Background note

on the situation in Croatia

(drawn up by the Directorate-General for Research)


1 March 2000


Luxembourg, 16 February 2000

Division for international and constitutional affairs


Background note on the situation in Croatia



I. The political situation

(a) President Tujman's legacy

(b) The general election

(c) The presidential election

II. The economic situation

III. The difficult process of integration into the international community

(a) Areas of contention between Croatia and the international community

(b) Croatia’s partners

IV. Relations with the European Union



On 10 December 1999 Franjo Tudjman, the ‘founding father’ of independent Croatia, died, leaving a controversial legacy in a country whose transition towards democracy was proving difficult. The general election in January was followed by a presidential election in February 2000 which was won by Stipe Mesic, the former Yugoslavia’s last president. His aim was to draw a line under the Tudjman era and lead the country out of its economic difficulties and political isolation.

Croatia (capital: Zagreb) covers an area of 56 610 sq. km and has a population of 4.5 million of whom 78% are Roman Catholic, 11% are Eastern Orthodox and 1.1% are Muslim.

I. The political situation

(a) President Tudjman’s legacy.

The transition to a democratic state is proving slower and more problematic in Croatia than in neighbouring CEEC candidates for EU accession, partly due to the years of war and ethnic cleansing, and the lack of any solid experience of democracy before the war.

President Tudjman, who came to power in 1990 and presented himself as the ‘hero of national resistance to Belgrade’s hegemony’, no longer enjoyed the unanimous support of the Croatian public by the end of the decade. Signs of discontent became increasingly obvious to outside observers, particularly in connection with the social problems arising from an unemployment rate variously estimated at between 18 and 20%.

The country’s progress towards democracy has been marked by many failures. According to reports by the OSCE and the Helsinki International Federation for Human rights, respect for human rights in Croatia falls far short of European standards, even though the country has been a member of the Council of Europe since 1996.

These reports criticise the arrangements for the return of persons displaced during the war, the reform of the electoral law and the situation with regard to the independence of the press, freedom of association, freedom of information and co-operation with the International Criminal Tribunal for the former Yugoslavia.

The two organisations found that arrangements for the return of refugees discriminated against Croatian Serbs had been obliged to flee the country during the war. The revised electoral law, while preventing the over-representation of Bosnian Croats, was not found to guarantee adequate representation of the Serb minority. The situation of the Croatian media was found to have significantly deteriorated. The annual report of the Helsinki International Federation for Human Rights reported cases of harassment and telephone bugging of journalists and pressure being brought on the independent media (e.g. the attempt to close down Radio 101).

The situation of the NGOs in Croatia is still precarious, and the legal framework governing the activities of associations is still very unclear, despite the ‘criticisms made by the Council of Europe and various other international institutions’

President Tudjman’s popularity declined further in the course of 1999 in the wake of revelations concerning corruption and privatisation operations which allegedly had benefited the ruling party. Given the authoritarian and corrupt nature of the ruling clique and its potentially destabilising impact on the region, analysts predicted that there would be a change in the ruling coalition immediately after the legislative elections.

(b) The general election

The closing months of 1999 were dominated by the preparations for the legislative elections. The anticipated decline in support for President Tudjman’s party, the HDZ (Croatian Democratic Union – CDU) encouraged it to call for a proportional system to stymie the prospects of a coalition and of opposition forces. However, a coalition of six opposition parties had been formed in 1998. It consisted of the FPH (Social Democratic Party – SPD), HSLS (Croatian Social Liberal Party – CSLP), LS (Liberal Party), HNS (Croatian People’s Party - CPP), HSS (Croatian Peasants’ Party) and the IDS (Istrian Democratic Party), and excluded only three small far-right parties.

This broad coalition collapsed in the face of increasingly obviously internal differences as the elections approached. On 6 August 1999 in Split, the two main parties of the parliamentary opposition - the SDP headed by Ivica Racan, the last Croat Communist leader, and the CSLP headed by Drazen Budisa, a former dissident, joined forces to fight the legislative elections as the SDP - CSLP coalition. The four other parties also decided to present a joint list in the legislative elections.

