Slovenia Unlikely To Delay EU Accession

BMI View: In spite of recent threats by Slovenia to delay Croatia's accession to the EU on the back of a Yugoslav era banking dispute, we see little scope for this to happen and hold to our forecast for Croatia to join the bloc in 2013. We expect Croatia to make the necessary concessions and for Slovenia ' s position to soften somewhat towards the end of the year.

We see little scope for recent threats from the Slovenian government to delay Croatia's accession to the EU in 2013. Rather, we expect that the two sides will come to an agreement regarding the outstanding Yugoslav era banking dispute towards the end of 2012 and that the Slovenian parliament will ratify Croatia's accession thereafter.

The dispute in question revolves around Croatian citizens' Yugoslav era claims on former Ljubljanska Banka, a Slovenian bank that collapsed in the early 1990s. Nova Ljubljanska Banka (NLB) was formed in 1994 out of its liquidated assets but did not take on its liabilities, leaving 130,000 Croat depositors out of pocket for an estimated EUR172mn. The Croatian government recently suggested that the dispute be put before the Bank of International Settlements (BIS), formerly one of Slovenia's demands.

From Croatia's point of view, we believe the government will make the necessary concessions to gain the Slovenian ratification. Indeed, this is already playing out with the Croatian government already backtracking on previous demands. For example, the government rescinded its rhetorical public support for two banks that had formerly sued NLB earlier in the year. What's more, Croatia's suggestion to bring the dispute before the BIS rather than finding a bilateral solution marks a concession from Croatia.

Trying To Stave Off A Bailout Leaves Little Appetite For Drawn Out Banking Disputes
Slovenia - Public Debt, EURmn & % of GDP (RHS)

The Slovenian banking system is in the throes of a crisis with the government attempting to stave off a full-blown bank bailout limiting appetite for payouts (see 'Still High Likelihood Of Bank Bailout', September 19). Furthermore, Slovenia is likely to believe it has the upper hand in negotiations so long as Croatia is outside of the EU. However, we expect that part of Slovenia's sabre rattling on this issue is down to the upcoming presidential election in the country. While the position is largely ceremonial, and we expect independent incumbent President Danilo Turk to be re-elected, we view the government's resorting to populist rhetoric as a result of its falling popularity (see our online service, August 17, Increasing Risks Of Coalition Break-Up'). Therefore, we believe that Slovenia's position will soften following November's elections.

Although this issue is likely to drag on - the BIS previously refused to act as mediator in 2010 on the grounds that acting as mediator would not have added any value - we see only limited scope for Slovenia to further delay Croatia's accession to the EU. Rather, we hold to our long-held view that Croatia will become the 28th member of the EU in 2013.

Croatia Political Table
Source:, HNB, BMI
System of Government Parliamentary Democracy, Universal Suffrage: 151-Seat Sabor (Four Year Term). Executive power rests with PM.
Head of State President Ivo Josipovi?, Five-year terms, limited to two
Head of Government Prime Minister Zoran Milanovic
Last Election Parliamentary - December 4, 2011
Presidential - December 27 2009 / January 10 2010
Composition Of Current Government "Kukuriku" Coalition composed of Social Democratic Party of Croatia, Croatian People's Party - Liberal Democrats, Istrian Democratic Assembly, and Croatian Party of Pensioners
Key Figures Deputy Prime Minister - Radimir Cacic, Deputy Prime Minister - Neven Mimica, Deputy Prime Minister - Branko Grcic, Deputy Prime Minster - Milanka Opacic, Minister of Finance - Slavko Linic, Minister of Foreign Affairs - Vecna Pusic, Governor of the Croatian National Bank - Boris Vuj?i?
Main Political Parties (number of seats in parliament) Social Democratic Party (61): Centre-left social democratic party led by Zoran Milanovic.
Croatian People's Party - Liberal Democrats (13): Espouses liberal economic policy. Led by Radimir Cacic.
Croatian Peasant Party (1): Populist agrarian party that advocates greater state economic intervention. Led by Branko Hrg.
Croatian Democratic Union (41 seats): Right-wing, Christian democratic party. Membership in the EU is a prime policy objective. Led by Jadranka Kosor.
Other parties represented in parliament: Istrian Democratic Assembly (3), Croatian Democratic Alliance of Slavonia and Baranja (6), Croatian Party of Pensioners (3), Independent Democratic Serbian Party (3)
Extra-Parliamentary Opposition? None
Next Election Parliamentary - 2015
Presidential ? December 2014
Ongoing Disputes Minor border disputes with Bosnia-Herzegovina.
Key Relations/ Treaties WTO, CEFTA. NATO, Accession to the European Union planned in 2013.
BMI Short-Term Political Risk Rating 70.2
BMI Structural Political Risk Rating 75.2
This article is tagged to:
Sector: Country Risk
Geography: Croatia

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