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- [00:00]
A
Your Excellencies, ladies and gentlemen, let me welcome you here to the London School of Economics. My name is James Ker Lindsay. I'm a senior research fellow in lisi, which is our research unit on Southeast Europe. It gives me great pleasure to introduce our speaker this evening, Prime Minister Zoran Milanovic. Prime Minister Milanovic has been Premier of Croatia since 2011 and President of the Social Democratic Party since 2007. During his political career, he's held a number of senior positions. He served as Chairman of the Social Democratic Party parliamentary group in the Croatian Parliament and was a member of the Committee for the Constitution, Rules and Procedure and Political System. He's also had a very strong involvement with the development of Croatia's foreign policy over the past 15 years, having previously served as Assistant Foreign Minister for Political and Multilateral Affairs, National Coordinator for NATO at the Croatian Ministry of Foreign affairs, and as Chairman of the National Committee for Monitoring the negotiations between Croatia and the European Union. He graduated from Zagreb law School in 1986 and completed his Master's degree in European Union Law at the Flemish University in Brussels. The subject of his talk this evening is Croatia's EU membership expectations and realities. Prime Minister.
- [01:29]
B
Ladies and gentlemen, dear colleagues, it is extreme privilege for me to address the audience in this institution over which I came across for the first time many years ago when I read some biography of jfk, and then I read that after graduating from Harvard, he enrolled on the London School of Economics. And I wondered what kind of guy that is. I mean, after graduating from the university, he went back to the school. I had no slightest comprehension as to what this august institution is. So again, it's my privilege, and that's what I read in the book five minutes ago, to be here to briefly address you and then to have interchange of ideas. So you will be, understand, free, to ask and to challenge my views and positions. And there will be few, not many, just the focus. So after long years of negotiations, procrastinations and perils and wars, we finally made it and we became 28th member of the EU. Now, fundamentally, is it a goal or is it a means? Is it a journey or is it a destination? I view it as a journey, as a process, because process for me is more or less everything. And the goal, you never know when you get there. So in the process of the EU talks, we've been, should I say harshly scrutinized because it took so long, because it was so intense, so deep, so different from the. From the approach and the treatment the others were accorded. Did it create Any rancor or anger on our part? Not exactly. It didn't. Did we learn a lot? We did. Did we really reform? We didn't. Actually. It starts only now. All that we've been through lately, or 10 years ago, over the last 10 years, without undermining the position or the merits of the others, contributed to the achievement of this goal was simply, well, transposition of huge mass of documents and legislation into our legal system. Now it has to work. It doesn't work impeccably. By default, as we see it these days in Europe, we have entered into, well, not the best of times. This is very. These are very interesting times, as the old Mandarin curse goes. And we are having interesting times in Europe and we are entering in the status of the upper middle income country. Well, that's the status that we have enjoyed and we've been into like in a kind of straitjacket for the last 45 years. That's more or less the economic and social level Croatia attained as a part of Yugoslavia at the beginning of the 70s, after two decades of consecutive steady growth. And the figures, which sometime resemble Chinese figures, we relented, we stopped. And then the political crisis started, which lasted for years, years of procrastination, of delays, reforms we needed. And then finally the war broke out and we are actually catching up with something that a whole generation feels she was entitled to. But it never came to pass. So Croatian path was different. We've been through war lately. Everybody experienced that war in his or her special way. And actually I'm the only member of the European Council at this point in this composition, that comes from the generation which had to go through the war. There's no choice. So it makes us different, it doesn't make us better. In some aspects, it makes us stronger, but also sometimes worse. People, each of us individually. Now we've been in Yugoslavia for. This is the point I want to make next. We've been in Yugoslavia for 70 years. The country was created in 1918, 1919, after the Versailles Conference, and it lasted for a little bit more than 70 years. If there was a single goal to attain in the federal first kingdom and in federal union, that goal should be the economic and social harmonization, single market with uninterrupted flow of the goods and ideas and services. But actually it never came to pass because 70 years down the road, at the eve of the collapse of the country, the regional imbalances were exactly the same as they were in 1918. Slovenia versus Kosovo, Kosovo versus Croatia. In economic terms, relatively. In relative terms, nothing changed. So the whole project was a failure. Now, to put it into broader context, one being a member of the eu, actually we are witnessing pretty much the same, but on a much larger scale after this historic deleverage. In the aftermath of the financial crisis, all the European countries stand more or less where they stood 40 years ago in relative terms to each other. Greece as rich or as poor as it was 40 years ago in relation to Germany, Denmark in relation to Spain, as if nothing has changed, at a standstill. So it's also a lesson that I take from history. Actually the only country that managed to make a quantum leap in economic standing, but which is more of an exception, is Ireland. Ireland only made quantum leap. Everybody else stands where it stood before. So this is not that we should curb any enthusiasm to the contrary, but also take some things as real that the growth and the model of growth that we have been taking, we've been taking for granted over the last couple of decades simply doesn't work anymore, neither for us, nor on a much higher level, United Kingdom, nor for other countries. We have to convince ourselves that we unfortunately have to work more, have to be paid, should I dare to say less, to retain the current standard of living, not to go down, not to plunge. That's what Germany did some 11 years ago. And the fruits of that audacious move by social democratic government of