Capital: Zagreb, 779,145 inhabitants (2001), in 1991: 930,800 inhabitants
Population: 4,437,460 (2001)
Ethnic composition: 89.6 percent Croatians (1991: 78.1 percent), 4.5 percent Serbs (1991: 12.2 percent), 5.9 percent other minorities (2001)
Area: 56,542 square kilometers
Gross Domestic Product: 28,810 million US dollars (2003)
GDP per Capita: 6,498 US dollars (2003)

End of Autocratic Rule

The first free elections in the Socialist Federal Republic of Yugoslavia in 1990 marked the beginning of the crucial phase of the disintegration of the state. As in Slovenia, the aim of the oppositional forces in Croatia was autonomy. Many of the protagonists had been involved in the Croatian Spring¹  in the early 1970s. The Croatian Democratic Union (HDZ), a nationalist coalition movement, developed into the most important force, and under the leadership of former general Franjo Tuđman²  the party came to power in the spring of 1990. Ideologically the HDZ stemmed from very heterogeneous political traditions, ranging from the national struggle for liberation during World War Two to the Ustaša regime.³  The May 9, 1991, referendum was a clear declaration in favor of secession, and on June 25, 1991, Croatia declared its independence.

Initially the political and territorial integrity of the country proved to be fragile. In contrast to the relative ethnic homogeneity of Slovenia, Croatia had a large Serbian population, and the representatives of this minority group reacted to Croatian secession efforts by creating their own state structures. The consolidation of the new republic, however, also proceeded at a slow pace because the HDZ-propagated project of ethnic nation-state formation strove for unification with the Croats in Bosnia-Herzegovina. Moreover, the country was in a state of war with the Yugoslav army and Serbian paramilitary units that lasted for years, during which not only entire sections of population were displaced, but the development of democratic structures was blocked by the growing authority of the military and security forces. This coalescence of system change, state formation, and war constituted a conflict-filled constellation that shaped the political dynamic of the Croatian people for an entire decade. In addition, Tuđman himself was a significant force; he was elected the first president and thanks to his constitutional powers wielded extraordinary authority. Ultimately, the Catholic clergy played, and still plays, an important role; it has traditionally shown a strong affinity to Croatian nationalism.

Following the army’s success in almost completely retaking the Serbiancontrolled areas of Croatia, the HDZ achieved electoral victory once more—in the early parliamentary vote in October 1995. All the same, in the years that followed, general dissatisfaction with economic and political circumstances was on the rise. Cases of corruption, a liquidity crisis affecting both the state and private enterprises, and party infighting profoundly damaged the reputation of the governing party. Moreover, the obstruction of the return of 300,000 Serbian refugees, the support of nationalistic groups in Bosnia-Herzegovina, and the failure to punish war crimes isolated the country with regard to foreign affairs.

Thus the HDZ suffered a bitter defeat in the elections held at the beginning of 2000 and a coalition led by the postcommunist Social Democratic Party determined the government’s course for four years. At almost the same time, Stipe Mesič, a member of the liberal Croatian People’s Party, had been elected to the highest public office after Tuđman’s death. By means of a constitutional amendment, parliament abolished the semipresidential system but retained the office of a directly elected president. Under the center-left government Mesič began to break some of the taboos left over from the Tuđman era. He tried to normalize relations with Serbia, ended support for the Croatian separatists in Bosnia-Herzegovina, and promulgated a heightened readiness to cooperate vis-à-vis the Criminal Court in The Hague. Thanks to his conciliatory position Mesič was reelected president in January 2005.

Even so, the fragile social-liberal coalition was unable to keep central election promises. Despite a neoliberal economic program both the foreign trade deficit and the national debt continued to increase. Likewise, fundamental reform of the corrupt judicial apparatus did not occur. The Croatian Democratic Union distinguished itself, however, in the opposition as the guardians of national dignity and undermined the purported cooperation with the Hague Tribunal. At the same time, the HDZ, under the leadership of former Tuđman confidant Ivo Sanader, developed into a modern conservative party that also declared its support for integration into NATO and the European Union.

Since the beginning of 2004 a center-right minority coalition government led by the HDZ has been in power. The new prime minister, Ivo Sanader, secured the Croatian Serbs’ SDSS party’s parliamentary support with an agreement that promises the Serbs an end to the prevailing policies of discrimination and pledges the return of refugees. An important step toward Croatia’s accession into the European Union was thereby also taken.

