Don’t rain on Croatia’s parade!

Some of the press regarding Croatia’s accession to the European Union has been cautiously optimistic, but the general tone is downright gloomy. Almost all reports express concern over Croatia getting caught up in the debt crisis, and one report in the Guardian reveals that “some economists” think that Croatia will ask for a bail-out almost immediately. However many of the worries expressed over Croatia’s accession to the EU are the product of flawed reasoning: there is no reason to believe that either party will be harmed, and there is every reason to believe that EU membership will be a force for good in Croatia and throughout the Balkans.

Fears of crisis contagion, both from Croatia to the EU and vice versa, are unfounded. It is true that both parties are experiencing difficult economic moments, to say the least, but this development will not harm them. Some images in the news of a commemorative coin in Croatia’s currency, the kuna, gave me a scare: for a while I was under the impression that Croatia would be adopting the Euro. If this were the case, then there would certainly be cause for concern. Poor countries in the eurozone are hurt the worst by crises due to their lack of control over monetary policy. A struggling Greece cannot let its currency fall to make its exports more competitive, nor can it cut interest rates to encourage economic activity. The Euro and interest rates are kept up due to (kind of) flourishing economies in other regions. However, since Croatia is keeping its currency, lack of control over monetary policy is not a concern.

Furthermore, I cannot imagine how EU membership would somehow cause Croatia to get caught in the debt crisis. The sovereign debt crisis was (is) a product of a complex chain of events, but the reason that countries have had trouble emerging from crisis is due again to a lack of control over their own currencies. In countries where excessive debt was a concern, rates rose to unsustainable levels since investors saw an increased risk of default because countries could not print currency to service debts in a worst-case scenario. But since Draghi famously vowed to do “whatever it takes” to save the Euro, markets have calmed down for the most part. Of course, Romania had trouble selling its own bonds in Romanian lei, which led to a bail-out in 2009, but this had more to do with the country’s flat-lining credit rating and ongoing political instability. Either way, if Croatia is going to have a problem issuing debt, its EU membership will not worsen the situation. Conflating the debt issuance woes of southern Europe with those of nations with sovereign currencies is lazy and harmful.

There are concerns that Croatia will need a bail-out as soon as it accedes. These “concerns” are voiced in a mildly accusatory manner that makes it seem as if the nation has been negotiating for EU entry for a decade just so it can have access to rescue funds. And that’s a load of hooey! Croatia’s president acknowledges that his country is struggling, with unemployment above 20%, but if the reforms required of it by the EC are indeed designed to make countries more stable and less vulnerable to collapse (ahem), then there should be no issue. Furthermore, the image of a ruined Croatia waiting until it gets into the EU to ask for funds makes no sense, since the majority of rescue funds provided by members are reserved for eurozone countries. When Romania was bailed out in 2009, the IMF was its creditor, helped by the World Bank with a little more thrown in by the EU’s development bank. How sneaky of Croatia, to lie in waiting for ten years just to receive a bail-out that it could have received anyway. Grow up, guys!

The one threat I cannot speak to is that pesky banking crisis that seems fond of taking down even the most innocuous of nations (see: Cyprus). This report gives some clues, but in general I’m going to conclude that Croatia is not a tax haven for rich Russians. Please someone let me know if I am wrong. In general, though, Croatia’s finances are quite solid, with a debt-to-GDP ratio far below the EU average.

There are also those who question whether the EU is already too large. While the eurozone’s troubles can be ascribed to too large a monetary union, the EU will not suffer from expansion. It seems that, again, a conflation of the eurozone’s challenges with those of the EU has occurred. There are a paltry 5 million people in Croatia. It is part of Europe. The EU should expand until all European countries have joined, or it should rename itself.

And now for the good: membership in the EU will provide Croatia, and eventually all of the Balkans, with a wonderful sense of belonging to Europe, both politically and geographically. It will provide further trade and economic opportunities (though the government should help local producers remain competitive, at least at first). And, most importantly, it holds countries to human rights standards that they would never adhere to without the immediate threat of being turfed out. It is especially important to have this stabilizing force in the Balkans, where regional divides and memory of war are still very present. While I’m not the biggest fan of the monetary union, I think the EU is a fantastic way for nations to integrate politically and economically, and an experiment in multinational governance that will hopefully serve as a template for a world government someday.

So to all the naysayers: stop raining on Croatia’s parade!


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