transition problems which UA will have to deal with. And regular transition and European integration processes have a tendency to ignore everything that does not fit the process. In several cases it did not really work well. So perhaps this time we would do well to plan for the real situation on the ground, rather than an ideal one we would like to see. This includes technical and security problems, broken promises, administrative failures, changing interlocutors, jurisdictional issues etc. It will not be possible to plan for all of them, but dealing with the unforeseen will be easier if at least some problems were solved in advance. And that planning should start as soon as possible.

[1] https://www.spectator.co.uk/article/full-text-putin-s-declaration-of-war-on-ukraine

[2] https://www.reuters.com/world/kremlin-says-russian-military-action-will-stop-moment-if-ukraine-meets-2022-03-07/

[3] https://news.cgtn.com/news/2022-03-14/IMF-Russia-may-default-but-that-won-t-trigger-global-financial-crisis-18o6e8Z5Hlm/index.html

Henry’s Ghosts

Or how the phoenix of dialogue keeps rising from the ashes…

 

(more…)

How Russia Bought Itself a NATO Country

No, it’s not what you think. (more…)

Convention of Contention

Sisters praying psalms

These days, two Croatian politicians find themselves between the proverbial rocks and hard places, both related to a fairly simple issue of ratifying a Council of Europe Convention on Preventing and Combating Violence against Women and Domestic Violence.

The Convention, commonly known as the „Istanbul Convention“, is a relatively straightforward convention providing more elaborate protection to women against violence based on gender roles, not only on sex. It was ratified, so far, by 29 CoE member states, and a number of others are in the process. So far, all par for the course.

But in Croatia, the issue of ratification quickly became political as extreme conservative catholic organisations and the Catholic Church itself, took issue with the role of gender in the Convention, declaring it to be against the Church doctrine and the natural law when it was signed way back in 2013. So the centre-left government, then in place, decided to postpone ratification indefinitely. The right-wing conservative HDZ then campaigned, among others, on the issue of this Convention, and promised to “implement fully all obligations from the Convention” which the HDZ believed “came into force, for Croatia, in 2014”.

But when PM Plenković decided the Government would send a ratification act to the Parliament, the issue exploded first within his own party. Some of his most senior colleagues openly defied Plenković, claiming that the Convention goes against HDZ basic principles and wowing not to allow its ratification. This was a(n extremely) rare show of disagreement within the HDZ leadership,  and an even rarer opposition to a sitting Chairman.

Some spectators were surprised by the audacity and organization of the opposition, some thought it was relatively moderate. Most agreed on how serious a blow to Plenković’s leadership this was, and many were surprised to see his confident posture when he initiating the project was not based on extensive consultations within his own party. To make things worse, some MP’s announced loudly that they will vote against, and some top ranked HDZ leaders stated that they will back them. Former MFA and the HDZ Political Secretary, Davor Ivo Stier, sent a long letter opposing the ratification, and Plenković’s deputy in HDZ, and the Deputy Speaker of the Parliament, Milijan Brkić, stated publicly that he intends to vote against it. HDZ Presidency supported the ratification with 19 votes in favor, and only 6 opposed. But those six are very prominent names generally seen as leaders of the ultra-conservative faction within the party.

In the meantime, the street protest machinery, used by HDZ so well on previous occasions when it campaigned against liberal causes, was mobilized and gained momentum sufficient to stage a mass protest on Zagreb’s main square, although much less in numbers than when they have full backing of the HDZ (indicating to some observers the primacy of the party machinery over the conservative movement). Its prominent personalities managed several interviews in which the notion of ratification was attacked, and their web sites started publishing numerous articles denouncing the Convention and the ideology. The arch-catholic movements, and the Church itself which seemed to join the melee on the side opposing ratification, in spite of the fact that the Vatican supported its ratification in Italy some time ago. At one point the public frenzy included international conspiracy elements, including Russian financing of extreme right-wing organizations behind the protest. Although there are certainly international cooperation elements among the right-wing movements, it is at present undemonstrated that they can sway public policy to such an extent.

The HDZ chief whip, Mr Bačić, stated that the party has not yet decided whether to allow its deputies to vote on their own, or to demand that they vote the party line. This later option would open the way for HDZ deputies to sink the Government proposal as the current majority hinges on one or two votes. HDZ coalition partners also stand on opposite sides, with the HNS (who saved the coalition when it joined the Government on MOST’s ouster) demanding that the ratification proceed, and the HRAST saying it would be a “breaking point for the coalition”. So from all of that, it would seem that the PM is going to have a hard time with his own coalition, and might end up losing some of their votes at least on this one issue.  

There are also those who see this as a confrontation planned to force a reckoning within the HDZ itself, with Plenković poised to win not only over his opponents within the HDZ but also over the more radical catholic fringe supporters. We do not agree with this view, but it may just come to pass.

Thus PM Plenković took the familiar route of external propaganda, internal persuasion by threats or otherwise, introduction of various “explanatory statements” and an occasional closure of a chapter that disagreed too loudly.

At the same time, the arch-rival SDP was put in front of a serious dilemma: vote for ratification of an international instrument that the party had supported since signing (but has not rushed to ratify), or abstain and let Plenković fall on his own sword. Arguments for both sides are clear – SDP is building its opposition image on protection of human rights, so ratifying this Convention would be more than just expected, it would be a part of its identity. On the other hand, local legislation already provides for protection from violence and discrimination, so ratification should not have immediately visible impact, but losing a vote in the Parliament would certainly spell Plenković’s doom. Whether his government would implode immediately or a bit later is almost immaterial in this case. So the SDP position seems to be the one familiar to every politician – political ideals vs. political pragmatism.