In 2000 the European Council classified the five countries of Albania, Bosnia-Herzegovina, Croatia, Serbia-Montenegro, and Macedonia as potential candidates for EU membership. The Stabilization and Association Process serves as an instrument of integration; its most important goal is to bring the "western Balkans"—the official term of the European Commission—to the European Union. An essential component of the process consists of implementing principles such as democracy, the rule of law, and the protection of minorities, as well as fulfillment of the Dayton Agreement and cooperation with the War Crimes Tribunal. Moreover, the Copenhagen criteria must be met before accession into the EU. In turn the Stabilization and Association Process offers an opportunity for contractual relations with the EU in the form of Stabilization and Association Agreements. To date, only two countries in the region have been able to conclude such an agreement: Croatia (October 2001) and Macedonia (April 2001). On February 21, 2003, the Croatian government formally applied for EU membership even though not all of the member states had ratified its agreement. Nevertheless, the European Council granted Croatia candidate status in June 2004. Inadequate cooperation with the Criminal Court in The Hague constituted a significant obstacle to the commencing of accession negotiations. But the rejection of the European constitution in France and in the Netherlands as well as the collapse of the EU summit in Brussels also contributed to the postponement of accession talks. For this reason, the Croatian government’s option—to still conclude negotiations with the European Union in 2007—seemed unrealistic. However, Austria’s conservative government has succeeded in making its consent to EU accession negotiations with Turkey contingent upon the initiation of these processes with Croatia. Surprisingly, at the beginning of October 2005 Carla Del Ponte, chief prosecutor of the Hague Tribunal, confirmed Zagreb’s full cooperation in the search for war criminals.

Growing Trade and Productivity Deficits

Before its independence, Croatia was one of the more economically developed of the federal republics. The country’s economy was strongly geared toward intra-Yugoslav trade and the eastern European market. The collapse of the "Socialist camp" and subsequent war of secession led to an extensive loss of markets. The war destroyed one quarter of the country’s production capacity. Tourism, one of Croatia’s most important sources of revenue, practically came to a standstill. The rate of inflation increased to over 1,500% in 1993; gross domestic product stood at a mere 60 percent of its prewar level.

Hyperinflation was successfully combated, however, by means of a stabilization program. Though the Croatian economy has not yet been able to regain its 1989 level, per capita GDP in 2003 was at 6,489 US dollars, higher than that of Romania, Bulgaria, and Poland. Contributing to the generation of GDP were the service sector, at 62 percent of net product, industry at 30 percent, and agriculture at 8 percent (2003). Growth rates can mainly be traced to investments in infrastructure for transportation and tourism as well as to a strong private demand for high-quality consumer goods. These expenditures were financed via international borrowing and bank loans. Accordingly foreign indebtedness has increased since 1999 from 14 billion US dollars to around 25 billion US dollars. At 82 percent of GDP, Croatia’s level of indebtedness is higher than in most other postsocialist countries. The dangerously increasing foreign trade deficit can also be held responsible for this. Currently Croatia is conducting more than 70 percent of its foreign trade with the expanded European Union (EU-25). While Croatian exports into the EU have barely increased since 1990, imports from the EU have tripled. Overall the balance of trade deficit reached a preliminary all-time high in 2003 at 7.9 billion US dollars.

Leading representatives of the European Union and international financial institutions hold the sluggish progress being made in the movement toward privatization responsible for the Croatian economy’s lack of competitiveness. In Croatia’s case, however, it must also be borne in mind that in contrast to other socialist countries, the means of production in Yugoslavia were not state-owned but, in accordance with Yugoslav "self-managed socialism,"⁴  belonged to the employees of business enterprises. In a first step taken in 1991 the collectives’ hitherto existing rights of ownership were abolished and businesses were made the property of the state. The second phase consisted of an attempt to sell production facilities by means of public invitations to tender and auctions. Similar to the other Yugoslav successor states the Croatian government propagated the model of turning former employees into shareholders through a process of "insider privatization." Soon, however, HDZ party supporters, thanks to their political connections, were able to buy up businesses cheaply. Conglomerates of companies started to appear whose owners were more interested in short-term profits than in modernizing production facilities. In comparison to most of the other postsocialist countries, the Croatian economy was subject to far less restructuring at the microeconomic level. The country still produces 50 percent of its GDP in nationalized enterprises running high deficits. Thus, at the end of 2004 the International Monetary Fund made the allocation of further credit contingent upon a comprehensive rehabilitation program: in addition to wage cuts in the civil services and more flexibility in labor relations a forced privatization and a closing down of state-run enterprises are to be implemented.

Croatia’s weak export numbers prompted the country to resume former trade relationships. After concluding a free trade agreement with Serbia-Montenegro and Albania (2002), Croatia now has treaties of this sort with all the states in the region. Nevertheless, the scale of Croatia’s current trade with the former Yugoslav republics is still far below what it was in the 1980s.