The ruling CDU party underwent a crisis in October 1998 when the Minister of Defence, Andrija Hebrang, who had been appointed in May 1998, and the Presidential Chief of Staff, Hrvoje Sarinic, resigned, the former in protest at the President’s refusal to dismiss a number of departmental heads in his ministry, the second alleging that the secret services had engaged in activities that were illegal and infringed the rights of the political opposition. The CDU split into three factions: one led by Ivica Paslic, a presidential adviser regarded as the leader of the ‘Herzegovina’ lobby; a second faction led by Vladimir Seks, vice-president of the Sabor (the Parliament) and the third led by Mate Granic, the ‘liberal pro-European’ Minister of Foreign Affairs.

The SDP, which had its origins in Yugoslavia’s defunct Communist league, reinvented itself in the course of 1990, calling for a decent standard of economic prosperity, job security and social justice. Drazan Budisa’s CSLP, meanwhile, has been described by various analysts as a ‘moderate nationalist party’

President Tudjman’s term of office was due to expire in 2002. The Croatian Constitution stipulates that, in the event of the President being unable to carry out the duties of his office, the president of Parliament should replace him at the head of the country for the two months before fresh presidential elections are held.

On 26 November 1999, the Constitutional Court of Croatia declared President Tudjman temporarily unable to carry out his office. For a 60-day temporary period, the President’s powers were transferred to the president of Parliament, Vlatko Pavletic. Two days before, in view of the serious state of President Tudjman’s health, the Croatian Parliament had amended the constitution to that effect to avoid a constitutional crisis.

The general elections took place on 3 January; the CDU, Tudjman’s former party, which had had an absolute majority in Parliament, was returned to opposition by the electorate.

The results were as follows:

Of the 151 seats in the Chamber of Representatives, the Centre-Left SDP-CSLP alliance won 71, while the CDU won 56.

The coalition of four opposition parties (comprising the Peasants’ Party, the People’s Party, the Social Democrats and Liberals and the Istrian Democratic Assembly) obtained 24 seats.

The coalition of the Croatian Party of Rights and the Christian Democrats obtained 5 seats, while the representatives of Croatia’s minorities also obtained 5 seats.

(c) The presidential election

The presidential election was held on 7 February. The national electoral commission published the following results:

Stipe Mesic, candidate of the Croatian People’s Party obtained 56% of votes on the second round of voting, while Drazen Budisa, candidate of the CSLP-SDP (Croatian Social-Liberal Party/Social Democratic Party obtained 44%.

The new Prime Minister of Croatia, Ivica Racan, presented in his general policy address a programme of government aimed at overcoming the years of economic difficulties and political isolation. But, to draw a line under the Franjo Tudjman era, he held out to his compatriots the prospect of ‘austerity and sacrifice’.

‘The main task of the new government is to lead the country out of (...) social and economic crisis and to lay the foundations for solid economic progress in coming years’, Mr Racan told the Chamber of Representatives, who then adopted the programme. Throughout the first year of his government, he added, ‘economy and sacrifices’ would be required, in view of the 20% unemployment rate.

Mr Racan also pledged to reduce taxes and public spending within four years and to take in hand the privatisation process that had been flawed by corruption in the Tudjman era. He also promised to reallocate the funds earmarked for the army and the police to education, cultural activities, technology and scientific research.

Turning to foreign affairs, the Social-Democrat leader reiterated his wish to see Croatia enter the European Union and the Atlantic Alliance. To achieve this, he promised that Croatia would cooperate more closely with the representatives of the international community in Bosnia and the Hague International Criminal Tribunal for former Yugoslavia.

II. The economic situation

Croatia has a mixed record so far in terms of progress towards a market economy. Its relatively high standard of living, with a GDP of US $ 4 780 per capita at purchasing power parity, conceals an alarmingly precarious situation. Growth still stood at 2.4% in 1998, but declined in 1999. The head of the IMF’s mission to Croatia, Hans Flickenschild, estimated a 2% decline in GDP for 1999 which would continue into the year 2000. He estimated that inflation would stand at around 4% in 1999.