But SDP’s Bernardić’s response was somewhat less conventional and, same as Plenković, seemed to demonstrate lack of serious preparation within the party. So some prominent party members decided to vote for ratification, some to abstain as a vote against the government, and Bernardić himself went back and forth between both positions, settling on an “aye” in the end. Although the situation is less than clear, it would seem that an important factor in SDP’s deliberations was fear of elections. However weak Plenković’s position seems, the SDP is far from certain it would be able to gather sufficient votes to take over. In that case, Plenković would probably come out of elections strengthened as it would give him a chance to purge the party and almost certainly gather at least the same number of seats as he now holds.  And in that position the last thing anyone would expect is the SDP chair to attack opposition parties, as it would need every last vote and every last hand to have a chance at forming a government. Yet this is precisely what Bernardić did, surprising both his former (and likely future) coalition partners and apparently many in his own party. His attack on IDS for cooperating with HDZ in Istria left many baffled, and immediately prompted speculations that he is angling for a coalition with HDZ himself. Senior SDP figures stated that they intend to vote for ratification, regardless of what the party leadership thinks or what interpretative statements the Government attaches. Others, in the end including Bernardić, claimed that they will vote for if the Government does not change the substance with its interpretative statements. But no one took the possibility of displacing the HDZ seriously, which seems to be an indication of SDP’s belief in its own strength (or lack thereof).  

In the end, it seems that the Convention will get adopted in the Parliament, Plenković is likely to suffer some damages to his standing in his own party because of the wide opposition to the Convention, and the SDP is likely to continue floating between the rock and the hard place of deciding what to oppose and what not. If one had to guess, it would seem that in the end the situation will stay much the same, whatever support Plenković loses is likely to be offset by his legislative victory against party opponents, and no conservative activist is, in the end, likely to risk their position of alignment with the Government. This was demonstrated by the Church itself, which after having opposed any notion of ratification for several weeks, came out over the last couple of days in direct support of ratification. This was justified by the Government’s “interpretative statements”, but is a clear change of heart, although for reasons yet unclear. As a side note, the “interpretative statement” turns out to be a stroke of genius, as it allowed both the Church and the SDP to align themselves to the Government position.

The SDP will satisfy and dissatisfy probably an equal number of supporters, and continue hovering around it’s claimed native support of around 20%.

But the issue has revealed several important problems on both sides, primarily lack of planning and preparation by both leaders, and lack of general vision and preparation on the SDP side. Plenković is likely to emerge victorious because he employs a party machinery that is apparently much stronger than anything else around, and does so skillfully.

But the SDP so far seems at least as interested in maintaining the status quo as the HDZ, as it seems completely unprepared to face elections on any level.

Death of Oliver Ivanović

Oliver Ivanović, one of the most prominent Kosovo Serb politicians, was killed in front of his office this morning around 08:15. According to the press reports, he was hit with four or five bullets, found by a neighbor still alive, but died in a hospital within an hour. A burned car was found in a street near by, and the Kosovo Police Service said it was probably the car used in the assassination. So far, nobody had heard or seen anything.

Oliver was a prominent politician in both Kosovo and Serbia, who punched well above his electoral weight thanks to skill and political instincts. He started his political career, as did many other Kosovo Serb politicians, in 1999 as a member of the Serb National Council. At the time, he was also alleged to have been the head of the so-called “bridge wachers”, an organized group of unsavory characters who guarded the bridge connecting North and South sides of Mitrovica. They were heavily criticised by the international community and the Kosovo Albanians, but the Kosovo Serbs credited them with their survival in the north in those troubled times right after the NATO intervention. In those days, a lot of them lived in fear or actually suffered injury or worse.  He was arrested by both UNMIK and EULEX and never ran from the arrest, he met with ambassadors and heads of mission (including UNMIK and EULEX) on regular basis, he was a regular interlocutor to all embassies and visiting missions, and many other things besides.

Through the years he left the SNC, joined a party, started his own party, was an MP in Kosovo and a high government official in Serbia, and participated in more negotiations, conferences and meetings than he could count. He was probably the best known Kosovo Serb politician in the international arena. He was also the only old-guard Serb politician that comes to mind who spoke fluent Albanian. Liked or not, he was respected on all three sides of the Kosovo triangle of Serbs, Albanians and the international community.  And although the author of this article frequently found himself on the opposite side of the table, Oliver was still considered a friend.

The press reports his car was set on fire earlier this year. If memory serves, his car was set on fire or shot at several times before, so that would be nothing new for him. His offices also burnt down in 2013, in a fire that went unexplained. So it is not as if he has not received threats before.

His murder is certainly going to have political consequences. He and his party were just gearing up for the upcoming local elections in Kosovo, and he would certainly put up a strong show. Last time this happened he was a strong candidate for the mayor of Mitrovica, but then he got arrested by EULEX on serious charges, convicted, and seen the verdict overturned. Had he won at that time, the political landscape in Mitrovica could have looked different today.

The Kosovo Government and the EU condemned the murder, and asked for perpetrators to be found as quickly as possible. Serbia held a session of the National Security Council, and President Vučić stated that Serbia wants to participate in the investigation as it feels that its interests were attacked by Oliver’s murder. And a Serbian delegation broke off the technical dialogue talks in Bruxelles, first in 13 months.

This seems as somewhat unnecessary theatrics, as it is not clear what political point it was trying to make. Condemnations by the EU and the Kosovo government also ring somewhat hollow, seeing that they both have a role to play in the investigation, and are expected to contribute to finding Oliver’s killers (The Kosovo institutions directly, through the KPS, and the EU through its largest ever mission, EULEX).

Cooperation between Pristina and Belgrade will be crucial. Belgrade maintains surveillance of the Kosovo border, and many aspects of life in Northern Kosovo still flow through Belgrade institutions, directly or indirectly. Perpetrators might have used Serbian phones, or driven vehicles with Serbian license plates, and for identification of any such element Belgrade would have to want to cooperate. It is not likely that the Kosovo government would accept Belgrade as a formal part of the investigation as the GoK has been trying very hard to prevent any appearance of Belgrade authority over Kosovo (and criminal investigations are certainly an exercise of authority). But there are several ways in which Belgrade can help and services on both sides know how to do it.