In recent years Croatia has been able to increase the influx of direct foreign investments. These come largely from the European Union, particularly Austria and Germany, which next to Italy, are Croatia’s most important trading partners. International capital flows primarily into the areas of telecommunications, financial services, and the tourism industry. Though Germany has become less important as a trading partner in past years, it continues to hold second place; at the same time, Croatia plays only a marginal role in German foreign trade.

Impoverishment of Croatian Society

Privatization has led to a heightened contrast between a small group of "tycoons" and the wider public. For many years Croatia has had a high rate of unemployment; in 2003 it stood officially at 19.4 percent. It must be borne in mind, however, that between 25 and 40 percent of Croatian net product is generated by the shadow economy. Estimates reveal that currently between 15 and 18 percent of the population lives below the poverty line. Moreover, as economic investment is predominantly concentrated in the capital of Zagreb and its adjoining regions, a growing regional imbalance with regard to prosperity and employment has arisen. Since independence half a million people have left the country and only a meager 250,000 have returned. The largest Croatian minority population in western Europe still lives in Germany (circa 231,000 people).

Deindustrialization and high unemployment rates are also undermining the pension system. In 1980, with 1.8 million employed and 450,000 retirees, the relation between the two was still relatively good. Today one million net contributors have to pay for a million pensioners, and the numbers of the latter increased partially because the government forced the unemployed into early retirement. In addition, many Croats who had lived in Bosnia-Herzegovina and Serbia-Montenegro before independence immigrated to Croatia and the state must now bear the costs of their rights to a pension as well.

The Decline of Censorship

Freedom of information was restricted during the 1990s in many ways. The HDZ had also exploited privatization to buy up three of the ten existing daily newspapers, aligning them politically following a clear with-us-or-againstus scheme. Likewise extensive use was made of a legal provision that made it a punishable offense to defame the five most important government representatives (the president, prime minister, and the presidents of the parliament, the constitutional court, and the supreme court). Hundreds of trials with high compensation claims were initiated by people associated with the HDZ in order to intimidate irksome journalists. Above all, the state-run Croatian radio and television station, HRT, which is also one of the most important media groups, played a central role in forcing the public to toe the line. The statutory regulation that allowed members of the station council to be elected by parliament enabled the HDZ, with its majority, to transform the state-run television into an organ that adhered to the government line. Admittedly in 2003 the center-left government changed the selection criteria and the composition of the committee and converted the station into a public service venture. In addition, the disparagement clause was toned down.

In the late 1990s foreign businesses entered Croatia’s media market as well. To cite a few examples: the Westdeutsche Allgemeine Zeitung newspaper group has a 50 percent share in Europapress Holding, one of the biggest newspaper publishing companies in Croatia, and the third channel of Croatian television was, after its privatization, sold to the RTL group, which within a short time was able to capture a large share of the market.

¹ Croatian Spring" is the name given to the nationalist movement in Croatia in the early 1970s whose goal was greater autonomy from Belgrade. Certain currents also questioned the communist one-party system or called for the organization of a Croatian army and UN membership for Croatia. The Tito regime’s response to the movement was extremely harsh. The Croatian party leadership was forced to resign in December 1971 and many members of the Croatian Communist Party were expelled. [zurück]

² Franjo Tuđman (1922-99) was the first president of an independent Croatia. In 1941 he joined the communist partisans and after liberation became a career officer. Tuđman had a doctorate in history and tried to place history in the service of Croatian nation-building ambitions. Following the Croatian spring he was imprisoned in 1972 for "nationalistic activities" and again from 1981 until 1984 for similar offenses. [zurück]

³ In April 1941, after the German Wehrmacht invaded Yugoslavia, the Independent State of Croatia was proclaimed; it included Croatia (excluding the areas occupied by Italy and Hungary) and Bosnia-Herzegovina. Due in large part to the lack of other potential collaborators, Hitler fell back on the fascist Ustaša movement. The puppet regime of the Ustaša state was responsible for the genocide of Serbs, Jews, as well as Sinti and Romanies. [zurück]

⁴ Dissociating themselves from the Soviet Union, the Yugoslav communists developed the model of "workers’ self-management." This social experiment of self-managed socialism started at the end of 1949, with the establishing of workers’ councils in the nationalized factories, as "organizations of socialized labor." From the 1960s onward, structures of self-management arose in all areas of society. A complicated and ultimately unmanageable system consisting of various levels of delegation emerged that became increasingly cumbersome and bureaucratic. [zurück]