Croatia officially became the 28th member of the EU on July 1, and the first country from the western Balkan region in the bloc. The move carries positive significance not only for Croatia but also for other western Balkan states and even the EU.

After 10 years of unremitting efforts since its first formal application to join the EU, Croatia's achievements in reform finally earned recognition by the international community and the EU through its inclusion in the bloc. Croatia's accession to the EU can help the country upgrade its international standing and expand its international influence. In addition, becoming a member of the EU market presents the country a good opportunity for development because it can draw more support from EU funding as well as external strategic investment—a major boost to its economic recovery. With its EU membership, Croatia has become a link between the EU and other western Balkan states. It can provide technical support for other states that want to join the group, thereby improving its leverage and increasing its voice in the region.

Croatia has set an example for other western Balkan countries, encouraging them to participate in European integration. Montenegro has been carrying out an orderly reform process since the country began negotiations to join the EU in 2012. Macedonia has also entered into negotiations. On June 28, Serbia got the green light to start EU accession negotiations on January 1, 2014, which could be seen as a reward for Serbia's efforts to normalize relations with Kosovo. The progress made by the three countries has brought a greater sense of urgency to Albania and Bosnia and Herzegovina in their EU accession processes. The two countries worry that they might be further marginalized if they fail to make progress. Joining the EU would help rid these western Balkan states of the memories of war, turmoil and conflicts, allowing them to reemerge on the world stage with a new look.

For the EU, giving Croatia EU membership is an expression of the bloc's confidence. Although the euro zone is still mired in a crisis, the EU has shown that it is resolved to address the crisis and will stick to its expansion policy. The EU has the capacity to exert influence in the greater region, changing the political and economic systems as well as the development paths of struggling neighboring countries in order to promote peace and social transition.

Challenges ahead

The coalition government led by the Social Democratic Party of Croatia will remain stable. The successful accession to the EU will help the ruling coalition rally support. The corruption case of the opposition Croatian Democratic Community in 2011 made it unable to challenge the coalition. Barring unforeseen complications, the coalition could rule until the next parliamentary election in 2016. A stable government will be an important guarantee for the future reform and economic development of Croatia.

However, Croatia's continued economic recession, high unemployment and fiscal deficit have caused public resentment. Its economy has been declining since 2009, and the economic growth this year is estimated to remain negative by 0.3 percent. The unemployment rate is projected to reach 20.4 percent in 2013, as opposed to 19.1 percent in 2012.

Croatia has sustained high levels of fiscal deficit and debt compared with emerging markets. Its fiscal deficit is expected to reach 4.2 percent of GDP this year, and could remain above 3 percent by 2017. Its public debt has been soaring since the beginning of the financial crisis in 2008, with its proportion to the country's GDP rising from 29.3 percent in 2008 to 53.7 percent in 2013. The ratio is expected to exceed 60 percent in 2015. Deteriorating economic conditions could lead to strikes at any time. Austerity packages advocated by the government may also arouse objections from trade unions. Therefore, the biggest challenge facing the Croatian Government is how to promote economic growth and steer itself out of high unemployment and the financial crisis.

In the long term, joining the EU will surely benefit the Croatian economy. But it is unlikely that Croatia will see big immediate gains. The euro zone is still troubled with an economic crisis. The shrinking imports of the euro-zone market have dealt a heavy blow to Croatia. Croatia has a high dependence on foreign trade with Italy and Slovenia. Its exports to the two euro-zone members accounted for 24.1 percent of its total exports in 2012. But now, the two countries are both deeply mired in the current crisis. Their weak import demands in the coming years are likely to take a toll on Croatian exporters.

After joining the EU, Croatia has to cut ties with the Central European Free Trade Agreement, which means its exports to this market, which accounted for 21 percent of Croatia's total exports in 2012, will be faced with tariffs again. Croatia can make up for its export losses in the EU market in the long term. But because it has already benefited from the EU market since it signed a free trade agreement with the EU in 2002, it cannot achieve remarkable trade growth with other EU members in the short term.

Croatia's labor market is currently uncompetitive, so it could be confronted with the impact of the EU labor market after joining the bloc. A 2012 report of Eurostat, the EU's statistics agency, shows that the competitive labor resources of EU members in Central and Eastern Europe could bring Croatia more employment pressure.

One piece of good news for Croatia, at least, is that it might receive 11.7 billion euro ($15.3 billion) of assistance from EU funds to stimulate its economy from 2014 to 2020, accounting for 27 percent of Croatia's GDP in 2012. However, to make the most of the money, Croatia must improve its business environment and address the problem of government corruption. Also, according to EU rules, a country should keep its deficit under 3 percent and total debt at less than 60 percent of GDP in order to receive the bulk of funds. It will be difficult for Croatia to meet this requirement. Additionally, as Croatia has not met EU standards on anti-corruption and its legal system, it will remain under the examination and supervision of the EU and cannot enjoy the full rights of an EU member.

Sino-Croatian cooperation

Croatia has maintained a traditional friendship with China. Sino-Croatian relations have been developing smoothly since the two countries established diplomatic relations in 1992. In 2005, the two countries upgraded their ties to a "comprehensive cooperative partnership." In his recently published book, China and the Balkans, former Croatian President Stjepan Mesic asserted that China's peaceful development will not pose any threat to world stability. Croatian politicians' correct understanding of China's foreign policy is very helpful for the two countries to deepen mutual trust.

The two countries also share a long history of economic cooperation. At present, Croatia is China's second largest trading partner in the former Yugoslavia region. As Croatia is currently faced with economic difficulties, it needs huge foreign investment to spur growth in the short run. Chinese enterprises could lend assistance to Croatia and find investment opportunities in the country. Chinese capital is highly needed for tourism infrastructure construction as well as other private sectors in Croatia. In the meantime, as more Chinese people travel abroad, the picturesque landscape of Croatia has become a drawing card that attracts Chinese tourists.

In consideration of the long-term friendship and traditional cooperation between China and the former Yugoslavia region as well as the status change of Croatia after joining the EU, the potential of Sino-Croatian relations will be further exploited under the framework of China-Central and Eastern Europe cooperation.

The author is an associate research fellow with the Institute of European Studies of the Chinese Academy of Social Sciences

http://www.bjreview.com.cn/print/txt/2013-07/22/content_556749.htm