It is extremely important for Kosovo (and Serbia) for this murder to be resolved quickly. Oliver was a prominent politician and his murder, regardless of whether it was politically motivated or not, will have political consequences. Also, unless his murderers are found and their motives established, both the Serbian and the Albanian side will keep blaming the other.

Mitrovica was long considered an area beyond redemption, a lawless wasteland where gangs rule and politicians use the misery to their own ends, an area that breeds problems. But Oliver did not see it that way. Whether you agreed with him or not, he was certainly dedicated to his own vision of future for Kosovo Serbs, and it is this author’s firm opinion that without him that future will be a little less bright than it could have been.

Rest in peace, Oliver.

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.

Why partitioning Kosovo is a bad idea…

The author of this article is half-Palestinian, and although he never lived in the Middle East, he nevertheless feels entitled to an opinion about various peace agreements. Ditto on the most famous phrase of the conflict, the “land for peace”. In its original meaning, it stands for Israel giving up the lands occupied in the “Six-Day War”, for recognition and guarantees of peace by Arab countries and, of course, the Palestinians.

So in its most original meaning, the phrase is not applicable to Kosovo in any way (except possibly one, more on that below). And yet, the notion of doing something with the territory to finally settle the conflict comes up every now and then in the Balkan conflicts, with Bosnia and Kosovo being the most notable examples. In Bosnia, the idea was put into practice because territory appeared to be what every side in the conflict was actually after. So the Croats and the Bosniaks divided 51% between them, and the Serbs got 49% for themselves to enjoy. Getting to that point was tragic in every conceivable sense of the word – hundreds of thousands were displaced, maimed or killed, and if establishing boundaries was to end the fighting, so be it. And so it was that in 1995, when the situation on the ground during some very serious fighting reflected the 49-51 partition in terms of territory, a peace conference was called and uneasy peace forged. Bosnia today is not a model of transitional success.

Nowadays in Kosovo, separation between Kosovo Serbs and Kosovars themselves seems to be as clear as ever. Reasons for this are manifold and not a subject of this article. Nowhere is that more visible than in the North of Kosovo, a territory north of the Ibar River bordering Serbia. And it is this part of Kosovo that is most often mentioned as the part that should be partitioned. Basically, the notion goes like this: “why don’t you, Albanians, give to Serbia parts that you don’t use anyway, and be recognized in return and all your troubles will be over”.

So here the problems start: which parts of Kosovo would Serbia claim, and what would Kosovo get in return? Normally, the answer to the first question is “parts where Serbs live”, but more Serbs live in other parts of Kosovo, than in the north. So then the issue is either down to the vulgar territorial trade we’ve witnessed during the Dayton negotiations, which could involve up to a third of total territory of Kosovo, or to a possible “movement of the population” to a more compact area (this last one being considered so terrible that it is hardly ever ushered above whisper).

While still on territory, the north of Kosovo is actually important for Kosovo in several ways. It houses the Gazivode lake and the small power plant, it is a transit area for some of the major power lines, it is a rail and road route from Priština to Belgrade, or from Kosovo to Bosnia, and so on. There is also a small Kosovo Albanian minority living there, and there are more waiting to return after the conflict.

In addition, there is the “what exactly do you mean, recognized?” problem. Would it be a full, standard unconditional recognition of another state, wholly separate from Serbia, with a normal functioning border and “nothing behind that border is any of your business”? Or would it be a “you can get vehicle registrations, but no seat in the UN, you can get a dialing code, but not Interpol, you can have a border but we want a privileged access to our holy sites” etc., etc.? Questions like these keep coming up over the years, and so far there does not seem to be a meaningful answer.

Finally, there is the domino effect. From Belgrade’s perspective, there must be some who see it as not all negative, as it could (and there are at least some in Banja Luka and Belgrade who hope it would) get repeated in Bosnia with the RS. So if Serb areas in Kosovo can secede, why not those in Bosnia? The RS is already independent from Bosnia in everything but the name… Right?

However, from a somewhat wider perspective this argument gets a scary spin. Because, in that case, what is to stop the Albanians in Macedonia from asking for the same? Or the Hungarians in Vojvodina? Or the Bosniaks in Novi Pazar? Or the Albanians in the Preševo valley? Or the Greeks in Albania? Or the Turks in Greece? And the nightmare scenario in Macedonia should be enough in itself to bury any such ideas under a mountain, not to mention possibilities of territorial questions being opened in several EU and NATO countries almost simultaneously. Macedonia could be a trigger to most of those, and Albanians in Kosovo and Macedonia of course know it. So like some others in other countries, they know that some instability in Macedonia could do wonders in motivating the international community attention and focus, and it has been hinted that on occasion they have used it as such. Also to consider are possible Greek and Bulgarian reactions, there is also Albania, and of course the grandmother of the Balkans, Turkey. Would all that mess be worth it? Hardly, at least from the international perspective.

Then, of course, the argument switches to a swap – Kosovo gives up Mitrovica, and receives the Preševo valley in return. With clear guarantees that this is an one-off, does not include any other countries (meaning Macedonia) etc etc. But this argument cannot even get off the ground, let alone get some traction, because Serbia would clearly not be willing to trade the Preševo valley for Mitrovica. Just ask them. The valley is much too important to Serbia in strategic terms, as the main corridor to the south. Just remember the fighting in that area, following the Kosovo war, when the Serbian government invested a lot of effort and credibility to calm the area down and keep it stably within borders. And, for what it’s worth, the Covic Plan seems to still be working many years later.

Just a word on “land for peace” comparison that might have some merit – the original UN resolution basically says to Israel: “give back the land you occupied, and you shall have peace”. The only way this could be applicable to Kosovo is if it comes from Belgrade, and with a qualifier: “give back the land that matters to us, and you shall have peace”. But this analogy has no meaning from any other point of view, so apart from being a good soundbite, the phrase can be discarded altogether when it comes to Kosovo.