Schroeder is still being enjoyed by his political successors of whichever political color. That's something that we still have to do. We haven't done it yet. And in trying to take that course, I'm being confronted with a, well, stiff resistance in my country, because it's natural. It's natural people feel that they are entitled to things. But the bad thing is that we cannot pay for that. We don't have that money. We are, as a country, in a way, well in doubt that we are small, we are not overpopulated. Sometimes that's also a blessing, but sometimes a curse. I will refer to the latter example later. We have a good geographical position. We have relatively well educated and talented workforce. Of course, everybody thinks of himself exactly the same way. Everybody's special. In reality, it's not true, but we think of ourselves as we are special, at least at the average of Europe, not the world. And this is potential for a great economic yield. Country has good links, good connections with Europe, port facilities, very strong, robust and growing tourist industry. And when we're talking about a country of four and a half million, it can speak volumes if you put things in place in the right way. So work hard, but not work, just anything. We are only four and a half million. That's what I said. So this is the setback. We have the most elaborate network of highways in this part of Europe, which we paid for dearly through the loans, not through European funds. We didn't tap on that resource because we were not a EU member. And now we eventually realized that we are like 8 million people short in order to pay back the loan because we don't pay enough tolls. It's expensive for us, it was one of those moves that you make once in the history of generation. For us, it's a great thing. For you it can sound minuscule, marginal issue that we dared to invest to spur the growth of the one important branch of economy. That's tourism. Now, the tourism is not necessarily the branch of the economy that employs the most highly talented and educated people. People who work here or people who study here will not necessarily tomorrow be hotel managers, which is the profession that I respect hugely. But this is not something that adds the top value, especially in the tourist resorts. But that's certainly one of the. And some of the people here in the audience actually have been active in Croatian tourism as entrepreneurs, pioneers, risk takers. They profited, they lost. I see them in the audience and they will probably come back or they will not. But that's one of the areas where small country with good tradition can really make a lot. We have shipbuilding industry, which has been there for years and years. Of course the market has changed substantially. But did you know that in 1985, in terms of brutal tonnage, Yugoslavia, which means Croatia 95%, was the third in the world after Japan and South Korea. China was not around yet. So the third builder of ships in the world in terms of birth Atonic, was Yugoslavia, of course, with a lot of losses accumulated in state subsidized industry. But there is a tradition, there is knowledge, there is a potential for diversification and entry into the new areas. Because it's a knowledge based industrial activity. Well, of course not. If you build tankers, that's what is being done these days elsewhere. But if you resort to other means and possibilities, it can be very profitable. And that's also something that we have fundamentally restructured in the course of EU talks, because we were compelled, we had to do that. If it wasn't for the eu, that's one of those bright examples. It wouldn't have ever came to pass, never. Because the subsidized would go on, subsidies would go on forever, for decades. It was a system that was simply self generating. Everybody felt happy. But at the end of the day, taxpayer had to carry the bill. The bill was borne by the taxpayer. It also changed in this course. So it's private now. It started to make profits, but the future is uncertain, as in every industry. What else to say? This is in general lines the picture of my country, which is not a big mystery for you, which is European country, which is small country, which is country of good potential, which is now around the same table going to the same ordeal of the European Council meetings that last long into the night for two days, having very complicated decision making process in which we now participate. My government is social democratic government. I'm a social democrat of I believe, European kind of liberal type. Even though when you say liberal in Croatia you got a hard, nasty look, you know, it doesn't come with sympathy to be liberal. Well, it's like you're leaving people to their own devices. You're not compassionate enough. I think that we live, act and work to the contrary, that we are both compassionate but also aware of the challenges that the current state of affairs in the world and the world and European economy puts before us. It's competitive, it's unpredictable, but we have those core, I should say, anchors that we can stick to. So I'm an optimist about Croatia's future in terms of breaking free from that straight jacket that I mentioned at the beginning that we've been into for the last 45 years. Actually the economy and the society have been stationary for the last four and a half decades. As a kid, I remember at least as a children, as a child from the middle, higher middle income family, from the capital, enjoying relatively good living standard. And I was not alone. There were many of those, of course, in a system that was not democratic, that was one party controlled, but that's the level that we have once achieved and still stationary. And in the times of crisis, this can give way to, or this can cause frustrations among the people. For the time being, Croatians are not taking to the streets as some others did. But it's always about expectations. Never about real troubles, real problems, always about expectations. So reforms, hard work changes, labor, legislation, which has to be altered slightly, but not fundamentally, because I don't believe that in scrutinizing workers to the point of break, you can achieve a lot, but that we have to make our labor code more flexible in the interest of all, in the interest of job creation in the first place, that is beyond any doubt. That's something I believe in. So since I'VE started repeating myself. It's a good sign that I should pull the brake here and allow you to ask me to make comments or to challenge my views. Thank you.
- [16:04]
A
Well, the Prime Minister has left us a lot of time for questions. I'll throw the floor open if you could just clearly identify yourselves and wait for the microphone to come. The first is Professor Featherstone.
