Centre for Eastern Studies NUMBER 116 | 02.10.2013 www.osw.waw.pl

The prospects for Croatia’s co-operation with the Visegrad Group

Andrzej Sadecki

The Visegrad Group gained a new neighbour in the European Union on 1 July 2013. Given the geographic proximity, similar level of development and a number of shared interests, Croatia could become a valuable partner in Central European regional co-operation. Co-operation in the “V4+” format is possible in most of the Visegrad Group’s priorities, primarily in: energy se- curity, transport, neighbourhood policy and EU enlargement. V4 could be attractive for Croatia as a grouping which forms broader coalitions within the EU and is helpful in solving regional problems. However, making use of this potential in practice will depend on the determination to enhance co-operation, and its success may be thwarted by temporary bilateral issues.

Croatia’s key partners in the EU atia, in particular with its coastal regions: Dal- matia and Istria. Croatia shares some common Croatia has strong economic and political con- history with Austria too, which is the largest in- nections with a few EU member states, which vestor in Croatia. From among Croatia’s neigh- could become important partners in Zagreb’s bours within the EU, Slovenia is the country it European policy. Croatia has traditionally kept has most in common with in terms of history very close relations with Germany. Germany is and culture. However, Croatian-Slovenian rela- its second largest trade partner, and Germans tions became complicated over the past years are the most numerous group of tourists visiting due to disputes linked to their Yugoslavian leg- Croatia. Croatia has especially strong bonds with acy. Nevertheless, immediately before Croatia’s two southern federal states, Baden-Württem- accession, the two countries agreed on the way berg and Bavaria, which are home to most of the contentious issues would be handled (e.g. the Croatian diaspora in Germany (over 200,000 the maritime boundary delimitation issue will people). Germany was the advocate of Croatia’s be submitted to arbitration), and bilateral rela- independence and was one of the first countries tions improved. The heads of state of Austria, to recognise Croatia as a sovereign state. How- Slovenia and Croatia met in August 2013 in Graz ever, it was the last EU member state to ratify and promised to enhance their co-operation and the accession treaty with Croatia and expressed hold regular trilateral meetings. dissatisfaction with the manner in which Croatia Out of all the Visegrad countries, Croatia has the was implementing the regulations concerning closest relations with its neighbour, Hungary. For the European Arrest Warrant. Germany is also centuries, the kingdoms of Croatia and Hungary increasingly sceptical about further EU enlarge- were connected through a personal union. The ment, and this is contrary to Croatia’s interests. Balkan direction has traditionally been a priori- Italy is Croatia’s largest trade partner and a ma- ty in Hungary’s foreign policy. Hungary backed jor investor, especially in the banking sector. Croatia’s independence and clearly supported it It also has historic and cultural bonds with Cro- in its efforts to join the EU. Even prior to Cro-