The Croatian currency, the kuna, is overvalued and the currency stabilisation achieved after the end of the war in 1995 has adversely affected the country’s industrial competitiveness. However, according to IMF analysts, devaluing the kuna would have a negative impact on servicing the country’s external debt and an incomes policy. At present, Croatia’s external debt amounts to US $ 9 billion. Negotiations between the Croatian government and the IMF on a fresh loan of US $ 200 million broke down in the summer of 1999 following the Croatian government’s refusal to adopt a policy of incomes restraint.

On the other hand, on 29 September 1999 the World Bank decided to grant Croatia a loan of US $ 29 million to improve its social security system.

Although Croatia is developing its trade with its main trading partners, i.e. Germany, Italy, Belgium and Austria, its annual trade deficit standby at 20% of its GDP and is a considerable drain on the state’s finances.

According to the IMF, Croatia should reduce public spending by 5 to 6% to ‘improve its competitiveness, balance the budget and reduce the tax burden’.

At the beginning of January 1999, the government introduced VAT, with a uniform 22% rate, and no provisions for preferential treatment or exemptions. The introduction of this tax replaced the existing sales tax and the 10% tax generally known as the ‘War Tax’.

The privatisation programme was declared a priority in 1998. Croatia Osiguranje, the largest Croatian insurance company, which controls 60% of the local market, and the Bank of Privredna, the Bank of Rijeck, the Bank of Split and the Bank of Dubrovacka have speeded up preparations for their forthcoming privatisation.

The 1992 law on the transformation of insurance companies’ capital stipulates that the privatisation of such companies must be approved by the Croatian Parliament. The privatisation of banks is to be supervised by the National Agency for Rehabilitation of Banks.

However, the bankruptcy of the Bank of Dubrovnik in 1998 indicated the flaws of a privatisation system drawn up according to the logic of a war economy. Up to now, the privatisation process has generated a structure of ownership within which the government and the state pension service continue to play a predominant role.

The privatisation of Croatia’s telecommunications, which resulted in Deutsche Telekom obtaining 35% of shares, also gave rise to criticism. The Croatian government was accused of changing the conditions governing the sale, an accusation which it has denied; the proceeds of the sale of shares of Croatia’s telecommunications (US $ 850 million) were intended to help stabilise the budgets for 1999 and 2000.

Work on the major road construction programme began at the frontier with Slovenia in Autumn 1998.

Tourism plays an important part in Croatia's economy. The Russian post has reported that Croatia was one of the 12 most-visited countries in the world in 1998.

III. The difficult process of integration into the international community

(a) Areas of contention between Croatia and the international community

Since the end of the war in Yugoslavia, the international community has brought pressure to bear on Croatia to make more progress towards democratisation.

When Madeleine Albright, the US Secretary of State, visited Croatia in September 1998, she criticised the legislation on the press, the excessively slow rate at which Serb refugees were returning and Croatia's policy in Bosnia.

Croatia attracted great opprobrium by 'unilaterally' refusing to cooperate with the International Criminal Tribunal for the former Yugoslavia (ICTY). Croatia refused to provide the ICTY with documents relating to the Bljesak (‘Lightning’) and Oluja (‘Storm’) operations to regain control of Eastern Slovonia and Krajine in 1995. Croatia justified its refusal by arguing that the operations concerned were internal police operations and that the ICTY was not competent to rule on them. Moreover, the ICTY has encountered considerable problems in seeking the extradition of Croat war leaders accused of crimes against humanity. It was only after protracted negotiations and requests by the ICTY to the Security Council to impose sanctions on Croatia that the country agreed to remove the obstacles to the extradition of Vinko Martinovic, alias Stela, and Mladen Naletilic, alias Tuta. The former was extradited in the summer of 1999, while the latter, who has a serious heart condition, is still in Croatia .

On several occasions, President Tudjman had made public speeches questioning various provisions of the Dayton agreement. For example, he stated that he was in favour of maintaining Bosnia-Herzegovina, but only as a 'state composed of 3 separate entities', although under the Dayton agreement Bosnia-Herzegovina was composed of two entities, one Serb and the other Muslim-Croat.

