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EU Solidarity Fund: Commission gives financial support to #Croatia following earthquake

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The Commission has announced a first disbursement of financial aid worth €88.9 million under the EU Solidarity Fund (EUSF) to Croatia, following the devastating earthquake that hit the city of Zagreb and its surroundings on 22 March 2020. This comes as a contribution to the country's efforts to assist the population, restore essential infrastructures and services.

Cohesion and Reforms Commissioner Elisa Ferreira said: “Croatia and its capital city have suffered one of the most severe natural disasters in more than a century, causing heavy damage and disruption. In addition, it happened at a moment when the population was already suffering from the effects of the coronavirus pandemic and the lockdown. Today's decision aims at alleviating the heavy burden this has had on the country and shows once again the EU solidarity in such difficult times.”

Croatia will receive the advance payment, which is the highest ever paid out under the EUSF, within the coming days. In the meantime the Commission is completing its analysis of the request submitted by the Croatian authorities and will propose a final amount of aid, to be approved by the European Parliament and the Council.

Background

On 22 March 2020, a severe earthquake hit Zagreb, the capital of Croatia, and its surroundings. In the immediate aftermath, the EU Civil Protection Mechanism was activated to provide emergency response, mobilising tents, beds, mattresses, heaters and sleeping bags from Slovenia, Hungary, Austria and Italy to be dispatched swiftly to the affected areas. The Commission also provided support to rescue and damage assessment operations via the EU's Copernicus Emergency Management Services. Croatia then submitted a full application for assistance from the EU Solidarity Fund on 11 June 2020, within the regulatory deadline of 12 weeks from the occurrence of the disaster.

The EUSF supports EU Member States and Accession Countries by offering financial support after severe natural disasters. Since its creation in 2002, the Fund has been used for 88 disasters, covering a range of catastrophic events including floods, forest fires, earthquakes, storms and drought. 24 countries (23 member states and one accession country) have been supported so far, some of which multiple times, for an amount of more than €5.5 billion. As part of the EU response to the coronavirus outbreak and the associated public health crisis, the scope of the EUSF was recently extended to cover major public health emergencies and the maximum level of advance payment was raised from €30m to €100m.

More information

EU Solidarity Fund

List of all EUSF interventions (until end 2019)

 

coronavirus

COVID-19 and natural disasters: €823 million in EU aid for eight member states

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On Tuesday (24 November), Parliament approved €823 million in EU aid for the Croatia earthquake, floods in Poland, and the response to the coronavirus crisis in seven EU countries.

The €823 million in aid from the European Union Solidarity Fund (EUSF) will be distributed as follows:

  • More than €132.7m to be distributed in advance payments to Germany, Ireland, Greece, Spain, Croatia, Hungary, and Portugal in response to the major public health emergency caused by the COVID-19 pandemic in early 2020.
  • Croatia will receive €683.7m to help the country deal with the devastating effects of the earthquake in Zagreb and the surrounding area in March 2020. A first disbursement of €88.9m was already released in August 2020.
  • More than €7m will go to Poland to assist reconstruction efforts following floods in the Podkarpackie Voivodeship province in June this year.

EU Solidarity Fund modified in response to COVID-19

As part of the Coronavirus Response Investment Initiative (CRII), in 2020 the scope of the EU Solidarity Fund rules was extended, enabling the EU to help countries respond to major public health emergencies.

Overall, 19 EU countries (Austria, Belgium, Croatia, Czechia, Estonia, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Poland, Portugal, Romania, Slovenia, and Spain) and three accession countries (Albania, Montenegro, and Serbia) have requested assistance in tackling the consequences of the COVID-19 crisis. Of these, seven countries requested that the payment be made in advance, which Parliament approved with this vote.

Background information on the EU Solidarity Fund.

More information and a table with precise amounts per country can be found in Parliament’s report and the Commission’s proposal.

The report, drafted by Olivier Chastel (RENEW, BE), recommending the approval of the aid was adopted by 682 votes in favour, eight against and two abstentions.