OSW COMMENTARY NUMBER 116 1 atia’s accession, the two countries co-operated this case, indicating that the state owned just for example in the Quadrilaterale format (with a minority stake in MOL. However, after a court Italy and Slovenia also participating). Accession in Zagreb issued an arrest warrant concerning negotiations with Croatia were finalised at the Hernadi on 27 September 2013, the Hungarian time of Hungary’s presidency of the Council of government cancelled the visit of the Minister the European Union. Their bilateral relations are of Foreign Affairs, Janos Martonyi, to Croatia not burdened with ethnic minority issues, which and called upon MOL’s management to inves- sometimes cause tension in Hungary’s relations tigate the possibilities of selling its stake in the with its neighbours (Romania, Serbia, Slovakia Croatian company. This issue will make it diffi- and Ukraine). The Hungarian minority in Croa- cult to reach a compromise in the negotiations tia is small and has extensive rights, as with the which commenced on 18 September over the Croatian minority in Hungary1. manner of INA management between the Cro- Although both parties are emphasising that atian government and MOL. It will also adverse- their bilateral relations are exemplary, they are ly affect relations between the two countries. still not free from disputes. These disputes are primarily linked to the presence of Hungary’s MOL company on the Croatian energy market. Out of all the Visegrad countries, Croatia In 2009, it increased its stake in Croatia’s strate- has the closest relations with its neigh- gic energy company, INA, to almost 50%, thus bour, Hungary. However, these relations taking over control of the company’s manage- are not free of disputes, which are primar- ment2. Although INA’s financial results have ily linked to the presence of MOL compa- improved significantly since then, the Croatian ny on the Croatian energy market. government, which holds a 45% stake, has res- ervations about the company’s management policy (for example, it is questioning what it Croatia is also in co-operation with other EU sees as insufficient investment and the plan to member states as part of macro-regional initia- close the Sisak refinery). The manner in which tives. It is one of the countries covered directly MOL took over control of the company has also by the European Union Strategy for the Danube given rise to controversy. In November 2012, Region (EUSDR), which includes all V4 states a court of the first instance sentenced Ivo Sanader except for Poland. It also joined the Adriatic (Croatia’s prime minister in 2003-2009) to and Ionian Initiative (together with Italy, Slove- 10 years in prison for accepting a bribe from rep- nia, Greece, Albania, Montenegro, Serbia and resentatives of the Hungarian company. Croatian Bosnia and Herzegovina). These countries sent prosecution authorities have been insisting since a request to the European Commission to pre- 2011 that the CEO of MOL, Zsolt Hernadi, be pare an EU strategy for the Adriatic and Ionian heard in court as a suspect. Hungarian prosecu- region by 2014 that would resemble the EUSDR tion authorities have refused to detain the CEO and the EU Strategy for the Baltic Sea Region of Hungary’s largest company, who is also an in- (EUSBSR). These strategies could potentially fluential person in Hungary, arguing that in their form a platform for enhancing co-operation refusal they are guided by ‘national interests’. The between EU member states and contribute to Hungarian government has distanced itself from closer collaboration in the decision-making pro- cess within the EU. As part of the EU’s European

1 According to the 2011 censuses, 14,000 ethnic Hungari- Territorial Co-operation, Croatia participates in ans live in Croatia (0.33% of the population) and 24,000 two trans-national co-operation programmes: ethnic Croatians live in Hungary (0.24%). the Mediterranean programme and the South- 2 MOL held 25% plus one shares in the company from 2003.

OSW COMMENTARY NUMBER 116 2 East Europe programme, where it collaborates, political co-operation but also in acting togeth- for example, with Hungary and Slovakia. In er in particular sectors, which is part of co-op- turn, it does not participate in the Central Eu- eration within the V4, are promising signs. The rope programme (which covers all the V4 states cooperation could also be developed together among others). Croatia and its partners from with partners from Central Europe in the broad the Visegrad Group are also members of the meaning of the term in the larger V4+ format. Central European Initiative, but as regards es- The Visegrad Group has over the past few years tablishing closer co-operation between this been increasingly more engaged in former Yu- region and the EU, this broad structure is not goslavia. This has traditionally been an import- currently playing any major role. ant direction in foreign policy for the Czech Republic, Slovakia and Hungary. In the previous Visegrad Group’s co-operation decade, the V4 states were engaged in multi- with Croatia lateral co-operation with the countries classified as Western Balkan, mainly within the Regional Croatians are emphasising that upon accession Partnership format together with Austria and their country symbolically left the Western Bal- Slovenia, for example, by sharing their com- kan region. Due to historical bonds, the Central mon experiences of the EU integration process. European is often counterposed to the Balkan At present, the most important platform for in Croatian political thought (the concept of regional co-operation with Austria and Slove- ‘the escape from the Balkans’). However, from nia for all the V4 states is the Salzburg Forum, which is a formula for the co-operation of inte- rior ministries. Bulgaria and Romania joined it in The indications that Croatia is interested 2006 to be followed subsequently by Croatia in not only in enhancing political co-opera- 2012. Over time, Croatia and its partners from tion but also in acting together in particu- the Western Balkans, like the countries from lar sectors, which is part of co-operation the EU’s eastern neighbourhood, have become within the V4, are promising signs. a priority area for the Visegrad Group itself. The stimulus for establishing closer co-oper- ation with Croatia came with the gas crisis in Croatia’s point of view, the bonds with Central 2009, when Central and South-Eastern Europe- Europe also include bonds with Austria, Slo- an countries had to face cuts in gas supplies as venia and northern Italy, and the intensity of a consequence of the Russian-Ukrainian dispute. co-operation with the V4 states is far behind Croatia joined the consultations concerning re- Croatia’s links with these EU member states. gional energy security, which were initiated by Croatian foreign policy has for years been fo- the Visegrad Group. Since the Hungarian pres- cused on the accession process and resolving idency of the V4 in 2009/2010, representatives bilateral issues, related to the legacy of the col- of Croatia have participated in a number of lapse of Yugoslavia. Croatia’s accession to NATO Visegrad Group meetings (they usually joined (2009) and the EU has entailed the need to op- the V4+Slovenia format) covering such issues timise the formula for implementing its nation- as transport, regional development, justice and al interests within the new political framework. public administration. Other areas of co-opera- In this process, the bonds with Central Europe, tion appeared after the conclusion of the acces- including the Visegrad Group states, may be- sion negotiations in 2011. come increasingly important. The indications During the negotiations regarding the EU’s Mul- that Croatia is interested not only in enhancing tiannual Financial Framework for 2014-2020,

