Croatia’s EU presidency disaster

Croatia’s EU presidency disaster

The country will have to confront a disastrous legacy, defined by its silence in the face of accelerating authoritarianism in Hungary amid Zagreb’s own democratic backsliding.

When Croatia’s European Council presidency ends on 1 July, observers will look back at half a year during which the country will not have covered itself with glory. The “Zagreb declaration” that was recently adopted at the EU-Western Balkan Summit and reaffirms the EU’s intent to eventually admit six Western Balkan countries, might well be one of the few highlights overseen by Croatian prime minister Andrej Plenković in this role.

The greatest accusation of failure Croatia will have to contend with is its harrowing silence in the face of Victor Orban’s effective upending of democracy in Hungary. In the guise of a swift response to the coronavirus, the implementation of the enabling act on 30 March has endowed Orban with extensive executive powers, including to rule by decree without an end date in sight. While the move was condemned by member states, EU officials and the United States as a blatant power grab, the silence from the EU presidency was deafening.

“Brother with brother, Hungarian with Croat”

Instead, Croatian foreign minister Grlic Radman stated matters of rule of law were ”an internal political issue for every country” and should be “evaluated” on a country by country basis – a clear violation of the stipulations in the EU acquis. Disconcerting as it was, this wasn’t the first time Croatian officials have demonstratively stood by their Hungarian “brothers” (Radman) in recent months. In fact, the Croatian presidency started off with an outright rejection of continuing  Article 7 procedures against Hungary and Poland for their authoritarian politics, thereby effectively setting the tone for what has followed since.

Croatia’s behaviour seems strange indeed, given that the EU’s newest member had joined the bloc in 2013 with a jubilant president Josipovic proclaiming that EU accession confirmed how “each one of us belongs to the European democratic and cultural set of values”. In what was meant as a new chapter for the formerly worn-torn country, Croatia’s clean record quickly accumulated stains, even if this happened without the boisterous display of provocations against the EU, its institutions and values that Victor Orban so seems to relish.

Croatia’s not so clean record

A prime example is the country’s banking sector, which saw far-reaching structural changes in 2015 after the government enacted a controversial loan conversion law. The legislation not only forced banks to convert loans in Swiss francs into Euros, but also compelled them to foot €1 billion in losses incurred from exchanging the soaring Swiss franc for the weaker Euro.

The banks were quick to question whether the government’s move was compatible with EU rules – an assessment shared by the European Commission, which lamented the retroactive law “almost entirely burdened the lenders”, warned that “the measure goes beyond what is necessary and proportionate” and could result in lower investor confidence as well as a consumer credit crisis. However, Zagreb ignored the stern request from Brussels for a more balanced solution.It also dismissed the European Central Bank’s warning that the law could adversely affect the country’s macroeconomic stability, as investors are turned away and Croatia’s international reserves decline. The ECB clearly identified that such a sequence of events could open the door for Zagreb to permanently undermine the functional independence of Croatia’s National Bank. Croatia’s staunch refusal to reconsider – coupled with fears that this could cause instability in the single market – in 2016 even led to the European Commission threatening to drag Croatia before the European Court of Justice.

The threat to sue Zagreb over ignoring EU law, unfortunately, missed its mark. Just one year later, Croatia once again enacted policy in breach of European standards. In 2017, the government passed the Act on Extraordinary Administration Proceedings in Companies of Systemic Importance. As the timing suggested, this was done explicitly for food producer Agrokor Group, Croatia’s biggest company and in dire financial straits at the time.

Labelled “Lex Agrokor” as a result, the Act caused a political firestorm and was seen as a gift to Russian interests. As the Financial Times reported at the time, “it left Russia’s two largest banks, state-controlled Sberbank and VTB, together holding the largest equity stake” in the company.

The state of play, seven years on

These issues remain sticking points to this day, and even if Croatia’s defiance against Brussels appears mild in direct comparison to Hungary’s, it’s a slippery slope in a country where the rule of law remains often too shaky for comfort. After all, it is important to remember that seven years after joining the EU, Croatia still exhibits autocratic tendencies that are seemingly impossible to purge from its socio-political environment.

Free speech is still restricted, exemplified by the fact investigative journalists are frequently targeted in harassment campaigns, and that the national broadcaster is largely in the hands of government officials. Perhaps worse is that prime minister Plenković put his affinity for autocratic rule on full display when he proposed the parliament grant the government extensive executive rights in dealing with the coronavirus. Although the modus operandi was strikingly similar to that of Orban, the initiative went largely unnoticed in Brussels at the time.

A new hope?

Croatia’s successor to the EU presidency, Germany, will have to pick up the slack and act more decisively on the governance issues plaguing the EU. Berlin has risen since 2015 to become the moral voice of the European Union, be it on migration, fiscal responsibility or climate change, and has traditionally been quite outspoken on the accelerating democratic backsliding in countries like Poland and Hungary.

Chancellor Angela Merkel’s renown for excelling in crisis situations is cause for mild optimism that the EU can recover some of its former strengths. After a disastrous Croatian presidency, the EU needs a clearer path to find a way out of its crises.

Image credit: Croatian Presidency of the Council of the EU/Flickr

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