Newsmakers | Croatia

Hot on the heels of Klaus Iohannis’s shock win in Romania’s presidential elections last November, the center-right in the Balkans pulled off another unexpected win on January 11. The narrow victory of Kolinda Grabar-Kitarovi, a multilingual former diplomat and member of the rightist Croatian Democratic Union for more than 20 years, over center-left incumbent Ivo Josipovic in Croatia’s presidential elections—she won 50.5% of the vote—gives Croatia its first woman president.

Despite the ceremonial nature of the Croatian presidency, Grabar-Kitarovi has denounced the government for “cold-hearted” economic policies and says Croatia’s economy is a national disgrace.

Few would argue the point. Despite many advantages—including its long Adriatic coastline, rich historical heritage and vibrant wine industry, which have helped boost tourism, and its joining the EU in 2013—Croatia has been in recession since 2008. According to the IMF, it has undergone the biggest contraction within the EU after Greece, with GDP now 12% to 14% lower than in 2008. Unemployment is 18% to 20% (youth unemployment is much higher, especially away from the coast and Zagreb) while the budget deficit continues to overshoot (5.3% is forecast for this year). The IMF has called on Zagreb to consolidate public finances and restructure large private- and public-sector debt. “Croatia needs to cut back the state and accelerate the reduction of red tape and the alarmingly large public debt,” says Peter Sanfey, economist at the EBRD. “The focus should be on an efficient use of EU structural funds along with cuts in government spending.”

Croatia will be undertaking all this with GDP rising at best by an anemic 0.5% after yet another contraction—of at least 0.5%—in 2014. This performance will further fuel calls for bolder economic policies. Expect an uneasy cohabitation between the new president and the embattled Social Democrat government of Zoran Milanovi.