OSW COMMENTARY NUMBER 116 3 Croatia joined the so-called Friends of Cohe- gas corridor was put into operation in 2011 and sion Policy group, which was co-formed by the connected the systems of Croatia and Hungary. Visegrad ‘four’. It should be expected that Cro- It is barely used but its significance could grow atia, being a beneficiary of EU funds, will sup- once a Croatian LNG terminal is launched or an port a strong cohesion policy in the future, as attractive offer price appears in the north. do the V4 countries. Croatia and the Visegrad Although the launch of the Croatian LNG termi- Group have common interests in all those areas nal has been planned for more than a decade, where the ‘four’ co-operate especially closely, it is still unclear whether it will be built. The namely: energy security, transport corridors, Adria LNG consortium6 suspended the prepa- neighbourhood policy and EU enlargement ratory work for the construction of the Omisalj policy. The will to enhance co-operation was terminal on Krk island in 2010 as a consequence expressed in the common declaration by the of the economic crisis and falling gas consump- ministers of foreign affairs of the V4 and Croa- tion in Europe. The Croatian government is tia, adopted shortly before Croatia’s accession calculating that the state-owned companies, to the EU3. The agenda of the Hungarian presi- Plinacro and HEP, could build a smaller gas ter- dency of the Visegrad Group4 also provides for minal which would have a yearly capacity of a general perspective for developing co-opera- 5 bcm and not 15 bcm as originally planned. tion within the V4+Croatia format. The feasibility study is to be presented by the end of 2013. The Hungarian government is also Energy issues considering whether the state-owned energy company, MVM, could join this investment. Croatia participates in the Visegrad Group’s However, Croatia is engaged in a number of flagship project, namely the creation of the competitive projects, which could postpone or North-South gas corridor. Zagreb also desires even thwart the plans to build the LNG termi- the creation of a common energy market and nal. In January 2013, it signed an agreement development of transport infrastructure. In No- vember 2011, Croatia and other countries from the region joined the V4 initiative and signed Croatia participates in the Visegrad a memorandum of understanding with the Eu- Group’s flagship project, namely the crea- ropean Commission envisaging the construc- tion of the North-South gas corridor. tion of North-South system interconnectors. In September 2012, the Polish and Croatian trans- mission system operators, Gaz System and Plin- with Gazprom under which a branch of the acro, signed a letter of intent to create a gas South Stream gas pipeline (with a 2.7 bcm ca- corridor between the Baltic Sea and the Adri- pacity) running to Croatia will be built. Croatia atic Sea5. The first interconnector (with a rela- also participates in the Ionian Adriatic Pipeline tively large capacity of 6.5 bcm) as part of the (IAP)7 project, which is to be connected to the planned Trans Adriatic Pipeline (TAP) that in late 3 Joint Declaration of the Foreign Ministers of the Visegrad June 2013 won the competition with the Nab- Countries and Croatia on the Occasion of the Croatian Accession to the EU (26 June 2013), http://www.viseg- ucco consortium for supplying natural gas from radgroup.eu/calendar/2013/joint-declaration-of-the 4 Hungarian Presidency in the Visegrad Group (2013– 2014), http://www.visegradgroup.eu/documents/presi- 6 Its shareholders are E.On Ruhrgas (39.17%), OMV dency-programs/20132014-hungarian (32.47%), Total (27.36%) and Geoplin (1%). 5 Declaration on Gaz-System S.A.’s co-operation with the 7 Joint Statement of Ministers of Foreign Affairs of Alba- Croatian transmission system operator, Plinacro D.O.O. nia, Bosnia and Herzegovina, Croatia, Greece, Italy and (13 September 2012), http://www.gaz-system.pl/cen- Montenegro. Dubrovnik, June 12, 2013, http://www. trum-prasowe/aktualnosci/informacja/artykul/201544/ mvep.hr/files/file/2013/130613-jointstatement.pdf