The report approving the accompanying draft amending budget, by rapporteur Monika Hohlmeier (EPP, DE), was adopted with 682 votes in favour, eight against and two abstentions.

Next steps

The Council of Ministers approved the advance payments on 30 October, which can now be disbursed following the plenary vote. The Commission is currently assessing the applications received. Once this assessment has been completed, the Commission will put forward a proposal to make the final payments.

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As Croatia moves into the eurozone, corruption and banking issues remain unaddressed

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Croatia is now approaching the endgame for its entry into the Eurozone. Last month, the European Central Bank (ECB) put out a list of five Bulgarian and eight Croatian banks that it would be directly supervising starting on October 1st, including the Croatian subsidiaries of Unicredit, Erste, Intesa, Raiffeisen, Sberbank, and Addiko, writes Colin Stevens.

The announcement followed Croatia’s official admittance to the Eurozone’s exchange rate mechanism (ERM II) in July, and fulfils ECB regulatory requirements that all of Croatia’s major banks be placed under its supervision. To move forward and officially join the eurozone, Croatia will now need to take part in ERM II “for at least two years without severe tensions,” and especially without devaluing its current currency, the kuna, against the Euro.

Of course, this being 2020, severe fiscal tensions have become a fact of life for European governments.

Trouble on multiple fronts

According to the World Bank, Croatia’s overall GDP is now expected to plummet by 8.1% this year, admittedly an improvement over the 9.3% annual drop the Bank had predicted in June. Croatia’s economy, heavily reliant as it is on tourism, has been buffeted by the ongoing pandemic. Worse still, the country’s attempt to make up for lost ground with a post-lockdown rush of summer holidaymakers has seen it blamed for jumpstarting the surge in Covid-19 cases in several other European countries.

Nor is the Covid-driven downturn the only economic issue facing prime minister Andrej Plenković, whose Croatian Democratic Union (HDZ) held onto power in the country’s July elections, and the independent finance minister Zdravko Marić, who has been in his post since before Plenković took office.

Even as Croatia receives a coveted endorsement from the other economies of the Eurozone, the country continues to be rocked by corruption scandals – the most recent being the salacious revelations of a secret club in Zagreb frequented the country’s political and business elites, including multiple ministers. While the rest of the population endured strict confinement measures, many of Croatia’s most powerful people flouted lockdown rules, exchanged bribes, and even enjoyed the company of escorts brought in from Serbia.

There is also the ongoing matter of how Croatia’s government in 2015 forced banks to retroactively convert loans from Swiss francs to euros and pay out over €1.1 billion in reimbursements to customers it had lent money too. The issue continues to roil Zagreb’s relationships with its own banking sector and with the European financial industry more broadly, with Hungary’s OTP Bank filing suit against Croatia at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) this month to recoup approximately 224 million Kuna (€29.58 million) in losses.

Croatia’s endemic corruption problem

Much like its counterparts in other parts of the former Yugoslavia, corruption has become an endemic issue in Croatia, with even the gains made after the country acceded to the EU now at risk of being lost.

Much of the blame for the country’s perceived backsliding lies at the feet of the HDZ, in no small part on account of the ongoing legal saga surrounding former premier and HDZ party boss Ivo Sanader. Whereas Sanader’s 2010 arrest was taken as a sign of the country’s commitment to uprooting corruption as it worked to join the EU, the country’s Constitutional Court nullified the sentence in 2015. Today, only one of the cases against him – for war profiteering – has officially been concluded.

The inability to effectively prosecute past wrongdoing has driven Croatia down Transparency International’s rankings, with the country how earning just 47 of 100 points in the group’s “perceived corruption” index. With civil society leaders such as Oriana Ivkovic Novokmet pointing to corruption cases that languish in the courts or never get brought at all, the decline is hardly surprising.

