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Croatia: Regional leader or EU laggard?

After EU entry in July and despite five years of recession and a worrying local court ruling on foreign-currency mortgages, Croatian banks are in surprisingly good shape. The state even hopes to sell one of its biggest lenders.

This should have been a year of triumph for Croatia. In July, the nation of 4.3 million finally achieved its long-held ambition of joining the European Union, becoming the first of the post-conflict countries of the western Balkans to do so and the first new entrant to the bloc since 2007.

Unfortunately, things have not gone quite according to plan. Far from being a year of celebration, 2013 has been one of stagnation and frustration for Croatia. The economy has failed to show signs of a return to growth for the fifth year in succession; unemployment has edged up to just under 20% of the total workforce; and in mid-September a downgrade by Fitch Ratings deprived the country of its last remaining investment-grade rating.

What is more, that announcement came hard on the heels of an acknowledgement by Croatian finance minister Slavko Linic that the government would once again miss its target of bringing the budget deficit down to below 3% of GDP – which in turn means the country looks set to make EU history of a more embarrassing kind later this month, when it will become the first new entrant to go straight from accession into the bloc’s excessive deficit procedure.

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