- [16:22]
B
Kevin Featherstone from the European Institute. Thank you for that. Prime Minister. I was intrigued by your comments about the way in which EU membership might be viewed. An achievement or a passport to something greater, a means rather than an end in itself. I wonder how your party voters, social democratic voters, view your call for hard work, sacrifices, etc. And how that might be affecting their expectations of EU membership, what they expected from EU membership. Now they are members. Your calls for sacrifices and hard work may seem to be in some tension. I didn't mention that the turnout for the first European Parliament elections, which took place in May last year, was stunning. 19% or 20%. So people didn't bother at all. It just passed by. It seems as if we have achieved one goal and it's here to stay. Now we have to make up our mind. Make up our mind and really decide what to do with it. As I said, it was a generational centennial goal to join the eu. To join the eu. Quite different from the mood in other Eastern European countries. We were stubborn that way. We were attacked, we were object of the aggression. And sentimentally speaking, people of Croatia really viewed that issue. European membership as something that was there for them 25 years ago and then simply evaporated and we had to stay in line in queue for another 20, 23 years. You ask me about the position or the attitude of my voters, our voters and party members towards hard work. Well, we are Workers party, so people are presumably in favor of hard work, but also in favor of good remuneration of something that. That caught my attention some 20 years ago as a Labor manifesto slogan. Decent pay for decent work. That's the platform on which we run at least once and one, but it's only platform, it's not much more than that. So it's hard to explain. People, citizens who have certain sense of entitlement to national health service, free medicine, free schooling, whatever that means, because we know there is absolutely no. And the British example is a good one. It came with cause, political cause, but it's here. It's a permanent work and it's permanent campaign. As a politician, in a way, I despise the stance in which you campaign Permanently. Which implies that you never work, you never allocate your mental resources and cognitive resources to thinking and creating. But in a NutShell, you're campaigning 24 hours a day. That's reality. So again, I'm really an optimist. I think we're going to be substantially better off in five years time. And changes, the preconditions for real changes, real reforms are being made now. Who profits is another question. You know the case of Schrader? You lost?
- [19:58]
A
Yes, the lady just there.
- [19:59]
B
Thank you.
- [20:01]
C
My name is Sadelina Molini and I'm a journalist. Actually I'm stationed in Zagreb, but by accident I'm here today in this part of the world there is a very intensive debate about the reform of the EU treaty and Croatia is just in time for this. So I would like to know your opinion. What do you think about it? Reform of the treaties and especially in that context of redefinition of the free movement of people, workers, et cetera, and probably of very integrated Eurozone. Thank you.
- [20:39]
B
As I said, it's a permanent campaign, so it never settles down. Time and again you know the story and the rumors spring up that we're just about to re reform again. So never in the history of the European Union there was a silent time when we really had an opportunity to focus and work. You finish one process and then the new one starts. I'm not much in favor of any fundamental or in principle any changes to the existing framework, because that's something that we have agreed to. We just concluded our talks and I think that we have just enough Europe. Maybe some corrections should be made. Maybe. Well, for instance, unlike the uk, Croatia has that kind of all but obligation to join the Eurozone. If you ask me today whether it would be fully beneficial for my country, the answer is pending. I don't know yet. But I know, and I think that I always knew that even 15 years ago when we discussed this as young or less young diplomats, that when you create monetary union, some kind of fiscal discipline or fiscal grip must exist. And Europe had none. And eventually it costed dearly countries like Greece, Italy and the others for that lack of discipline. So the same story reiterates here in the UK with Scotland and England, provided that Scotland leaves one day you're going to have a monetary union. Who going to control that? Who's going to control politicians in Scotland? The other way around? So that's something that might be mitigated in a way, but I'm not in favor of further surrendering, no matter how medieval this might sound national prerogatives to the Brussels. I'm Prime Minister now. I will not be tomorrow figuratively, but the countries as fundamental political entities remain. So we have enough Europe and it's great, but it's enough.
- [22:51]
A
Gentlemen, just there please.
- [22:57]
B
Anthony Sheridan, graduate of the lse. Simple question, I hope, with regard to future membership of the the eu. How do you see Montenegro, Serbia and then maybe other members of the former Yugoslavia. Two weeks ago or three weeks ago now, two and a half weeks ago, I made a swift and an unexpected visit to Mostar after the riots in the city. Mostar is a bi ethnic community with Croats and Bosniaks where the people took to the street and the mob acted in violent fashion. There was looting and burning and Molotov cocktails flying around. And as a Croatian politician, but also fully aware of all the sensitivity of the interstate inter ethnic relations, I went there and actually I made a case. I pleaded for the European perspective of Bosnia and Herzogen without explicitly, explicitly, without any possible interference into internal Bosnia Herzegovina affairs because I know it hurts and there's been a lot of mischief over the last 20 years in terms of dealing with Bosnia and Herzegovina. Dealing is that nasty word now. The response was, well, mediocre, mild at best. I heard only British Foreign Minister William Hague actually saying the very same thing the other day, that Bosnia should be seriously considered for some kind of negotiation talks, no matter how long, as soon as possible. Why is that so? Why do I see it that way? Well, if Europe really cannot absorb and digest Bosnia, then it's not worth a thing. Bosnia as such has been created in Daytona and it's not immune. It's certainly not immune of the flaws of her own, many of them. But it's the way it is. European border to the east is to my knowledge at the