OSW COMMENTARY NUMBER 116 4 the Azerbaijani Shah Deniz II field to Europe. Transport Given the low level of domestic gas consump- tion in Croatia (2.8 bcm in 2012), the construc- Another potential area for closer co-operation tion of an LNG terminal may prove groundless between Croatia and the Visegrad Group is once all these projects have been implement- transport infrastructure and its development ed. On the other hand, if the IAP gas pipeline is along the North-South axis. Croatia is attrac- built, Croatia (set to dispose of half of its 5 bcm tive to the V4 countries because of its access to capacity) will be able to export some Azerbaija- the Mediterranean Sea (transport of goods and ni gas, for example, to Hungary. tourism). The Croatian government is planning Croatia is also potentially an essential oil transit to make Rijeka an important Adriatic Sea port country via which supplies could be made to Hun- again; the role this port was forced to relinquish gary, Slovakia and the Czech Republic. If supplies to Slovenia’s Koper and Italy’s Trieste as a conse- to Central Europe via the southern branch of the quence of the Balkan Wars in the 1990s. Croatia Druzhba pipeline were to be reduced significant- has a well-developed network of road connec- ly, the Adria pipeline will gain significance. This tions, and is planning to develop and modernise pipeline transports gas from the Omisalj port in the railroad infrastructure, seaports, river ports Croatia to the refinery in Budapest and will also and airports in the near future. However, the im- plementation of these investments will depend on the availability of external funding. A number of issues to which the Visegrad As regards railway connections, the most im- Group attaches high priority (the energy portant investment will be the construction sector, cohesion, transport, EU enlarge- and modernisation of the railway line as part ment and the Neighbourhood Policy) will of the Vb – Rijeka Port – Karlovac – Zagreb – also be the areas where the co-operation Koprivnica (border with Hungary) corridor. The with Croatia could be enhanced. connection between Rijeka and Budapest is to be modernised by 2020 (investments worth 2 billion euros, financed predominantly with EU transport it to Bratislava and possibly to refiner- funds). Plans include developing the container ies in the Czech Republic in the future, once the terminal in Rijeka and terminal construction planned modernisation of the section connecting on Krk island. Rijeka’s connection with Central Adria and Druzhba is finalised. This is one of the Europe also fits in with the Central European reasons why Russian companies are interested in Transport Corridor (CETC-Route 65) concept, entering Croatia (including INA), which has been which connects Sweden via the Świnoujście evident for a few years now. – Szczecin ports through the Czech Republic, Croatia also shares the Visegrad Group’s stance Slovakia, Hungary and Croatia to the Adriatic on the use of nuclear energy. It wants this sec- (Croatia’s five regions are partner regions). Cro- tor to be developed because of the possibility of atia is also interested in access to the intermod- ensuring competitive energy prices and low car- al corridor running from the Gdańsk/Gdynia/ bon emissions (Croatia’s state-owned company Sopot Tricity to the Adriatic Sea8. Zagreb would HEP co-owns the Krsko nuclear power plant also favourably regard the development of the in Slovenia). Given the fact that its industry is Vc – Hungary – Croatia – Bosnia and Herze- relatively energy-intensive, Croatia may also be govina – Croatia – (Ploce Port) transport corri- a valuable partner for the Visegrad Group as regards energy and climate policy issues. 8 The container terminals in Gdynia (BCT) and Rijeka (Adri- atic Gate) are owned by one firm, ICTSI from the Philip- pines.

