| July 19 2017

Guest blog post by Mehmet Ögütçü, chairman of the Global Resources Partnership, a boutique energy investment and geopolitical advisory consultancy

Millions of tourists are descending on Croatia’s sun-kissed coast for the summer season, enjoying the tranquil Mediterranean waters. If only Croatia’s domestic political situation and external environment were as calm and carefree.
For prime minister Andrej Plenkovic and his Croatian Democratic Union (HDZ) party, the waters are choppy, and summer will leave little time for relaxation. In June he only just managed to patch together a second coalition government with the support of the liberal Croatian People’s Party (HNS) – which, given its formal ties to the opposition Social Democrats, promptly tore itself apart over the deal.
This unholy alliance was too much to stomach for foreign minister Davor Ivo Stier. He tolerated Plenkovic’s tireless effort to move HDZ away from its conservative roots and pack key party posts with his backers. But the new coalition, backed by assorted minority parties, was a step too far, and Stier quit.
Now brooding from the sidelines and still general secretary of HDZ, the dour Stier is spoken of as a potential leadership challenger to Plenkovic in the autumn. A more credible challenger is Tomislav Karamarko, a conservative veteran of past HDZ governments and bearer of the legacy of Franjo Tudjman, Croatia’s wartime president. Karamarko, ostensibly now outside party politics, has just inaugurated a high-profile public-policy think-tank which seems to be unsettling Plenkovic.
Even if Plenkovic manages to shake off party members’ queasiness over his alliance with HNS, the nation’s economy is stumbling like a drunk. The Agrokor fiasco – the debt-laden implosion of Croatia’s largest private employer, a supermarket and food production company – threatens not only the domestic economy but contagion throughout the Balkans. A first wave of layoffs is compounding concern over unemployment in a country losing its brightest youngsters to better prospects in other countries.
Much of Agrokor’s debt is owned to Russian banks, a complicating geopolitical factor given the historic suspicion of Russian intentions in the Balkans, and Moscow’s aggressive alliance with an increasingly assertive Serbia.
Agrokor was also the reason for the disintegration of the first HDZ-led coalition with liberal party MOST. The minority partner had refused to back the economy minister, HDZ’s Zdravko Maric, because he previously held a senior executive post in Agrokor. Plenkovic stuck with Maric and sacked three MOST ministers in retaliation – but the simmering crisis may yet prove to be the main factor in the downfall of a second Plenkovic government.
Politics in the European Union’s newest member state, with a population of 4.2 million, rarely makes waves elsewhere in Europe. However, Croatia’s instability augurs ill for the rest of the Western Balkans, with much of the rest of the region gripped by political ferment more dangerous than ever, considering myriad challenges including migration, terrorism and hybrid warfare.
Agrokor’s unravelling will undoubtedly infect Croatia’s neighbours including Bosnia, where already high unemployment and limited opportunities are fuelling radicalisation. Meanwhile, the ongoing migrant influx north through the Western Balkans has placed Croatia at the heart of the continent’s security woes. Plenkovic, ever the arch-European, is encountering concern in Brussels as he pushes Croatia’s putative membership of the Schengen bloc.
As if this potent cocktail of problems was not enough, another incendiary issue that could undermine the government is the ongoing dispute between INA, Croatia’s national oil company, and MOL, its Hungarian counterpart, which owns a majority stake in INA.
Lengthy and ruinously costly arbitration over ownership and management issues went MOL’s way. Plenkovic’s response was to promise a buy-back of MOL’s shareholding, with the taxpayer picking up the tab. But that was before Agrokor, which has isolated Plenkovic as the champion of a nationalisation the country can ill afford.
Meanwhile, a decision by an international tribunal on maritime borders against Croatia, in favour of its neighbour Slovenia, risks complicating Zagreb’s reputation among its EU partners and further afield. However justified Croatia’s decision for rejecting the flawed arbitration process may be, it’s hard to explain to potential investors looking for legal certainty and respect for international judgments.
With Croatia apparently unable to shake off its inertia, a fresh election looks likely before long. But Plenkovic could well face a challenge from within HDZ before then as discontent grows and more right-wingers follow two key HDZ leaders who have been forced out of the party for defying the prime minister.
It is speculated that the prize Plenkovic really covets is a top EU job back in Brussels, where he previously served as an MEP and as deputy head of Croatia’s delegation to the EU. Plenkovc may even covet his country’s nomination as the next president of the European Commission. If the pressure at home causes him to buckle, support for parachuting Plenkovic into such a post could be the price his successor will have to pay.