In view of the former President's policy in Bosnia and the contempt shown for the International Criminal Tribunal for the former Yugoslavia, Croatia has been ostracised by the international community.

b) Croatia's partners

In 1998 and 1999, the Croat authorities established contacts with their European neighbours: Slovakia, Hungary and Germany, particularly Bavaria and Baden Wurtemberg. Croatia's Minister of Defence at the time, Pavao Miljavac, concluded an agreement with Israel on military cooperation in the air force. The opening of the trial of Dinko Sakic (head of the Jasenovac concentration camp from 1942 to 1944) on 4 March 1999 facilitated this rapprochement between the two countries.

Croatia openly supported NATO intervention in Yugoslavia in Spring 1999, even going so far as to open its airspace to missions by the allied forces’ operation. An opinion poll published on 24 April 1999 indicated that 82% of Croatians were in favour of NATO intervention.

On 2 April 1999, Mate Granic, the then Minister of Foreign Affairs, was able to announce the end of the American embargo on arms for Croatia.

The following contentious issues have yet to be resolved between Croatia and Slovenia:

  • sovereignty over the waters of the Bay of Piran, which gives access to the Adriatic, and

  • the Mount Trinovvre border crossing.

An agreement aimed at settling various questions of ownership was initialled with Croatia in June 1999. However, questions relating to 1% of the land frontier and the sea frontier in the Bay of Piran have not been settled as yet. An international adjudicator has been appointed.

There are also problems in connection with illegal immigration from Croatia to Slovenia.

IV. Relations with the European Union

After the termination, on 15 November 1991, of the 1980 cooperation agreement with the Federal Socialist Republic of Yugoslavia (FSRY) and the EU's recognition of Croatia on 15 January 1992, trade concessions (including quotas and the ceilings applied under the former agreement) were granted to the states of former Yugoslavia via a separate trade scheme.

Aid to Croatia under the PHARE programme was suspended on 7 August 1995 following Croatia's military offensive in Krajina. Until November 1999, Croatia was excluded from benefiting from the whole range of assistance provided under the PHARE programme because of its failure to make progress in strengthening its democratic institutions. However, Croatia was involved in a number of projects in such areas as reconstruction (Eur 9.5 million in 1999 for Eastern Slavonia), the creation of democratic institutions and the return of refugees. Assistance was also granted to projects to promote civil society and human rights and to the independent media in Croatia.

Between 1991 and 1999, Croatia received Eur 290.8 million in humanitarian aid from ECHO.

The European Union has repeatedly expressed regret at Croatia's failure to make headway in the process of democratisation, the essential criterion for the reintroduction of trade concessions and the establishment of individual trade relations between the EU and Croatia. The conditional nature of the EU's political and economic support was established by the General Affairs Council on 29 April 1997. The conditions laid down include the application of the provisions of the Dayton peace agreements, respect for human rights, the rights of minorities and the right of refugees and displaced persons to return, respect for market economy principles and collaboration with the International Criminal Tribunal on War Crimes.

On 26 May 1999 the Commission, seeking to provide a more coherent framework for relations with Croatia, FRY, Bosnia-Herzegovina, Albania and the former Yugoslav Republic of Macedonia, and to build on the regional approach developed in 1996, proposed a category of contractual relations specially designed for the five Balkan states: a system of stabilisation and association agreements to be concluded with each of them on an individual basis. This proposal was put forward following the conclusions of the General Affairs Council of 26 April 1999 and against the background of preparations fort the Stability Pact for South East Europe.

The Commission considered, however, that Croatia did not fulfil the necessary conditions for the establishment of a stabilisation and association agreement. In its communication of 26 May 1999, the Commission had highlighted Croatia’s failure to make sufficient progress with regard to reforming the electoral law and decentralising the media. Croatia also needed to improve its record with regard to respect for minorities and the return of refugees if it was to resume the right to fully enjoy the benefits of the PHARE programme.

