Richard S. Levick
October 28, 2011
In the late 19th century, someone asked Bismarck what would cause the next great European war. “Some damn thing in the Balkans,” he presciently answered. Today, events in that region are no less consequential if we remember that Greece, now roiling global markets, is also a Balkan state.
Unfortunately, it might get much worse.
In 2013, another Balkan nation, Croatia, is scheduled to join the European Union. Unless that country cleans house before then, another hobbled economy will add its weight to the EU, exacerbating the problems that already exist. There will be more debt, more burden on EU taxpayers, more risk of loan defaults, and more downward pressure on U.S. markets inextricably linked to European markets.
Since 2003-2004, Croatia and the EU have been preparing for that nation’s membership, delayed in part by Slovenian concerns over border issues.
As we get nearer to 2013, much attention has been given Croatia’s economic problems, including a warning from central bank Governor Zeljko Rohatinski that it must cut more waste to avoid an economic crash.
Yet one rising star of Croatian politics points to deeper systemic malignancies beyond such familiar concerns over the fiscal problems of a modern welfare state (including a 20% unemployment rate in Croatia).
Natasha Srdoc, founder and chair of the Adriatic Institute for Public Policy (AI), is a compelling figure if only because she’s also directly addressing what is now a top-priority initiative for global regulators: anticorruption.
If the many reports are accurate, corruption in Croatia is ruthless and systemic in a way that altogether changes the dialogue from “how” Croatia should enter the EU, to “if” Croatia should enter the EU.
As things purportedly stand now, Croatian membership in the EU would be another liability that we cannot afford to add to our ongoing exposure in Greece. EU membership could prove a disaster for the Croatian people as well.
“Croatia is an economy at risk and a burden on EU and U.S. taxpayers through its high debt and high borrowing as well as its persistently dysfunctional judicial system,” says Srdoc, who’s formed her own political party, Croatia 21st Century, with anticorruption at the center of its agenda along with tax reform, private property rights, and family values.
While businesses and officials may fret over the draconian enforcement of the Foreign Corrupt Practices Act and the threat of the same pursuant to the newly adopted UK Bribery Act, the Croatia 21st Century approach to corruption is well-nigh confiscatory. In addition to new laws mandating transparency, Srdoc wants to prosecute all politicians, past and present, who have amassed unexplained wealth.
She’d seize misappropriated amounts that reportedly total multiple billions and use the money to help pay down Croatia’s debt. No wonder she’s been stigmatized as “an enemy of the state” by the ruling Croatian Democratic Union (HDZ) or that she and her family have been threatened.
Whatever their actual source, those threats are not likely idle. Among other deadly incidents, media publisher and regime critic Ivo Pukanic died in a 2008 car bomb explosion in Zagreb. Six men were convicted in what was vaguely depicted in the media as an organized crime hit.
“I do not think it would be a good idea to have a Croatian politician as an unelected EU Commissioner wielding tremendous power,” Srdoc quips. EU and U.S. taxpayers have already invested nearly 1 billion euros over the past decade in a reform process “without any results.” The prospect of loan defaults may put the IMF in a ticklish situation: let Croatia go bankrupt or continue to feed the ravenous maw of its leaders. (The socialist SDP party already supports recourse to the IMF.)
The EU has promised an additional 4 billion euros to government institutions apparently mired in rampant corruption. So the vicious circle spirals on.
The more we donate to sham reform, the more empowered the regime becomes even as European investors who’ve already sunk significant amounts into Croatian banks, telecoms, and real estate – and who knows how those deals were negotiated with local apparatchiks! – seek to protect their interests by lofting yet another albatross over EU skies.
It is possible that nascent political forces in Croatia will lead to change if reports of growing public support for such change are accurate. (We’re also assuming the country holds honest elections, as concerns remain about a purported infusion of 550,000 illegal votes, an alarming 17% that skewed past results.)
But indisputably, those forces – so potentially beneficial to legitimate U.S. and European interests – face a daunting uphill battle absent helpful pressure from outside. Added to the impact on the EU and global financial markets, there is a laundry list of other vital considerations, not the least of which is Croatia’s geo-political positioning with respect to drug routes, weapon deals, and human trafficking.
In the best-case scenario, Croatia’s scheduled EU membership is an opportunity to speed the winds of change. If total regime change is possible, we’re well-advised to support it financially and via all the communications channels we have at our disposal.
If regime change is not yet realistic, dangle the EU carrot to at least achieve some tangible results. For example, in this nation of 4 million people, there are over 1 million backlogged court cases, a deadlock that, according to Srdoc, has allowed the ruling elite to arrest a few of its own for show but with nary a single conviction. One condition for EU membership might be oversight by visiting legal experts from nations with strong rule-of-law traditions.
U.S. involvement has been limited, although kudos go to Alabama Senator Jeff Sessions for his conspicuous support for strengthening the rule of law and encouraging free market-based change in Croatia. NGOs like Transparency International (TI) have had debatable impact.
According to Srdoc, TI Croatia receives funding from the state-owned electrical company HEP, which itself came under corruption charges, and from Croatia’s Ministry of Foreign Affairs. She does believe, though, that “there is room for more robust engagement by TI.”
Actually, it’s hard to think of another instance in which full engagement on the anticorruption front ought to be more robust. Croatia is dramatic proof of what anticorruption pioneers have been saying for years: that more than the integrity of a single country or corporation is at play.
A lot more is at stake. There is a delicate global balance in this world. If nations like Croatia play a larger role on the international stage without stepped-up anticorruption initiatives, that balance will be strained beyond endurance.