It is our view that solutions for Kosovo based on territory other than the established borders will not work, at least in forms outlined above, so the solution must be sought somewhere else. That is clearly a topic for another article.

ICTY ends its mandate by confirming judgement against Bosnian Croats

Today, the International Criminal Tribunal for former Yugoslavia, the ICTY, was supposed to pass its final words. Its last ruling was to be on appeal of the six Bosnian Croats accused of war crimes. But apart from individual responsibility, this ruling had much bigger implications because the original judgement[1] included a claim that the six were members of a joint criminal enterprise (JCE) together with the then Croatian President Franjo Tođman, Defense Minister Gojko Šušak, and Chief of General Staff Janko Bobetko[i]. In short, the stated aim of this JCE was to purge the Croatian parts of Bosnia of non-Croat population and create a territory to be governed by the Croats and eventually annexed to Croatia.

This creates a complicated situation in Croatia. For many years, its political leaders had to deliver a schizophrenic dual narrative: to its voters, including a significant number in Bosnia (and precisely in those parts to which the case refers) that it cares for them and that they are an integral part of the Croatian national body. In support, it provided them with dual citizenships, access to Croatian institutions and so on. At the same time, knowing that partitioning Bosnia was unacceptable to independent observers and the international community, whose support it needed, it supported the international efforts on Bosnia by participating in the Washington and Dayton agreements. This link has always been denied by official institutions. Now, these agreements do not quite provide the Bosnian Croats with their aims as determined in the present judgement, but they do provide a certain degree of self-government for Croats within the Federation. Unfortunately, there are indications that certain political options in Croatia[2] to this day support the idea that the Croats in Bosnia should get more, and which built a significant portion of their support among the people who support the same narrative. As they are currently in power it falls to them now to reconcile the two narratives and explain the judgement to their power base.

So far, reactions to the judgement have been more or less within the expected. The nationalist parties denounced the verdict and the court, mainly in parts that concern Croatia’s involvement, most opposition parties claim that even if the policy towards Bosnia in the 90’s was wrong it was not a joint criminal enterprise, and a few openly blame the early Croatian leadership for both the policy towards Bosnia and the policy towards the ICTY (albeit from differing perspectives).

Finally, most local observers note with concern that this is the only ICTY judgement in which a neighboring country is quoted as “occupying a part of Bosnia” and being a part of the JCE. Such qualifications cannot be found against Serbia for involvement in Bosnia, including in Karadžić and Mladić cases. This, in view of the many, leaves the judgement open to some serious criticism as to which criteria were used to determine involvement and its aims, but that is a different discussion. As it is, the judgement is in and all sentences were confirmed.

However, whole affair was deeply tainted by an incident that took place in the courtroom itself. As the judgement was read, general Slobodan Praljak whose sentence of 20 years was just being confirmed, denounced the court and drank from a small bottle. All reports indicate that he drank poison, and he later died in the hospital where he was taken from the courtroom.

There will, inevitably and rightly so, be questions put to the ICTY and its security providers as to how it was ever possible for a defendant to bring poison into the courtroom, and how come the guards did not prevent him from drinking it. This, as Florence Hartman reminded, was the second time this happened (first time was when Slobodan Milošević smuggled medicine which annulled the effect of his blood pressure therapy. He subsequently also died in jail.). This also diverts attention from the actual substance and will allow the whole proceedings to be viewed in a negative light.

Reactions from the region are so far muted. In Bosnia, reactions depend on where the commentators belong in ethnic and political terms – Bosnian Serbs see this as another proof that the ICTY is  driven by a political agenda, Bosnian Croats deny any wrongdoings on the part of the accused, and Bosniaks appeal for calm and respect for judgements of the court; and all of those reactions are within expectations.

But overall impact of this judgement is yet to be felt. There will inevitably be more divisions mainly along ethnic lines by those looking for vindication of their positions and those that feel disappointed. Even if there will be no legal consequences for Croatia, as most Croatian lawyers claimed today would not be possible, the political dynamics in the Balkan conflict have changed. After many years of back and forth, Zagreb is now labeled as an “occupying force” by an international verdict even if that process was not primarily concerned with that aspect and was looking to establish individual responsibility of the defendants. This will make it much harder to promote any future claims for a Croatian entity to be established in Bosnia. It will also dramatically influence war narratives in both Bosnia and Croatia, and very likely even in Serbia.  

 

How Is the Government Doing?

A year after the new government was sworn in, problems seem to mount at an alarming rate. Although the main macroeconomic indicators show progress, underlying problems seem unable to go away no matter how hard the Plenković team tries.

The biggest of those being, of course, Agrokor. Six months ago, the government pushed through a law that provides basic Chapter 11 protection to “companies of systemic importance”, but with direct government involvement. After months of various revelations of how badly the company was mismanaged by its owner, Mr Todorić, the State Prosecutor finally started prosecuting former management. And the beans started spilling.

First, the Agrokor administrator, Mr Ramljak, accused the former management of misrepresenting the liabilities of the concern by 22 billion Kuna (close to 3 billion Euro), which meant that the total company debt amounted to Kn 56 billion, around 7.5 billion Euro. This is about Kn 16 billion more than the company is worth according to new estimates. But since the Interim Administration recognized only 41 billion in claims, it might be that the company is technically not bankrupt or is only barely so.

In order to understand the magnitude of this loss in local terms, it might be worth remembering that the Kn 22 billion equals the entire Croatian health spending in one year. For comparison, in Germany this would be close to EUR 210 billion. The Kn 16 billion loss over assets is an equivalent of two annual budgets of the capital city Zagreb. And the provisionally estimated Kn 56-58 billion total debt is close to half of the entire annual budget revenue. Agrokor’s revenue was estimated at 16% of the GDP (and this we do not want to compare to Germany). So however this crash is estimated, it is certainly a big one in Croatian terms and seems bound to have macroeconomic consequences even if none are showing for now.