The General Affairs Council of 21 June 1999 declared that the stabilisation and association agreements should be the vehicle for closer relations with the five countries in question. In its conclusions, the Council set out the main elements of the stabilisation and association process: a stabilisation and association agreement; autonomous trade measures; economic and financial assistance; support for democratisation and the development of civil society; humanitarian assistance for refugees, returnees and others; cooperation in the field of justice and home affairs and the establishment of political dialogue.

So Croatia, which signed the Stability Pact of 10 June 1999, still has a long way to go before it can conclude a stabilisation and association agreement with the EU. Although the Council envisaged the possibility of setting up a joint EU/Croatia consultative task force to make practical preparations for the establishment of contractual relations with the European Community, no further steps will be taken until sufficient progress has been made towards democratisation. The General Affairs Council of 15 November 1999 regretted that the government of Croatia had failed to take full account of the international community's recommendations with regard to Electoral Law and the legislation on the media or to cooperate actively with the International Criminal Tribunal for the former Yugoslavia.

However, the recent political changeover was welcomed by the European Union in these terms:

On 10 February, the Portuguese Presidency issued the following statement on behalf of the EU: 'The EU congratulates Mr Stipe Mesic on his election as President of Croatia, which brings to an end a chapter in Croatian history and marks the beginning of a new era for the country. Following Mr Mesic's recent positive statements the EU looks forward to the support he will give to the necessary internal reforms, to the new relationship with neighbouring countries and to bringing his country closer to full integration into European structures. While recalling the EU Declaration on Croatia of 24 January, the EU reiterates its willingness to work very closely with the new authorities, namely with its new president-elect, in their quest for making Croatia a fully fledged member of the 'Euro-Atlantic community'. The EU also congratulates the people of Croatia for the calm and orderly manner in which they expressed their democratic will'.

‘On the fringe of the Council session, the EU foreign ministers met Croatian Prime Minister Ivica Racan. This allowed them, as Portuguese Council President Jaime Gama said, to 'welcome a democratic Croatia'. During the press conference that punctuated the meeting, Mr Gama pointed out that the time had come to 'set up a joint consultative task force to pave the way for constant monitoring' of progress achieved in the country, as well as sending the Troika, which would be done 'as soon as possible'. This exercise at rapprochement would culminate in a ‘feasibility study' that would be asked of the Commission in view, in the long term, of reaching a Stabilisation and Association Agreement.

The High Representative Javier Solana believed that the changes that had occurred in Zagreb were 'important for the Croat people and for the region as a whole', as they proved that 'changes are possible under the right conditions' (an allusion to Belgrade). ‘He then 'hammered in the nail' regarding: (a) Bosnia: 'Croatia has enormous responsibilities here', said Mr. Solana, recalling that the EU was not wholly satisfied with the action the previous Croatian authorities had conducted. 'The new government is aware of the fact and will help us', Mr. Solana declared; (b) the refugees, towards whom the Racan government intends to show a new attitude, notably by encouraging their return ('We shall help you', he concluded). For his part, Mr. Patten confirmed that he would be going to Zagreb on Friday to attend the swearing - in of the new President and that a technical mission would be sent to begin the feasibility study. He said that the programme of the new government was 'good for the Croat people, for Europe and for the region as a whole'.

'Very satisfied' with his talks with the Fifteen, Ivica Racan welcomed the 'broad support' for his governmental programme. Aware of the important role Croatia can play 'for the stability of the region', he stressed his country's will to have 'good neighbourly relations' and declared: 'We want an independent, free and democratic Bosnia-Herzegovina'. The changes foreseen must enable Croatia to overcome the economic crisis (particularly through the pursuit of privatisation), reinforce democratic institutions, depoliticise the police and army, develop free media and allow refugees to enter the country irrespective of their ethnic background (which implies adoption of a law prohibiting discrimination). The scope of this programme is such that 'it is important for Croatia to receive aid -material and financial- to bring it to successful conclusion', said Mr Racan, observing that implementation of the government programme would enable Croatia to 'draw closer to the EU rapidly'.’