28th June 2013
Croatia will become the 28th member state of the embattled European Union after ten years of negotiations but some fear the economics of Europe will put a lot of strain on the relationship writes Philip Scott.
Croatia’s membership marks the second ex-Yugoslav country to sign up after Slovenia did so in 2004. Since then a great deal has changed and the question now is, will membership of the European super club prove beneficial or detrimental to the young nation?
Some commentators have questioned whether Croatia ever actually managed to meet the criteria for entry or whether influential allies in Northern Europe fast tracked their application.
Jason Gaywood, director at foreign currency exchange brokers HiFX says: “The fact remains that entry to the EU at this time is a double edged sword.
“Initially, it is difficult to see how either party will benefit. With a credit rating of ‘junk’ and a deep-rooted recession, Croatia will need a good deal of EU aid in the coming years – some €13.7bn of ill afforded funds has been earmarked for infrastructure improvements between 2014 and 2020. An additional €655m or 1.5 per cent of Croatia’s GDP has been set aside for this year. So onboarding this small country on the Adriatic coast will be expensive for the rest of the already beleaguered Union in the short-term.”
From a domestic perspective, membership should be good for the Croatian economy. EU membership removes the trade barriers that have existed there until now. Overnight, the 20 per cent levies on EU imports will be removed for the nation and across the EU, exporters are likely to be pleased at the prospect of an additional four million plus new customers who will be keen to buy quality goods – particularly from Germany.
But experts fear the inefficient and cash starved Croatian manufacturing and agricultural sector will find it almost impossible to compete. In addition, the important tourist sector is unlikely to benefit as the domestic Croatian currency – the kuna is not set to be replaced by the euro for a couple of years at least.
Croatia, however wants to join the euro zone as quickly as possible despite the problems that have beleaguered the currency region in recent years, the Croatian National Bank Governor Boris Vujcic said earlier this month.
He said there were few drawbacks to Croatia joining the euro because the country’s monetary policy already lacks independence as it is constrained by the high level of euros already used in the country, particularly by banks as theWall Street Journal has reported.
Gaywood adds: “In the fullness of time, the balance of probability is that Croatia will reap the benefits of better roads and other infrastructure improvements but, as we have seen with Portugal, Spain, Ireland, and others, the price of integration could be huge for a nation keen to rid itself of a troubled past. Time alone will tell but history would suggest that the net result of an ill-informed arranged marriage is a bitter and expensive divorce.”