shores of Black Sea now. So it's quite distant. And we have that problematic entity in the heart, not literally, but figuratively in the heart of Europe. And we cannot give them a chance. Why is that so? Well, I will tell you how people read that in Bosnia, at least those 50% that are not Christian. I'm Christian by tradition and they're not. It's because they're Muslim. Albania pretty much the same. 60% of very secular Muslim population and the rest are Christians also at a standstill. Serbia, to our satisfaction, started talks lately. Albania is not even a candidate yet. How do they read that? Well, maybe they will read it because they're Muslim. I'm just trying to put myself into their shoes. Do they want Them going to the lectures to the Middle east or be immersed into Europe. We're talking like 5 million people altogether. Seven, not more than that. What was your question? Did it drift? Yeah, Montenegro, Serbia. Fine. I mean, they started talks and they should, you know, they were not unnecessarily reprimanded for the things that happened. I will be very mild. It happened, but it's okay. It's in our interest. And to put it bluntly, you know, I will not. I don't have an ambition, no, neither me nor my colleagues, to exercise any kind of authority or mentorship over our recent neighbors. I'm not in that business. You want to help, you want assistance. Technically, you want political advice. I will not be mandling inter internal affairs. Bosnia for me is a neighboring state, but as a Croatian politician and ethnic Croat, I cannot totally wipe the fact that half a million Croat citizens, all of them holders of Croatian passport, European passport, live there. And they should have European perspective in Serbs and Bosniaks too. So. But this is my position. I don't expect initially much support for that because I expect people in European Council to turn deaf ear on that. You know, once it calms down, it immediately ceases to be object of interest. Now all the answer to Ukraine, another torn nation forming, not fully enveloped. Montenegro these days is actually the best off or better off than it was before. So I think the talks should start shortly. And their administrative capacity has been immensely improved over the last 10 years. It's a small, quite complex community politically, sometimes diverse among themselves, but outward projection is very impressive. For me. It's a small country in terms of GDP per capita, for instance, they surpass Serbia. But it talks much more about Serbia than about Montenegro, unfortunately, because we are trading partners, we need those markets. Our entrepreneurs invest there. So the. The better off they are, the better off we are. It's simple logic for me.
- [28:25]
C
Prime Minister, good afternoon. My name is Jasmine Killen. I'm a Croatian born but living in London. I'm a legal translator and writer. And my concern is young people, because your government, no disrespect, but we're all getting a bit middle aged. The new generation is coming up. But in England and in Croatia, there is kind of a lack of expectation for young people. There is discussion of young people not having as good a life, if you like, as their parents. And in respect of Croatia and European Union, Croatia has a whole, has an excellent system of particularly technical and scientific education. And I'm wondering, with the problem of youth unemployment or young people's employment or lack of. Is there a plan in Croatia? Because all over Europe you find Croatian engineers, Croatian doctors, Croatian lawyers, Croatian, all sorts of scientists and so on. So is there a plan or is there some sort of concern that is being felt?
- [29:28]
B
Croatian lawyers, beware. Croatian engineers. That's much better. Now we are getting old as a society, and I'm afraid we're going to get old before we get rich, because we have promised ourselves things that we apparently will not be able to deliver. We are becoming old society, which by definition makes society less volatile, less potentially violent, but also more stagnant. And yes, young people have all the reasons to be sometimes even desperate. Now, the unemployment rate among the young population, which is the cohort between the age of 15 and 25 in Croatia, is stunning. 50%, which means that those out of school, out of college, out of education program, so searching for work but not being able to find it. We're talking 69,000 people. Well, for this country, it's like, you know, forensic trace, nothing. For us, it's numbers. But it's not that huge, because when you. When we label. And that's the point seldom made in Europe, because we organize all those fora conferences about unemployment. But those figures send different message, because 50% in Croatia is not exactly. Not necessarily the same as 50% in some other country. It reflects the number of the people who are out of school. So in Croatia, the percentage of those who graduate from the sky high school with some degree. Now we can discuss quality. It's 95%. So 95% youngsters and secondary education, high school, that's not bad. The quality is debatable. Of course it is. So those 70,000 people, of course, are not expected to have patience and listen to my words. These problems are structural. We have to address them. And there are solutions. There are youth guarantees. And we have taken that issue seriously, very seriously, by heart. But whether we're going to deliver soon, I don't know. Nobody does. And the figures vary immensely. In Austria, it's virtually inexistent youth unemployment. Seven percent of those people, people from that cohort are registered as unemployed. In Spain, it's almost 60. In Britain is, I guess, above 20%, which is a lot. In Scandinavia it's about 20%. In Germany, it's 8%, because they have the finally, you know, elaborate scheme of the secondary education, which caters to the existing industry. So they're working hard. And not just anything, but it caters to the existing order of things. Ten years from now, when Chinese start making cars as good as German we're gonna see because Koreans already did it 10 years ago. I wouldn't give them a look. So things change. Those who adapt, they survive. That's very social democratic.
- [32:48]
A
Gentleman just at the back there. Yep. In fact it was that gentleman there. But I'll mark you down. Thank you. My name is Martin Kripps, I'm an MPA student here at LSE and before.
- [33:08]
B
That I worked in Germany for the first Croatian born parliamentarian.
- [33:15]
A
My question is, how do you perceive the debate in Great Britain, for example.
- [33:21]
B
About migration, particularly coming from Bulgaria, Romania.
- [33:25]
A
What is the Croatian point of view on this?