OSW COMMENTARY NUMBER 116 5 dor. The implementation of this corridor would and strives to tighten co-operation with the improve connections between the eastern and V4, it can significantly strengthen the group of southern parts of the country via Bosnia and Her- countries that want the EU to continue its en- zegovina (BiH) and strengthen the role of Croatia’s gagement in the Eastern Neighbourhood. Since Ploce port, which predominantly handles custom- Croatia is a Mediterranean country, it is likely to ers from BiH. This would enable the development be interested in the southern dimension of the of underinvested regions of Croatia and BiH, and European Neighbourhood Policy. However, this establish a better connection between Dalmatia does not mean that it will turn its back on Cen- and Central Europe. tral Europe’s priorities, especially given the fact that Croatia has no well-developed links with Eastern Partnership North African or Middle Eastern countries. and Western Balkans Conclusions Like the V4 countries, Croatia is a staunch sup- porter of continuing the process of EU enlarge- The V4 states supported Croatia during the pro- ment, and will strive to ensure stabilisation in cess of accession negotiations, which were final- those countries which are neighbours of the ised during Hungary’s presidency of the Council EU. Given its location, Croatia is interested pri- of the EU in the first half of 2011. The accession marily in the accession of its Balkan neighbours: treaty was signed under the Polish presidency Montenegro, Serbia, and Bosnia and Herzegov- in December 2011. Both the achievement of ina. It should be expected that Croatia will be co-operation (multilateral and bilateral alike) actively engaged in the efforts to ensure that and the community of interests in many areas these countries join the EU as soon as possible. form essential political capital for establishing However, it will also be tempted to use the ac- stronger bonds between the V4 and Croatia. cession negotiations to force its neighbours to However, it should not be forgotten that the make concessions to it in bilateral disputes. This V4’s priorities in these areas do not necessarily tactic was employed by Slovenia, which sus- match the interests of Croatia’s vital partners pended progress in the EU–Croatia negotiations in the EU, which may reduce Zagreb’s determi- for almost a year. Croatian diplomats have de- nation in the joint effort to carve out a com- clared on numerous occasions that their coun- mon Central European stance. It is not always try does not intend to obstruct the accession of in the interest of the V4’s Western neighbours Serbia or any other state from this region. Cro- to attach high priority to infrastructural con- atia’s co-operation with the Visegrad Group on nections running along the North-South axis. the one hand would enrich V4 engagement for Last but not least, the logic for development the Western Balkans with Zagreb’s precious ex- of this ‘axis’ also includes elements of competi- perience and, at the same time, would motivate tion, such as rivalry among the Mediterranean Croatia to be constructively engaged in backing seaports and also between the Mediterranean reforms in those Balkan countries which aspire and Baltic seaports, as well as possible parallel to join the EU, and also to continuing the pro- functioning of the Baltic and Adriatic LNG ter- cess of reconciliation with its neighbours. minals. However, the countries should not be Croatia has no major interests in the EU’s East- discouraged from co-operation due to this, and ern Neighbourhood (the countries covered by instead they should be prompted to use the the Eastern Partnership). Being the European multilateral co-operation instruments to align Union’s new frontier state which has joined their interests and build synergistic solutions, the group of countries supporting enlargement since the idea of building stronger bonds be-