Latest statistics do not show any significant impact of the Agrokor crisis, but some major companies started filing for bankruptcy because of their exposure to Agrokor and inability to service their debt because they cannot collect from the fallen conglomerate.

The real bombshells started dropping when the Attorney General attempted to arrest Todorić, still nominally the owner of Agrokor, his sons who worked at the company, and his various top level managers. The early morning raids, in spite of abundant TV coverage, failed to find any Todorićs at home, revealing some embarrassing details in the process (such as the fact that one of the sons reported to authorities over a month ago that he moved to London, leaving his address on file). Then the local court declined detention for all persons arrested except Todorić himself, but he was still not “available to authorities”. Two sons and other Agrokor managers, in the meantime, answered the summons, got interviewed by the prosecution, and went back to their lives.

Then Todorić started publishing his blog in which he attacked primarily Administrator Ramljak and Deputy Prime Minister Dalić, claiming among others that Dalić blackmailed him and other members of his team, and that the Government coerced him into signing the papers activating the Lex Agrokor. In parallel, a major Croatian daily paper Jutarnji List published the contract on roll-up loan arranged by Ramljak with some 20 creditors, led by the Knighthead Capital Management who became the lead creditor almost overnight when Sberbank refused to participate in the roll-up and Knighthead managed to buy a hefty chunk of Agrokor bonds. The roll-up agreement is on a syndicated EUR 480 million new loan to Agrokor, provided by about 20 lenders. Biggest of them being Knighthead with EUR 200 million. But here’s the catch: Allegedly around 100 million was used to buy back the bonds held by Knighthead at nominal value, although they were trading at around 30%, and some EUR 128 million remain unused. This seems to match the original estimate of the Government Administrator Ramljak that Agrokor will need some EUR 200-250 million in new money to finance current operations. It also seems that a hefty chunk of Agrokor’s property that was previously not mortgaged was now used as security for EUR 1.08 billion, covering the entire new loan, the roll-up amount, and a few bobs in reserve. Sberbank and a Croatian bank already filed complaints against Jamnica for issuing what they consider illegal guarantees for Agrokor loans, but public statements do not indicate whether this includes the latest Eur 1.08 billion block of guarantees.

Two things remain unclear – why were Knighthead’s bonds bought back at nominal, thus possibly putting other bond holders at a disadvantage, and why did the new Administration sign up almost EUR 130 million more than needed thus giving that money priority over other creditors? In parallel, the Sberbank, looking for EUR 1.1 billion, decided to ask for protection in front of the Commercial Court in Zagreb, which denied its request, and then announced it filed against Agrokor and Todorić both in Croatia and in some other jurisdictions with mixed success. Also, this week Agrokor finally published the list of verified claims, and Sberbank claim, the largest individual claim, was not among them. Mr Ramljak’s explanation was that Sberbank should not be attempting to collect both through the Lex Agrokor process (as it participates in the Creditors’ Council) and through an outside court.

Finally, Todorić himself showed up in London, reported to a court, protested that the process against him will not be fair, and got released by the court. Since the hearing is scheduled for April 10, 2018, it is hard to guestimate results but for now Mr Todorić will not be delivered to Croatian authorities. Of course, this does not protect Mr Todorić from Sberbank and other angry creditors.

It seems that the main question in the Agrokor saga is whether the Government, through Administrator Ramljak, favored some creditors over others, and if that is the case, will the budget ultimately have to bear the cost of satisfying creditor demands? The Government says no, the opposition claims yes, and so far there is no ruling from any judicial authority. A point for the Government might be the recent London court ruling recognizing Lex Agrokor as providing adequate protection for creditors, in turn denying Sberbank an opportunity to claim damages in the UK. On the other hand, another London court denied extradition for Mr Todorić, and the next hearing is scheduled for April 2018. By that time, whatever reasons the Croatian court had to place him under arrest, will have largely disappeared. For now there is no way of guessing which way will the proceedings turn. Finally, Lex Agrokor is also being debated in courts in Slovenia, Bosnia and Serbia, where a court in Serbia already denied Lex Agrokor jurisdiction over Agrokor property in Serbia. In Bosnia so far it seems that the company is still able to manage its affairs under the current regime in Zagreb and Administrator Ramljak stated several times he expects the authorities in BiH to be satisfied with solutions offered by Agrokor Zagreb. There also seem to be some large investors ready to get into the company, as both local companies such as Atlantic, and international conglomerates such as Jiangxiong Hu of Zhongya Real Estate, have expressed their interest in parts of Agrokor.

Agrokor was among topics discussed between Croatian President Grabar Kitarović and Russian President Putin. Although she has no competencies over Agrokor, economy or anything else related to the debt, Putin chose to have the Sberbank president join for a meal to stress the topic and the Russian desire to have it resolved (i.e. paid back). Since Mr Putin clearly knows and understands well what the Croatian President can or cannot do, this was clearly intended as political pressure at the highest level Mr Putin can lay hands on. The question here is why did Ms Grabar Kitarović choose to put herself in that position where there was nothing she could get in return for whatever little she was able to do? The answer to that might be the deal to finally resolve the issue of the Bosanski Brod refinery, which will apparently start using Croatian natural gas thus significantly reducing air pollution over Bosanski Brod and Slavonski Brod in Croatia.

On top of that, local media started speculating that Rosneft is negotiating with MOL on purchase of MOL’s share of INA. If that turns out to be true, it would be the second major entry of Russian capital into the Croatian economy. Although estimates vary, between Agrokor and INA, Russia would have direct influence over almost a third of total economy of a NATO and an EU member state, and at a relatively acceptable price.