- [33:33]
B
It's again, it's different. Let me tell you this. The first time I made a point this morning at a European bank, the first time I visited that rich, lavishly decorated endowment of European bank was in 94, 93, 94. So we were in the midst of war. The country was not wholly liberated yet. And we were coming to negotiate loan for the construction of the first fraction of highway. Section of highway. And I entered Heathrow without visa requirement in those years, you know, Czechs, Poles, Slovovaks, as of 94, Hungarians still enjoyed visa requirement for the most western European countries. Correct me if I'm wrong, but I know I'm not because we have noticed that at the time. So even in those times we were not projecting any fear or being perceived as a immigration threat to the, for instance uk. Now we are in the eu. We are a small delicate society. We are ethnic state. We were not empire, we were never. Even though we are the only Slavic literal community, so to speak, the only Slavic traditional literal community is in Croatia for millennia. But we are not huge. We were never in power of the seas. So when we discuss immigration in Croatia, actually it's never been addressed as an issue and we'll certainly need some immigration. There's been a fear projected about possibility of North African immigrants reaching Croatian shores. What then? Luckily for us and less for them, you know, their power projection evaporates at Malta and they embark there or in Italy. So we don't face that kind of threat. Now if your question was about the rights and entitlements of the European citizens throughout the single market to move, look for job, they can already self establish. So there are no any barriers whatsoever. I can come over in London and establish my company, but few people there. So people are much, much easier and much more comfortable coming over and searching for a job. I don't think it's hurt Britain, not at all. To the contrary. So that's that kind of Fear, you know, that is present in Denmark one day. And then the socialists, social Democrats carry the day and they abolish all the limitations which were imposed. You remember that two and a half years ago. By the way, I'm a very good friend of Yossi Pyratovic, for whom you worked and his all type that dear, kind of sometimes naive, but very well intended and intelligent people from the trade union age. Mital. He was very active German syndicalist. And these are the people that I'm having the most trouble with these days in Croatia, so. But I like him still. Thank you.
- [36:44]
C
Research in southeastern Europe, foreign investors lament the fact that doing business in Croatia is not very easy. What are, in your opinion, the main obstacles and what is your government doing to overcome them?
- [36:59]
B
Well, I could have, of course, but I didn't, you know, because you're not investors. Elaborated the whole scheme and the whole legislative framework of Croatia in terms of foreign investments. The law on the. How do you say that? On the mutual support of the investments and the incentives for the investments and so on and so forth, and the exoneration of the profits for tax base. We have all those things, you know. But the basis for all this is trust. Without trust there is no interconnections, there is no affinity or willingness of people to take risks. Somebody said today that money is like a rabbit, you know, it always deserts the risky areas. But money is also, and that was missed this morning, a lion. Because without those people with heart and bravery and pioneer spirit, the seas and the oceans wouldn't be taken. So we are, I think we are providing reasonable framework for the investment. We're doing our best, but it doesn't happen over the night because the investment rate dropped. We have a serious problem with medium and small enterprises, as everybody else has, but not exactly in the same way. In Germany, where small and medium sized companies, so called Mittelstand of Germany, with up to 500 people employed, up to 500 employers, they have much easier access to credits. Whereas in my country there is a credit crunch. Banks, mostly foreign, are not comfortable financing small and medium enterprises. So people are very much left to their own devices. Being small and medium entrepreneur in Badm Wittenberg, Germany or Bayern Bavaria or Northern Italy for that matter, not Medogiorno, but northern Italy is not the same because the access to money is different. There is no credit crunch in Germany, for that matter. Whoever wants or wishes to come to Croatia is not. I mean, everybody will say that it's welcome, but her legal framework is just fine. It's conducive. It provides incentives for investments. But it's not enough. It's not enough.
- [39:32]
A
Okay, I have a gentleman in the center, about four or five rows down.
- [39:38]
B
Do you know that, for instance, we were among those few countries that never imposed until recently dividend tax? Well, that's something unheard of in Britain or the United States. Does it make you a paradise for investment? Well, that's just one element in the puzzle. When you make profits and you reinvest, you don't pay tax. Will it make you invest in Croatia? You don't have it in Austria. We need more.
- [40:12]
A
Hi, my name is Petar Orlic and I'm originally from Croatia, but I live.
- [40:16]
B
Here now in the uk.
- [40:18]
A
You talk about, and you talked about this straight jacket of Yugoslavia before, but do you not think that the future economic success of Croatia is going to be dependent on regional economic cooperation of the former Yugoslav states?