OSW COMMENTARY NUMBER 116 6 tween Croatia and the V4 is in the long-term Establishing stronger bonds with the V4 could interest of the region and the EU as a whole. prove an attractive instrument for Zagreb in ce- The V4 countries agree that the present shape of menting its bonds with its partners inside the the Group needs to be maintained, however the EU and increasing its influence on European V4+ format offers a good platform for coopera- policy. What could further stimulate the en- tion with third parties. This format provides for hancement of this co-operation is the fact that meetings of representatives of the V4 and other Croatia’s accession to the EU coincided with states at various levels, depending on the issues the beginning of Hungary’s presidency of the on the agenda. This in particular concerns co-op- Visegrad Group (Hungary is the only V4 state eration with those partners from the EU which to be Croatia’s direct neighbour). Hungary has are situated in the neighbourhood of the V4 declared its desire to enhance Central Europe- states: Bulgaria, Romania, Slovenia and the Baltic an co-operation and gain the ‘synergy’ effect states. A number of issues to which the Viseg- in connection with Hungary’s parallel presiden- rad Group attaches high priority (the energy cy of the V4 (mid 2013 – mid 2014) and of the sector, cohesion, transport, EU enlargement and Central European Initiative (2013). Hungarian the Neighbourhood Policy) will also be the areas diplomatic activity in the first months of Croa- where co-operation with Croatia could be en- tia’s presence in the EU will have a major impact hanced. Given the strong territorial aspect in the on the development of regional co-operation, sectoral policies which the V4 and Croatia share, since this will be the period when Croatia’s po- it would be advisable to include Croatia in the ex- litical profile in the EU will crystallise. isting model of co-operation in the area of spatial planning (the V4+Bulgaria and Romania format).

APPENDIX

Croatia Accumulated value of Foreign Direct Investments Population 4.3 million (1993–2013/Q1) GDP per capita 10 295 euros

Economic growth -1.0% country billions of euros Inflation 2.6% Austria 7.16 Budget deficit -5.9% GDP the Netherlands 4.08 Public debt 59.7% GDP Germany 3.12 Unemployment rate 16.7% Hungary 2.45 Luxembourg 1.73 The latest data and forecasts for 2013. France 1.39 Source: National Bank of Croatia, www.hnb.hr/publikac/ Italy 1.30 bilten/arhiv/bilten-194/ebilt194.pdf Slovenia 1.14

Source: National Bank of Croatia, www.hnb.hr/statis- tika/strana-ulaganja/e-inozemna-izravna-ulagan- ja-u-rh-po-zemljama-porijekla.xls

OSW COMMENTARY NUMBER 116 7 Croatia’s key trade partners and the V4 states (2011)

Exports millions of euros Imports millions of euros Italy 1511 Italy 2676 Bosnia and Herzegovina 1174 Germany 2049 Germany 967 Russia 1185 Slovenia 794 China 1153 Austria 547 Slovenia 1012 - - Hungary 241 Hungary 490 Poland 103 Poland 339 the Czech Republic 94 the Czech Republic 314 Slovakia 89 Slovakia 151 V4 as a whole 527 V4 as a whole 1294

Source: Croatian Statistical Office, www.dzs.hr/Hrv_Eng/ljetopis/2012/sljh2012.pdf

The research for this text was conducted during a fellowship at the Hungarian Institute of Interna- tional Affairs (Magyar Külügyi Intézet - MKI) in June 2013 as part of the ‘V4 Flying Experts Initiative’ financed by the International Visegrad Fund

EDITORS: Olaf Osica, Mateusz Gniazdowski Centre for Eastern Studies Anna Łabuszewska, Katarzyna Kazimierska Koszykowa 6a, 00-564 Warsaw TRANSLATION: Ilona Duchnowicz phone: +48 | 22 | 525 80 00 CO-OPERATION: Timothy Harrell e-mail: [email protected] DTP: Bohdan Wędrychowski The views expressed by the authors of the papers do not Visit our website: www.osw.waw.pl necessarily reflect the opinion of Polish authorities

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