More on INA, local media finally got a hold of the UNCITRAL arbitration ruling where Croatia lost the case against MOL. The ruling includes some embarrassing detail, such as doubt in Croatia’s star witness Mr Ježić, in DORH’s recording of Mr Sanader and MOL’s Hunyadi, and impartiality of the judge. This is a scathing rebuke of a weak system of administration of justice, which might be further embarrassed by a proposed Italian parliamentary initiative to review the Horvatinčić case which raised quite some concerns domestically but as Italian citizens were involved the Italian parliament rose the issue and it seems the case is far from over in political terms. Coupled with several domestic high profile cases, in which prominent businessmen or politicians were unexpectedly released, where statutory limits were allowed to expire, or where same type of offense apparently got treated differently depending on whether a politician was involved, the Croatian administration of justice is getting more and more widely criticized. Although the backlog of cases is now at around half a million nation-wide (a significant improvement over a decade ago), cases still tend to take much too long and the system leaves a public impression of cronyism and partiality.

In more general terms, Agrokor scandal revolves mainly around misrepresentation of financial data. But these data were certified by auditors, the tax police never filed anything against Agrokor, and state banks continued lending to it until the very last moment. The INA case was built on corruption proven by witnesses and technical evidence that a UN tribunal found doctored. The Horvatinčić case involves court interpretation of evidence which leaves most independent observers wondering how that is possible. Other prominent cases over the past two or three years also leave a similar impression of procedural and factual fabrications which, in the end, leave the cases either unresolved until they expire, or resolved in manners that strain credulity. And this might turn out to be an even bigger problem for Croatia in the long run, as potential investors, both domestic and international, might lose confidence in institutions and seek their fortunes in jurisdictions where they feel better protected.

Croatia already dropped 12 places on the World Bank’s “Doing Business” list, losing 3 places in 2015, and another 9 in 2016.

It also finds itself unable to resolve ongoing conflicts with its neighbors, and it seems it is beginning to provoke a “bad child” response in most European capitals where it lately tends to complain against the neighbors but apparently tends to recognize no mistakes of its own. So when all of this is put together (weak and seemingly corrupt institutions, problems with the neighbors, and weakening international position), Croatia seems to be getting weaker since it joined the EU four years ago.

In spite of that, PM Plenković seems as safe as possible for now, because the opposition does not seem to be able to get their act together and join in overthrowing the Government in the parliament. The latest attempt this Friday failed again, just as the one several months ago, and with less votes against the government (last time the Government barely scraped through, this time it had about 20 votes to spare).

In addition, the main opposition party SDP seems more than ever riddled by internal strife and lack of initiative.  The attempt several weeks ago to depose Mr Bernardić failed on all levels, and there have been no similar attempts since. So for now it is not likely that the SDP, or any other opposition party, will muster strength or initiative to seriously endanger the HDZ government. This should ease Mr Plenković’s mind, as he seems reluctant to go for early elections apparently for the fear of his own right wing.

This right wing of the HDZ in the meantime seems to be consolidating both within the party and without. Party favorites, whether HDZ itself or from supporting parties, seem to be successful in their business endeavors, or in their political attempts to win elections or positions. It seems they also view Mr Plenković and his more moderate appointments as a necessary, but temporary evil.

Will the government be able to govern in the near future? It seems there are no domestic reasons for it not to be able to do so. Unless some external event comes along, it seems that this Government will remain resistant to pressures for the foreseeable time. Whether it would be able to achieve much is a different matter altogether.

A Year Has Passed

This Monday marked a year since the last election in Croatia, when the HDZ beat the SDP against all odds to win another mandate after its Karamarko government imploded in a series of inexplicable self-goals. And an anniversary is always a good moment for stock taking, so let’s see where Croatia is today, compared to a year ago.

Before the 2016 elections, the HDZ held a government in coalition with the Most (“The Bridge of Independent Lists”). Most burst into the political scene as a bit of a surprise, promising to hold both major parties to account and only cooperate with the one (or both) that would agree to their program of reforms. As, to everyone’s surprise, they took 17 seats in the parliament, they could and did hold both major parties hostage for a week or two.  But then, whether for reasons given or because of the similarities of general outlook, they hitched their wagon to the HDZ and, true to form, held the Oreskovic government at gunpoint until the then-HDZ leader Karamarko collapsed his own cabinet. HDZ ratings went through the floor and its arch-rival SDP got a second lease on life.

After HDZ elected the new leadership and made the usual public promises to fight corruption, clean up the government, reform taxes and local administration and above all be a completely different, centrist conservative party, it won a surprising victory over SDP and formed a new government with the Most. This time there was much less courting between the two, as the SDP could not even pretend it could put up a fight to woo Most away from HDZ.

The new cabinet came in with a major project of reforming the tax system, and while that was in the making, trouble again started brewing quietly between HDZ and Most. Several months into the new mandate, the largest Croatian conglomerate Agrokor collapsed. Since Minister of Finance Marić was, in his previous life, Agrokor’s VP for international finances, Most accused him of being compromised and unfit for office. PM Plenković threw the Most ministers calmly out, and a short parliamentary battle ensued while HDZ was cementing its power. This was done with the support of a few disgruntled individuals from other parties, but ultimately HDZ secured its government by luring over several deputies of its traditional enemy the HNS. The HNS got the posts of DPM and Minister of Education, and apparently a promise that the government would get rid of the Nazi iconography that had started gripping the country again. It also got a pledge from the SDP never to work with it again, and the separation of five of its most prominent MPs into a new party. Bearing in mind the HNS’ dismal numbers lately, this may well be their swan song unless they find a new sponsor.

In the meantime the self-assessed biggest achievement of the Plenkovic government, the tax reform, suffered a blow when the property tax part started getting closer to actual implementation. A combination of communication errors, poor preparations, and popular resistance led Plenkovic to back down from starting the new tax on January 01, 2018, ostensibly to “better communicate” but quite possibly to avoid a voter backlash in case of early elections. In terms of the budget, the postponement should have no visible effects anyway, if one is to trust the Government’s public projections which claim it is basically a reorganization of existing local taxes. Interestingly enough, the main campaign was led by a former advisor to Plenkovic’s predecessor Oreskovic, who prepared the tax reform together with Finance Minister Maric. It is not clear if that indicates an organized rebellion of the former cabinet or if it is just a display of common opportunism.