- [40:37]
B
I fully subscribe with. Where are you, by the way? Oh, no, no, I fully subscribe, but the straight jacket I was talking about was not Yugoslavia necessarily, even though that one qualifies as well, but the straight jacket of the country of the upper middle income. And that is the threshold that was successfully crossed over by only few. I mentioned Ireland, South Korea, Japan in history, China probably never, because they're going to get old before they get rich. Some South Asian countries, they're still there, not even middle income. So that was the frustration and straightjacket that I was talking about. We've been there 45 years ago and everybody was coming up roses, but it faded away. So that's the frustration I was talking about. And Yugoslavia. Where else would Croatian entrepreneurs and industrialists invest, if not primarily there? It's our. We are competitive there, but we should also project beyond. I've seen many small and medium sized creation companies based on engineering which managed to find some kind of niche and be competitive in the world market. Because that's exactly what a comparative advantage of David Ricardo is. Americans are probably best in everything. They could make the best car, the best airplane, the best everything, but they don't. They don't because it's not profitable. So those small companies make things, for instance, you know, mining machines that are sold at huge profit at the world market and their revenues or turnover is like £50 million per year. It's nothing. It could be half a billion. For us, it speaks volumes. For England, it's nothing. So not only former Yugoslavia, when dealing with, you know, with dealing when catering to tourists, by the way, you know, very demanding and much more Year after year more demanding bunch of people coming from some of the wealthiest regions of the world. You have to adapt as well. And that's also, you know, healing for the current account balance of Croatia, because it makes it, in the final analysis, neutral. Our exports of goods are below standard, but the remedy is service sector tourism. That's where the money comes from. And it's real money. Okay, ladies, just there. Thank you. Hello, Mr. Prime Minister. My name is Bruna Shkarits. I'm an MSc in Economics student here at the LSE. You've stated that you're an optimist for Croatia's future, but not a lot of European public shares your view. I believe it was the Economist that claimed that Croatia is most likely to have a widespread social riot in 2014. So especially given disastrous youth unemployment figures, I would like to ask you to make a comment on that. Thank you. Oh, I'll be glad. Economists, the most favorite paper of mine. I'm not being ironic. Even though 12 years ago you probably do not remember a series of the front pages about Germany, Sick men of Europe, German malaise. So they were castigated and sentenced by economists. But it's still the best weekly in the world. So people are sometimes ready to just write something, you know. It was second article about Croatia, a small little column in three years, so there was not much focus. Riot. Well, riot is not about competitiveness. Riots you had in England, in London, after conservatives took the government and the students were rioting in the center of London. It never happened in Zagreb. And they were rioting and then they went home. I don't know about Croatia. What I see though. What I see though, and that should be addressed. I haven't at this gathering because I'm representing my country. Incapacity of prime minister. So I sometimes refrain from some obvious remarks. Is that what we have in place and what we had in place these months in Croatia is a kind of legitimate, sometimes aggressive conservative movement. It's conservative revolution of a kind that you witness not here. Well, maybe during Puritans centuries ago, but in the United States certainly. So those people finally, finally, after sweeping all their frustrations onto the carpet during the negotiation talks and pretending that there is something different now. They speak loud at the top of their lungs. We are conservatives. We don't like minorities. We are against gay rights. Fine. I mean, very few societies don't have people of that kind of political orientation. So if that's something to economists refer, then it is. I read that brief article, not quite focused, but again, they miss with Germany as well. That's it. And I don't like it, but I'm ready to stand against it, to confront it. And the role of politician is not just to follow, but sometimes to lead. So if the my view is not shared by the majority, it means nothing to me. I will try to change it. So we are very liberal government in social values, something which was not raised again here by me, but it is, it should be known. So in those terms you are very liberal and Croatia is not by definition liberal society. But when you look at the figures of referenda, for instance, tackling some human rights, minority rights, gay rights, we don't fare much worse than California did seven years ago. Really not. This is going to be much better in five years time, I'm sure about it.
- [46:44]
A
Gentlemen, just here.
- [46:46]
B
Thank you. Thank you. John Hume, London University graduate and frequent traveler to the Balkans My question is on the Euro because my understanding is that from the new members of the European Union are required eventually to join the euro.
- [47:03]
A
But to put it mildly, the Eurozone.
- [47:05]
B
Is still in considerable crisis. Can you please comment on Croatia's predicament? If that's the right word. Thank you. So it's also our obligation which was stipulated in the accession agreement to join euro one day is contingent upon fulfillment of certain conditions, so called convergence criteria. And you have to qualify for that in terms of budget deficit, public debt and inflation rate, the latter being the easiest one. But public debt and budget deficit is something that is much more precarious and tricky. It's a slippery slope. Latvia did it. Latvia as you know, had a tremendous slump decline in the year 2009 and the GDP plunged by nearly 20%. It's without precedent and they started recovering, but they're not back yet because it takes some time. Now we are about to join the eu, provided that we comply with the criteria. As you probably know, we have been taken under the custody of the European Union lately in the so called excessive deficit procedure. It's easier to count those European countries which were not scrutinized than those which were. So it's normal procedure in which we are compelled, pushed, simply made pushing our deficit of the budget below 3%, which is technically always possible, but politically it's difficult and that's our role to say that to the public that we have to do that, it's for our benefit, not for the sake of joining eu. And it's all that simple. And it's always about politics. There was that frequently quoted book lately, this Time is Different by Kenneth Rogoff. And the other author, whenever, you know, some crisis breaks out, then the incumbents claim that, no, no, we are special. This time it is different. It's never different. It's always about political ability, audacity and will to address issues and to say, okay, we have promised ourselves things that we cannot deliver, so pensions we can. This, this we cannot. It's always about money. So we have to squeeze by, say, 1 billion, 1 billion euro in this deficit procedure in aggregate, both on the expenditure and revenue side. You can do it, it's visible, but you have to explain to the people. So it's never different. It's always the same. It's always about political ability to articulate and to sell it. Not to smuggle it, but to sell it legitimately. And people will buy that, not as a trickery, but simply accept it. Or am I wrong?
- [49:59]
A
Gentleman at the back. Yes.
- [50:04]
B
With the current situation, how do you reconcile the fact that the VAT on very essential items like bread and milk.
- [50:14]
A
And so forth is going up and.
- [50:16]
B
That wages for the people at the lowest level are going down?
- [50:20]
A
Could you just identify yourself as well?
