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A gateway to the Balkans

As a possible base for eurozone companies eager to expand in the Balkans, Croatia is a favoured candidate, despite its small domestic market. If the government can curb a tendency to build up external debt and is able to sort out lingering human rights problems it should be able to get EU support behind it for the next round of accession. Ben Aris reports.

The prospect of EU accession has proved to be an incentive for Croatia's government to push through painful rerorms.

THE EUROPEAN UNION formally accepted Croatia as a candidate country in June and accession negotiations are slated to start in the spring. If all goes well Croatia could join the EU as early as 2008. But its qualification for membership is threatened by the small Balkan republic's large public debt. As the end of 2004 approached, the government resolved to begin tackling this problem. Croatia is one of three applicants for the next round of EU accession, along with Bulgaria and Romania, and follows Slovenia, which, as one of the May 2004 accession countries, was the first Balkan state to be admitted.

Slovenia boasts a sparkling investment climate and has been a model of reform, but it is geographically and culturally at the edge of the region. Croatia has sparked more interest since it is located at the heart of the largely untouched Balkans and is the natural jumping-off point for companies considering expansion in the region.

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