But a more serious blow must be a recent announcement of Valamar Resorts, one of the biggest investors in tourism in Croatia, who cancelled its various investments worth an estimated Kn 2 billion because of the “uncertain tax environment” (probably referring to introduction of the full 25% VAT rate on tourism). This prompted the normally calm Minister of Finance to publicly vent his frustration, but apart from the impact of the cancelled projects, it might have more reaching consequences if other investors of that size decide to follow Valamar’s suit.

For now, the Ministry of Finance claims the budget is being filled at a satisfactory rate, thanks in part to the stabilizing effect of the new government which enabled it to refinance some of its debt at a more favorable rate. But the overall budget deficit seems to hover around the same mark, together with unemployment and other macroeconomic figures.

On the day it received a negative ruling from a Swiss arbitration court in its complaint against the Hungarian MOL, the government announced it intends to renationalize the state oil company INA. Of course, the budget for 2017 (and the Budget Guidelines for 2018 and 2019) include no provision for such a major purchase. The Government promptly found the money in a planned IPO of the national electricity provider HEP. Critics pointed out that the 25% IPO estimated at EUR 500-700 million would bring nowhere near enough cash to buy INA (estimated at around EUR 2-3 billion), and that the money eventually raised would be needed by the HEP for investment and modernization without which the company might fall into disrepair. Other critics asked why the Government thought it a good idea to buy INA, which had visibly deteriorated over the past six or seven years, pointing out that energy security can be achieved in many other ways. In the meantime, the European Commission put the issue of the INA privatization law to the European Court of Justice since Croatia failed to amend the law in accordance with Commission recommendations. And another arbitration, worth apparently somewhere around Kn 1.2 billion, is yet to end in Washington. It is possible that the Government was motivated by a combination of the two factors, where the perceived losses that might come from two lost arbitrations could well offset the monies needed to buy INA outright. Of course, the issue of what to do with a decrepit oil behemoth would remain on the table.

The final blow related to INA came from Hungarian Government last week, when Hungary refused to back Croatia’s bid for membership of the OECD. That being neither here nor there, as Croatia doesn’t really stand to gain or lose much by this, we were more concerned by surprise voiced by the Croatian Government and the President. As it is highly unlikely that diplomatic and other services of both countries failed to communicate such a decision, which among the EU member states could be seen as almost open hostility, we wonder very much what prompted surprise at the top level of Croatian government.

Another major legislative achievement was to be the overhaul of the veterans’ related legislative package. The stated intent was to consolidate various rules related to the veteran population, and help those who could not obtain full benefits. In addition, the Government stated that it wished to clean up the status of veterans who fought in Bosnia and Herzegovina. This, according to Government’s figures, concerns around 505,000 people, slightly over 12% of the total population of Croatia, plus an unknown number of HVO veterans. Although the Government claims these benefits will cost no more than half a billion per year, this figure seems somewhat light as it would allow for only about 1,000 Kuna per veteran in total expenditure. Since this is clearly impossible, the question of actual cost for now remains unanswered. In addition, the Government figures are somewhat confusing as various reports and officials quote different numbers at various occasions, oscillating by more than 10%. The move is mostly seen as payback to the veterans who camped outside SDP ministries while the SDP was in power. The veterans sieged the SDP government for almost two years. In addition, one of the critical votes that got the Plenkovic government through belongs to a retired HVO general known for his hard line rhetoric. He made it clear up front that he demanded back payments to HVO soldiers in exchange for his vote. Of course the issue of Croatian soldiers in Bosnia and Herzegovina remains politically sensitive for obvious reasons, especially now that the court case of Prlic et al. is still open at the ICTY.

Along the same lines, towards the end of 2016 and just a few months into the new mandate, a group of right wing veterans installed a commemorative plaque with a Nazi salute in the inscription. The opposition, at that time including the HNS, demanded its immediate removal, and the government responded by establishing a committee.

But as more and more black shirts appeared in public, and more and more of the public got restless (including several major embassies, US among them), parties supporting the government, including those representing the ethnic minorities, started asking for the removal of the plaque more aggressively. As the government could not hold its seats without support of the right wing groups within its own ranks, PM Plenkovic came up with an interim solution – the plaque with the offensive salute was moved from the site of the former Jasenovac concentration camp to another memorial site in the vicinity. The issue prompted yet another round of discussions on whether the salute is related to the 1941-45 Nazi regime (it is, according to the Constitutional Court) and whether police should act and how. The church also got involved proposing introduction of the salute as an official salute of the armed forces, civil society organized anti-fascist marches, and the issue once again became highly political showing inability (some claim unwillingness, which would be worse) of the government to get a grip on the mainstream political narrative.

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At the same time, the health system slid back in terms of waiting lists which grew by more than 300% in just under two years, going from 380,000 to 1.2 million (more than a quarter of total population), and financing, where the total debt of the health sector is now estimated at around Kn 7 billion with arrears reaching Kn 4.5 billion (almost 3.5% of the budget, and two times as much as in 2015). In conjunction with general lack of initiative and investment cost projections rising several times on unclear grounds, the sector seems to be sliding backwards too fast to stop the crash. It also seems indicative of other sectors, where one cannot really see much happening apart from a few public blunders.

One such blunder was the Ministry of Agriculture attempt to control imports of agricultural goods from neighboring countries (Serbia and Bosnia primarily, it would seem). Although SAA’s the EU signed with both countries ban new barriers to trade, Croatia apparently thought it could slide some new levies under the radar. This did not work and the new rules had to be rolled back within a week as the countries of the region teamed up on Croatia and Bruxelles understandably refused to back the move.

The most dangerous event of the current Government was, however, the collapse of the retail giant Agrokor. Although the Government continued to back it well into the first quarter, it seems that Agrokor could not be saved. The demise was, strangely enough, announced first by the Russian Ambassador to Zagreb, who apparently out of the blue appeared in full military regalia to announce that “We backed Agrokor long enough, and will not continue to do so”. It was all downhill from there, and the Government responded by introducing Lex Agrokor, publicly justifying the move by “saving 60,000 jobs and those depending on it” (the figure itself is slightly exaggerated as Agrokor’s own reports quote 27,000 jobs in Croatia, and a lot of them in highly profitable companies).