- [50:22]
B
BENJAMIN Baker GENERAL COURSE STUDENT One of the first, if not the first measures that we have introduced on the revenue side after we took the office in the December 2011, was to increase the level of the VAT, the rate of the VAT to 25%, which is stellar. It's a high one. At the same time. So we said, okay, we're going to burden the final consumer. It's indirect taxing, but at the same time we're going to diminish some other taxes and lower the pressure on the employers and labor, like for instance, contribution for the Medicare, which was dropped by 2 percentage points and actually saved to the employers equal amount of money. So you pressured consumption and property. Isn't that the right way that you teach in this institution? And we made it easier on the side of the labor, less burden on the labor to motivate people to employ more. It didn't fly. It barely left the trace. We have abolished the tax on the profits. If the money stays into the system and gets reinvested, it's tax free. You don't have it. In every country, we have it. So it's a much more delicate and complex picture than the one you depicted. But technically speaking, you're right. Your people are having a hard time and value added tax for the essentials. You mentioned bread is half the rate of the general rate. It's 13%. It doesn't make that big. So it's Difficult to explain to the person who is left to her own devices and who is coping difficulty with everyday problems and calamities, you know. But it's essentially our intentions were to make it easier on the labor side, so more taxing consumption and property. By the way, we don't have property tax. Welcome to Croatia. Buy property, nil. You know, the very close friend of mine, I shouldn't label him, but he's like rich person. He lives in California, in one district of San Diego, and he pays annually US$50,000 property tax for the building where he lives with his family in Croatia. It's out of question, don't pay tax. And for a resort home in Dubrovnik you will also pay so called communal contribution, which is taxed in different guys. But it's minuscule. We tried to impose. It's minuscule. It's actually non existent. So in the uk, you don't see that? Why? Ask my coalition partners.
- [53:07]
A
Lady at the back.
- [53:09]
B
I'm ready to pay tax. You know, my parents are ready to pay tax. They have resort home at a seaside. They spend two months a year there, not more. So either, you know, bring it to economic cost or sell it. It's easy. If I'm not able to bear to burn the cost, I should resell it. I know it sounds harsh, but that's the way it.
- [53:34]
C
Hello, my name is Elvira Zelko.
- [53:37]
B
Can you speak a bit louder please?
- [53:39]
C
Of course. My name is Elvira Zelko. I'm a Croatian who is born in Germany, who is completing now a master in business psychology. And I do have one question considering the.
- [53:51]
A
Speak up please.
- [53:52]
C
Okay, as you mentioned before, tourists, sorry, I'm a bit nervous, but as you.
- [53:59]
B
Mentioned before, so am I.
- [54:04]
C
As you mentioned before, one of the main revenue of Croatia is the tourism sector, isn't it? And let's consider the Dalmatian coast. The people there, the tourism system is going three months. So the people trying to earn their living within just three months. So therefore the prices are not in balance with the service which is offered there because people are forced to make their living there within those three months. Could you comment please on this?
- [54:35]
B
Well, not wholly right, because for many of them it's supplementary activity. And in the meantime it became serious business, you know, and here we have to diversify between, you know, small private enterprises which are actually vanishing, and it becomes more and more serious business, like in Austria, and real enterprises and world class hotels, like many of them these days in Croatia. And the new investments are underway. So it's Actually, rather sophisticated economic activity, especially wanted to run throughout the year. Well, maybe not for the graduates of this school, but also for qualified people. So split, for instance, has seen its increase in the overnight states and consumption tenfold over the last 10 years. Tenfold. Actually, we lack capacity. So welcome and invest. The return is certain. Small countries, sparsely populated, ecologically preserved. You know, people grumble about, you know, being overpopulated, overbuilt, you know, lousy zoning system, where in reality, you know, the coast is empty, not polluted. So it's. It's simply waits to be properly used to be optimized. And in economy, it's always about optimization of your resources, right allocation at the right time. Dictatorships are sometimes much more efficient in that. But since we are not, thanks God, we have to resort to other means.
- [56:02]
A
Okay, the High Commissioner of the Republic of Cyprus.
- [56:08]
D
Thank you very much, Mr. Prime Minister, really, for enriching us with this enlightening presentation and for allowing, being so generous, to allow such a long time for questions and answers. I would like to come back, if I may, with your kind permission.
- [56:21]
B
On.
- [56:22]
D
On having enough Europe. If Bosnia Herze Kommuna comes to the European Union, as it should, otherwise the EU is not worth a thing. And if we are talking about the Balkans, of course, coming in. And in that equation I also include Turkey. By definition, it will have to be greater Europe. From where I stand, the Eurozone, those members that are members of the Eurozone, it will have to be more Europe in order for the Eurozone to survive. It's more of a political experiment than economic experiment. I would like to hear more, if I may, on the concept of enough Europe is enough, because it really goes to the heart of the debates many of us have in our own countries. Thank you.
- [57:16]
B
I didn't refer in geographical terms. So more Europe, not territory wise, not enough Europe in terms of territory, why not more? I mean, we tackled the issue of the former Yugoslav republics that still remain outside of the eu. You mentioned Turkey, your neighbor, and the country with which you have very lively relationships sometimes. But that's life, isn't it? I mean, for instance, your country, if my recollection is right, have that provision that the President of the Republic must be Greek. It's not good, which is. Well, I'm not labeling here. I read your constitution, by the way, because I'm curious and I'm curious because of the opportunities and occasions. And when I discuss Bosnia, it's imperfect model, it's anything but good. But it's like, you know, the towering Pisa only Not Renaissance beauty, but it's statics work. It looks bad, but it works. Somehow it works. So briefly, when I said we have enough Europe, politically, I think I mean what I say, we have enough Europe. Yeah, the institutions are in place. Maybe more coordination, maybe the betterment of the system. But please, no new institutions, not self illusions or delusions about direct democracy in the eu. You know, people flocking to European elections out of conviction. It will never come to pass. People don't see that. We shouldn't expect that ever to happen. And it's not bad in itself. English will always remain English. What's wrong about that?
