The country-specific recommendations are documents prepared by the European Commission for each Member State, which analyse its economic situation and provide tailored policy advice on measures that it should adopt over the coming 18 months. They cover the particular challenges that the Member State is facing in a broad range of areas: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, efficiency of the public administration, competition etc. The final adoption of country-specific recommendations prepared by the Commission takes place at the highest level by national leaders in the European Council.
Croatia has been experiencing a prolonged downturn, in which a range of external and internal imbalances have come to the fore. Croatia was identified by the Commission in the 2014 in-depth review presented on 5 March 2014 as experiencing excessive macroeconomic imbalances, which require specific monitoring and strong policy action. These include uncompetitive exports, a corporate debt overhang and public sector indebtedness. Structural deficiencies have contributed to these imbalances and are impeding a swift rebalancing process. A poor business environment and an impaired labour market stand out among the shortcomings. State-owned enterprises still play a dominant role in some sectors and some of them are highly indebted. These factors also lead to lower potential growth, which hinders private sector balance sheet repair and increases the required fiscal consolidation effort. Croatia is recommended to correct its excessive deficit by 2016 at the latest.
Having joined the EU in July 2013, Croatia participated in the 2013 European Semester on an informal and voluntary basis and no country-specific recommendation was addressed to the country. Croatia has undertaken some reforms aimed at ending the protracted recession and returning to a sustainable and job-rich growth path. Recent reform efforts focused on a more flexible labour market and streamlining of the benefits' system, although the success of the measures will largely depend on their robust implementation. Steps were also taken to enhance the businesses environment and the efficiency of the public administration, including the tax administration, but further concerted efforts are needed.
2014 European Commission's recommendations in brief
The Commission has issued eight country-specific recommendations to Croatia to help it improve its economic performance. These are in the areas of: public finances and taxation; sustainability of pensions and the health care sector; labour market; social inclusion; efficiency of the public administration; state-owned enterprises; insolvency framework and the judicial system; financial sector.