Croatia and the E.U.

On Monday, Croatia becomes the 28th country to join the European Union, its accession seen in Brussels as a triumph of the European project. An authoritarian country riven by conflict, where war criminals once operated with impunity, has been transformed. Despite the euro crisis, the Union’s “magnet effect” is still widely regarded as having the capacity to change wayward nations into states that follow liberal European norms.

Yet, while accepting that Croatia has made great strides in overcoming war and authoritarianism, there are compelling reasons why the country’s admission could be premature. Widespread political and economic corruption persist, and its courts often show an overly lax attitude toward due process. The biggest threat, though, is the country’s economic weakness, which may make it very difficult for Zagreb to sustain an already beleaguered reform agenda.

The fact is that the Union may well be about to repeat the mistakes of the last round of accessions, jeopardizing Croatian hopes for a better future, diminishing membership prospects for other Balkan states and Turkey, and may be even stalling the bloc’s enlargement efforts for the next decade or more.

When Bulgaria and Romania joined in 2007, the European Commission believed that both countries had overcome the corrupt practices of the past, that there would be no backsliding. But once the two countries were admitted, Brussels lost the leverage it had held during the application process. Incentives to comply with E.U. obligations eroded. Transparency International rates Bulgaria as the 75th most troubled nation on its Corruption Perception Index. Romania is rated at 66, Italy 72 and Greece 94. Croatia barely comes in ahead at 62.

The European Commission maintains that the accession process applied to Croatia was much more rigorous than what any previous candidate went through, with a far greater focus on improving the quality of the judiciary and the rule of law. Strong E.U. support for Croatia’s Bureau for Combating Corruption and Organized Crime helped the agency pursue investigations of prominent officials. A former prime minister, Ivo Sanader, was convicted in November on corruption charges. Zagreb also handed over popular former officials and soldiers to the International Criminal Tribunal in the Hague.

Yet the European Commission, as recently as this past March, was still raising concerns over issues like the low level of legal penalties in corruption cases and the effectiveness of Zagreb’s measures to tackle human trafficking and organized crime. Even the corruption case involving Sanader raised questions of due process. Judge Ivan Turudic appeared to peremptorily reject evidence and indulged in nationalist rhetoric to justify conviction. Seven months after conviction no formal reasoned judgment has been handed down.

Despite these concerns, Germany and Austria, both with deep historical and economic ties to Croatia, lobbied hard for its membership. Proponents within the country, many of them young professionals with a strong stake in reform, argue that membership is vital to overcoming their country’s problems.

While the European Commission rightly focuses on a candidate nation’s ability to comply with E.U. law, a key flaw of the accession process is that it gives far too little attention to the country’s overall economic capacity to reap advantages as a full member of the single market, and thereby allow the nation to reform itself.

In Croatia’s case, the country’s many economic problems were compounded by the fact that it is being admitted at a time when the euro zone’s economy is particularly fragile. The prospect of substantial foreign direct investment is a strong incentive for any nation to join the E.U. But the euro crisis is likely to significantly reduce foreign investment. Although about €14 billion in E.U. financing is earmarked for Croatia between 2014 and 2020, most of these funds require matching domestic funds, money that will be hard to come by, given the country’s weak economy.

It is not surprising that Croatia has underperformed Greece, Italy, Portugal and Spain. The country’s state monopolies largely remain in place and bureaucratic barriers to small businesses choke economic growth. Unemployment is about 20 percent and youth unemployment is more than 40 percent. In December, Standard & Poors downgraded Croatian sovereign debt to junk status.

The country’s economic distress, coupled with renewed political disenchantment, present a number of potential dangers for the Union. An exodus of young job seekers exercising their newly acquired rights to freedom-of-movement to compete for scarce employment might spark a populist backlash in other E.U. states weary of unwanted immigrants. Moreover, if the best and brightest leave, Croatia will have a far weaker constituency to campaign for and execute reform. The E.U. could potentially be left with a permanently dysfunctional member state on its eastern flank.

In a very real sense, success or failure is now in the hands of the people of Croatia. If they seize the opportunities that flow from E.U. membership, they may yet transform their country. If not, then Croatia may well become the European Union’s last new member state.

Alan Riley is a professor of energy law at The City Law School at City University London.

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