The Country-specific Recommendations are documents prepared by the European Commission for each country, analysing its economic situation and providing recommendations on measures it should adopt over the coming 18 months. They are tailored to the particular issues the Member State is facing and cover a broad range of topics: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, etc. The final adoption of Country-specific Recommendations prepared by the Commission is done at the highest level by national leaders in the European Council. Croatia became a full member of the European Union on 1st July 2013. It took part in the 2013 European Semester on a voluntary and informal basis.
The Croatian authorities adopted several reform measures in 2012. In particular, the government took further steps to shift the tax burden towards taxes less harmful to growth and introduced measures against tax evasion. Moreover, a new law was adopted to facilitate the resolution of non-performing loans and some progress has been made to reduce the high cost of starting a business. Measures to increase the flexibility of the labour market, to strengthen the education system and to reduce the administrative burden on businesses are in the pipeline. In other areas, reform efforts have been more limited, especially as regards reducing the implicit liabilities and fragmentation of the pension system, improving the efficiency of the judiciary and enhancing corruption prevention mechanisms in public administration.
Croatia faces important challenges. After five years of recession, kick-starting job-rich growth while ensuring that fiscal consolidation remains on track is a key challenge for the short term, while improving competitiveness and strengthening confidence in the financial sector is crucial in the medium term. Croatia will need to make further efforts to reduce the high budget deficit and to resolve the liabilities carried by state-owned enterprises while safeguarding investment and other growth-enhancing expenditure. There is also scope to increase the efficiency of taxation. Labour market rigidities and an unfavourable business environment have to be addressed urgently.