- [59:08]
A
Got one final question. Gentleman in the middle. Can you identify.
- [59:16]
B
Just that?
- [59:17]
A
Thank you.
- [59:24]
B
Hey. Will Bartlett European Institute, LSE One of the main potential advantages for Croatia joining.
- [59:32]
A
The EU is access to the structural.
- [59:34]
B
Funds, the social fund and the regional development fund. But these funds are sometimes difficult to get hold of if a country doesn't have the full administrative capacity. And so I wonder, what is your government doing to try to take full advantage of this opportunity? Well, just about everything. And it's just about everything, because that's the core question, actually. And it's very good for the conclusion of this debate, because that's the yardstick, one and only, by which you actually measure your success. If you fail to draw sufficient percentage of the structural funds, cohesion funds, and all sorts of funds that stand at your disposal and are only, you know, contingent upon your administrative capacity, then your whole enterprise ends in failure. Because the main cause, actually the main cause at this point in history of joining EU, is not to be part of Greater Europe. Yes, fine, that's great, good Europe, free and whole. But it's first and foremost about taking that money and putting it to use. So if you realize or manage to withdraw 25, 30% of the funds that are at disposal, which some countries manage to do or not to, then it's total disaster. We fare much better in that respect, and it's statistically measurable even at this point. The good thing for Europe, though, is that when in the course of our adaptations and construction projects over the last decade and a half, we didn't tap a single penny on the EU funds from the EU funds, we build it through the loans from international commercial institutions. So we will not cost a penny. European institutions, now we have to see which are those big projects and small projects at the same time where we can well avail ourselves of the opportunity to take that money. So it's at the core of all discussions, the more I take, the better I AM it's all that simple. And to be successful, you have to set a target that all public investments are removed from the budget. A very important key for our accession to Eurozone. So you put the burden off the budget and you basically take all the money from European funds. Easier said than done. And Croatia still qualifies, mostly from regional perspective, to be eligible for European funds. We're not inner London with 350% of the GDP per capita average of Europe. Zagreb is the only region above Zagreb and the region is above 100% average and the rest is below. So we have years ahead of us to use those funds as the very, very well impressive tool and vehicle for development of the country. I'm an optimist. Sometimes they say, you know, that a pessimist is just a well informed optimist. But I'm an optimist, genuine one, and that's it. One final point. You know, when one of the colleagues mentioned that genie that was, according to Economist, released from the bottle. It's there. And what I hate the most in politics are those double standards, you know, that one you, in a hideous and seductive way apply when you are in power, when you bear one burden of responsibility, and once you get in opposition, all rules barred, nothing applies anymore. We have another nasty referendum initiatives. I'm very scary sometimes about referendum as a tool of democracy, because sometimes it turns into opposite. It's very manipulative, sometimes manipulative. Tools to reduce the minority rights in Croatia is the fundament upon which our society and the set of rules have been built over the last two and a half decades. It relates even to the. Or in the first place to the minority which had ethnic and national affiliation with the center of power that attacked Croatia 25 years ago, its Serbs in Serbia. But we have signed up out of pressure, out of conviction in my case, and we should stick to that. So what kind of message that is? I don't want to sound like denouncing my country, because actually I'm still representing one, but I will never allow that to happen, never to come to pass, that minority rights are compromised practically one year after we joined the eu. What kind of trickery that is, all of a sudden, you know, they're not our neighbors anymore. So they will be granted their rights, which are written into all the laws once they become, listen to this one, majority. So they qualify for those rise only when they surpass 50% of the population in the given area. So minority becomes minority. When it becomes majority, it's very gentle. So those things are at the core of the political agenda. This is in Croatia, unfortunately, because politics is also about response in the first place. About responsibility, about leadership, about listening to the people. But also first and foremost, about ability and willingness to play by the rules. Reasonable rules, acceptable rules, ones that he has signed up to. And I will defend them. Thank you. Croatia, by the way, is not immune of the floss of her own, but we have the best bottled water in the world. Beats this one.
- [65:30]
A
One very important announcement. Could I ask everyone to please remain seated until the Prime Minister has left the theatre? As is usual on these occasions, we have a couple of gifts for you. The first is an LSC shield. So I think hopefully the second, it tends to be a little bit more controversial, but apparently it's very difficult to turn down after. The first recipient was Nelson Mandela. Ever since then, we've awarded visiting heads of state and government an MSE cap. Will he appoint it?
- [66:07]
B
I will. I will. Navy blue or black? Good question. Actually, the first one was the plain hope. Again, thank you so much. You know, this was great experience for me. Privilege. It doesn't happen every year. Every time. So I wish you all the best, especially those going back to the countries that are not that advanced as the UK is, and build better societies and go home. That's the plan. I'm serious. Not get lost, but go home. Do something for your countries.
- [66:57]
A
Prime Minister, I.