Cronomy.org

EU Seek Cuts in Croatian Ship Aid, Raps Balkan States (Update2)
By James G. Neuger

Nov. 6 (Bloomberg) — Croatia must cut subsidies to shipbuilders and overhaul the steel industry to make its economy fit for European Union membership, the EU said.

With 11,000 jobs at stake at five main shipyards, the EU’s call may shake up a Croatian election campaign in which Prime Minister Ivo Sanader is locked in a neck-and-neck struggle to win a second term.

“Considerable efforts are still required, in particular in relation to the restructuring of the steel sector and of the shipyards in difficulty,” the European Commission said today in Brussels.

Criticism of Croatia, the frontrunner for EU entry, was coupled with warnings that less-prepared countries in the Balkans need to work harder to shore up political stability, clamp down on corruption and build competitive economies to advance toward the EU.

“We still have major challenges and serious risks ahead of us,” EU Enlargement Commissioner Olli Rehn told a press conference.

As the Balkan country closest to joining, Croatia has opened talks in 14 of 35 EU policy areas, completed two and is seeking to become a member by 2010. Along with Albania, the other remnants of Yugoslavia have yet to start the actual entry process.

Shipyard Aid

Croatia doled out 2.6 billion kuna ($500 million) in cash and guarantees to shipyards in 2006, some of it in violation of EU rules.

“Restructuring aid to loss-making enterprises increased significantly, which may undermine the implementation of the government’s subsidy-reduction plan,” the commission said. Croatia has put off the subsidy cuts until after the Nov. 25 elections.

The EU bars government bailouts of unprofitable businesses, a rule that still provokes resentment in the eastern European countries that joined in 2004. Poland in September protested an EU order to reclaim aid payments to the Gdansk shipyard, home of the Solidarity movement.

Croatia, with 4.5 million people, would become the second ex-Yugoslav state to join the EU, after Slovenia. Croatia intends to complete admission talks by 2009, with the entry date dependent on ratification by the EU’s 27 national parliaments.

Croatia also needs to strengthen its public administration and justice system, and work harder to adopt EU policies on environmental protection, agriculture and government contracting, the commission said.

Serbian Issues

Serbia, the largest ex-Yugoslav republic with 7.5 million people, is coming to grips with the loss of control of the rest of Yugoslavia in the wars of the 1990s, culminating in NATO’s 1999 bombing campaign that drove the Serb army out of Kosovo province.

Serbia opposes EU efforts to grant full independence to Kosovo, now run by a European diplomat under a United Nations mandate. The commission criticized Serbia for attempting to hobble Kosovo’s provisional government by calling on the Serb minority there to boycott the Nov. 17 elections.

Serbia has also failed to round up two war-crimes suspects, the EU’s condition for signing a trade pact, the first step toward membership. While noting “positive developments,” the commission said the pact will go unsigned until Serbia demonstrates “full cooperation” with the war-crimes sleuths.

In an incentive to the Balkan country, Rehn said he will put his initials on the trade pact tomorrow, while a formal signing will wait until Serbia clears away UN prosecutors’ final doubts about its commitment to the manhunt.

Montenegrin Ambitions

Montenegro, which peacefully broke away from Serbia last year and already uses the euro currency, signed its trade accord last month and plans to launch its bid for full membership in early 2008. Montenegro, with 600,000 people, is staking its economic future on the tourism industry.

Montenegro needs to root out a culture of graft and corruption, the commission said, noting that “the situation calls for urgent action in order to achieve relevant results on the ground, especially in the area of high-level corruption.”

In the Former Yugoslav Republic of Macedonia, a country of 2 million, political turmoil and corruption has dogged progress toward the EU. A fistfight on the floor of Parliament in September raised doubts about Macedonia’s democratic stability.

`Seriously Disrupted’

“The functioning of Parliament was seriously disrupted by insufficient consultation between government and opposition,” the commission said. “Corruption is widespread and constitutes a very serious problem.”

Rehn poured cold water on Macedonia’s goal of starting entry talks early next year, saying the government must first “make the necessary reforms so we can talk serious business.”

Bosnia-Herzegovina, its 4 million people split between a Serb and Croat-Muslim enclave, is plagued by political disunity and ethnic tensions, the commission said. A dispute over constitutional reform led the prime minister, Nikola Spiric, to quit last week.

“Nationalist rhetoric” remains widespread and the “intransigent and ethnically oriented position” of Bosnian leaders stifles progress toward a functioning democracy, the commission said.

Albania, with a population of 3 million, got a similar report card, reaping criticism for political discord and the failure to strengthen the justice system.

Albania lacks a “broad political consensus” behind EU- style democracy and “much more needs to be done before we can take the next step in the EU accession process,” Rehn said.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

Last Updated: November 6, 2007 09:38 EST