Instead of turning a corner, the current members of the HDZ government face allegations of their own. The Zagreb speakeasy frequented by Croatian leaders included transportation minister Oleg Butković, labour minister Josip Aladrović, and economic minister Tomislav Ćorić amongst its clientele. Andrej Plenkovic himself is currently locked in a war of words over the country’s anticorruption efforts with his chief political opponent, Croatian president Zoran Milanović. The former leader of the rival Social Democratic Party and Plenkovic’s predecessor as prime minister, Milanović was also a club patron.

Zdravko Marić between a rock and a banking crisis

Finance minister (and deputy PM) Zdravko Marić, despite operating outside the established political groupings, has been dogged by questions of potential misconduct as well. Earlier in his term, Marić faced the prospect of an investigation into his ties with food group Agrokor, Croatia’s largest private company, on conflict of interest grounds. Despite being a former employee of Argokor himself, Marić nonetheless undertook secret negotiations with his former company and its creditors (primarily the Russian state-owned bank Sberbank) that exploded into the local press in March 2017.

Weeks later, Agrokor was put under state administration on account of its crippling debt load. By 2019, the company had been wound down and its operations rebranded. Marić himself ultimately survived the Agrokor scandal, with his fellow minister Martina Dalić (who headed the economy ministry) forced out of office instead.

Agrokor, however, has not been the only business crisis undermining Plenkovic’s government. Going into Croatia’s 2015 elections, in which Zoran Milanović’s Social Democrats lost power to the HDZ, Milanović undertook a number of populist economic measures in a bid to shore up his own electoral position. They included a debt cancellation scheme for poor Croatians who owed money to the government or municipal utilities, but also sweeping legislation that converted billions of dollars in loans made by banks to Croatian customers from Swiss francs to euros, with retroactive effect. Milanović’s government forced the banks themselves to bear the costs of this sudden shift, prompting years of legal action by the affected lenders.

Of course, having lost the election, these populist moves ultimately turned into a poisoned chalice for Milanović’s successors in government. The loan conversion issue has plagued the HDZ since 2016, when the first suit against Croatia was filed by Unicredit. At the time, Marić argued in favour of an agreement with the banks to avoid the substantial costs of arbitration, especially with the country under pressure from the European Commission to change course. Four years later, the issue instead remains an albatross around the government’s neck.

Stakes for the Euro

Neither Croatia’s corruption issues nor its conflicts with the banking sector have been enough to derail the country’s Eurozone ambitions, but to successfully see this process through to its conclusion, Zagreb will need to a commit to a level of fiscal discipline and reform that it has not yet demonstrated. Needed reforms include reduced budget deficits, strengthened measures against money laundering, and improved corporate governance in state-owned companies.

If Croatia succeeds, the potential benefits include lower interest rates, higher investor confidence, and closer links to the rest of the single market. As is so often the case with European integration, though, the most important gains are the improvements made at home along the way.

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#Coronavirus response: €135 million of Cohesion policy to strengthen the health sector and support the economy in Croatia

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The Commission has approved the modification of the Operational Programme Competitiveness and Cohesion in Croatia redirecting almost €135 million of Cohesion policy funding to help the country tackle the effects of the coronavirus crisis. In particular, €50m of EU funds will serve to purchase medical and protective equipment for over 1200 hospitals, other health institutions and elderly homes, while Croatian SMEs will benefit from almost €85m for continuing their operations and saving employment.

In addition, the programme will temporarily benefit from 100% co-financing from the EU budget. Cohesion and Reforms Commissioner Elisa Ferreira said: “Cohesion policy is playing an important role in the response to the pandemic and prompting a sustainable way to recovery. Thanks to the joint and swift efforts of the Croatian authorities and the Commission, these resources are providing much needed relief and support to the country's health sector and economy.”

The modifications are possible thanks to the exceptional flexibility under the Coronavirus Response Investment Initiative (CRII) and Coronavirus Response Investment Initiative Plus (CRII+), which allow member states to use Cohesion policy funding to support the sectors most exposed to the pandemic and its economic consequences, such as health care, SMEs and labour markets. More information is available here.

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