After the EC criticized Croatia for being the slowest EU member when it comes to structural reforms, T-Portal asked three prominent economists how is Croatia actually doing? The EC stressed that the Croatian budget is not under strain because of historically low interest rates and growing demand, especially tourism in Croatia’s case.

MP Željko Lovrinčević, Guste Santini and Mladen Vedriš (former DPM and former chair of the Chamber of Commerce) believe Croatia will have it easy for another year or two, when the growth (and demand) will slow down, and tourists will return to traditional destinations such as Greece, Tunis, Morocco or Turkey. And the public debt will grow together with interest rates. Croatia also lags significantly behind other EU countries.

Lovrinčević believes the next big issue will be the workforce, which countries will compete for. And Croatia, with its low standard of living, will not be sufficiently attractive to workers who must come from abroad, since domestic pools are exhausted. He believes that the current growth and relative budgetary serenity are due to the fact that the budget is being filled with VAT income from tourism, while other sectors are growing by around 1%. This is nowhere near enough to raise the standard of living. This pressure is already felt in sectors such as construction which is reducing the number of new projects because there are not enough workers to actually produce new construction. The same pressure is felt by commercial banks because the demand for new loans is decreasing. Finally, there are no structural reforms in agriculture or large state-owned enterprises. So Lovrinčević believes a selective immigration policy will need to be devised, including land grants and other subsidies.

Vedriš thinks there is no need for a new crisis as Croatia’s GDP today is yet to catch up with 2008. But while the circumstances are still relatively normal Croatia does have a chance to catch up with reforms. Otherwise, it will have to face the consequences of the present situation where it has 150,000 jobs less and 200,000 people less than in 2008. No additional frightening factor should be needed, as Croatia’s growth of (up to) 3% is barely sufficient to finance interest payments. There are no modern investments, and consumption is stimulated by lower taxation of salaries. This is not enough. So the Government needs to select five or seven areas and work on them. The EU has packages to help, and institutions to support reforms. So help is available, Croatia just needs to ask for it.

Santini believes the crisis might happen by the end of this year, depending on when the ECB decides to stop printing money. According to him, the biggest problem in Croatia is a constant change of rules, and infringement on existing rights. Another problems are the politicians who see themselves as on four-year contracts and are unwilling to do anything dramatic for the fear of losing the next term. According to Santini, Croatia is even less prepared to face a crisis today than it was ten years ago, because all the steps that could have protected the economy from such shocks were not taken.