The law seems like basic Chapter 11 protection well known in the UK and the US, but with one strange addition – instead of the company choosing its administrator, it is the Government who proposes the administrator to the court, receives reports and advises on further moves. Many are wondering if this direct involvement might lead to direct liabilities for the budget. For now, the Government is firmly rejecting any liabilities, but as lawsuits just started coming in, the full extent of potential liabilities is yet to be seen. And those liabilities might bring the budget to its knees, as apparently Agrokor’s outstanding debt reaches over Kn 40 billion, and the full amount is yet to be determined. Since Agrokor owns significant assets in the region, it remains to be seen how regional governments will handle the matters once it comes to serious litigations. So far, it seems that Slovenian courts accepted at least parts of Lex Agrokor, while there might be difficulties ahead in Serbia.

On the bright side, Croatia did experience its best tourist season ever, and it is not over yet. For the first time in its independent history, Croatia grossed over EUR 10 billion, and in spite of tourism companies warning that the increase of the VAT from 12 to 25% is going to cause serious losses.

But on the economic side, Agrokor was estimated to be responsible for between 15-20% of the GDP, INA for another 15% or so, and tourism at another 18-20%. So the three account for roughly half of the GDP of a small country that has no serious reserves to cushion any blows to the tourist market, and the two other main components are apparently collapsing. Croatia also lost one of its biggest publishers, which was also its biggest bookstore chain. Although lighter in terms of economic impact, this might have Agrokor-level consequences for the Croatian independent publishing industry, and leave a number of smaller towns without their only bookstore.

On the international side, although led by former diplomats, Croatia seems to be at an all-time low in international relations. Relations with Slovenia are spoilt by the Piran Bay arbitration scandal (where Croatia refuses the ruling of the arbitration court because Slovenian side was caught on tape trying to influence the arbiters), and possibly Agrokor’s long shadow. Relations with Bosnia are traditionally difficult, in particular as HDZ is constantly seen as pushing the “third entity” option and in addition getting into a difficult fight with Sarajevo over the Peljesac bridge. Relations with Hungary are difficult because of the MOL scandal, and relations with Serbia are traditionally complicated and now apparently even more. It seems that the diplomatic skill amassed at the top of the pyramid (the President, the Prime Minister and the Speaker are all former diplomats) is not sufficient to improve this situation. In addition, PM Plenkovic was criticized because of his visit to Ukraine earlier this year, where he offered to share Croatian experience in reintegration of territories held by rebels. This offer predictably angered Moscow and Plenkovic took some beating on the issue. However, we believe this was not a blind move. Plenkovic served as a Chair of the EP Ukraine Committee, and is one of best informed diplomats in EU on the matters at stake. It is unthinkable that he would undertake any such moves without coordinating with other EU colleagues, especially those from conservative parties. So we expect him to have at least some backing in that regard. For now, cooperation with other EU partners on Ukraine does not seem to be enough for Croatia not to be seen as a problem child of the Balkans who cannot play with others.

On the internal side, the current Government is still plagued by ghosts of World War II, and its own inability to put a stop to it. In addition, the country is ridden by corruption and white-collar crime scandals involving important names from politics, sport and business. But proceedings seem slow and perfunctory, and almost always collapsing to zero at some point in the proceedings, so the public seems to have little hope of progress. And Croatia still sports an extremely slow and inefficient judiciary with a backlog of cases that could stop Irma in its track.

So altogether, it seems that the HDZ Government has achieved its initial purpose of stabilizing the country (and in particular its finances) after the horrid mess of the Karamarko-Oreskovic government. But lack of political experience (all three heads of institutions are first-time election winners on this level, although highly experienced top level bureaucrats) and initiative seems to be showing through the cracks. The President is by now generally seen as a fringe figure bringing some mild embarrassment, and the Government seems unable to sort out some of the basic issues without tripping over itself repeatedly. Ministers are plagued by accusations of conflict of interest, but as the institutions that should deal with it seem less than fully efficient, nothing is likely to come out of any proceedings on that issue any time soon, certainly not soon enough to have any kind of reassuring effect

But the Government is stable, and held in place more by lack of any opposition than by its own merits. The main opposition party, the SDP, does not seem able to recover from the election loss and changes to its leadership. The party itself seems to be aware of it, and attacks on the current head of the party have started intensifying lately. The grounds chosen are irrelevant, as it seems that at least a part of SDP leadership is determined to get rid of Bernardic at any cost and under any excuse. Apparently they see this as a last-ditch attempt to save the party from demise before next elections.

Other opposition parties are close to non-existent apart from Most, Zivi Zid, and the eternal mayor of Zagreb, Mr Bandic. But Most seems to be spending its credit with the voters at an alarming rate, Zivi Zid, although apparently sporting a clear neo-liberal agenda with conservative overtones, seems unwilling to join any of the major parties in forming a coalition. And the minorities currently seem to be examining their theory that they should support the Plenkovic government and give it time to reform the right side of the political landscape.

So with ten points advantage over its closest rival, no real opposition, several small partners to choose from and almost a third of the popular vote, it is not clear why PM Plenkovic does not go for elections to solidify his position in the the Parliament and his grip on the executive. This could help his personal position in the party as it would make it harder for his own hardliners to attack him if he wins again, and would make his government less dependent on whims of smaller partners who can bring it down at any moment (they, of course, know that doing that would see them out of their chairs probably for good). But for some reason or reasons, he seems reluctant to do so, at least for now. That decision might in the end be taken out of his hands by any of the partners supporting the government, such as the minorities who have been complaining recently of his inability to control the Nazi sympathizers in and around his party. But for now the government remains in place, even if for lack of any better alternative.

 

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