Enlargement Strategy and Main Challenges 2006 - 2007

As regards regional issues and international obligations, full cooperation with the
International Criminal Tribunal for the former Yugoslavia (ICTY) has continued, as required
by a key Accession Partnership priority and overall compliance with the Dayton and Erdut
agreements has been ensured. The prosecution of war crimes in Croatia has continued to
improve. However, bias against Serb defendants still needs to be fully addressed. The issue of
witness protection is being tackled seriously by the State Prosecutor, this issue is not being
addressed sufficiently in the wider judicial system. yhas become more acute. Progress on
refugee return - a key Accession Partnership priority - has been uneven. While the issues of
reconstruction and repossession have generally been well addressed, implementation of
housing care programmes for former tenancy rights holders wishing to return to Croatia is
particularly weak; no progress has been made on validating pension rights. Efforts to create
the economic and social conditions necessary for the sustainability of refugee return need to
be accelerated.
There has been continued general progress in the area of regional cooperation. This progress
needs to be sustained. However, little progress has been made towards finding definitive
solutions to various pending bilateral issues with Croatia’s neighbours, particularly as regards
border demarcation. This issue is a key Accession Partnership priority. Efforts are needed to
further develop cooperation and good neighbourly relations.
As regards economic criteria, Croatia can be regarded as a functioning market economy. The
country should be able to cope with competitive pressures and market forces within the Union
in the medium term, provided that it vigorously implements its reform programme to remove
the significant remaining weaknesses.
Political consensus on the essentials of economic policy has generally been maintained.
Stability-oriented macroeconomic policies have contributed to low inflation, exchange rate
stability and a slight acceleration of growth. Private investment has risen and unemployment
has declined. Gradual fiscal consolidation has continued, backed by strong revenue growth.
Some measures have been taken to better control health care spending. Business registration
procedures have been further simplified. The banking sector has continued to grow and a new
supervisory agency for the non-banking financial sector has been established. Road
infrastructure has improved. Further progress has been made in enhancing competition in the
telecommunication sector. Initial steps have been taken to restructure the loss-making railway
system. Croatia's economy is well integrated with that of the EU.
However, significant and rising imbalances in the trade and current accounts and a high
external debt imply potential risks to macroeconomic stability. Subsidies to loss-making
enterprises and a high level of current spending continue to burden the government budget.
The pace of structural reforms has generally been slow. Little progress has been made in
implementing privatisation plans and in enterprise restructuring. The development of a more
vivid private sector has been hampered by deficiencies in public administration and the
judiciary, undermining market entry and exit procedures and the enforcement of property and
creditor rights. State intervention in the economy remained significant. Increased efforts are
required to raise participation in lifelong learning.
Croatia has improved its ability to take on the obligations of membership. In most areas
there has been some progress, mainly in terms of legislative alignment. Progress has varied
considerably between chapters As regards the overall level of alignment and administrative
capacity, much remains to be done. Short-term priorities under the Accession Partnership
remain to be fulfilled in many areas.
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