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Croatia Expects EU Budget Monitoring After 2012 Gap Revised

Croatia’s government revised its 2012 budget gap to 5 percent of gross domestic product, from an earlier estimate of 3.4 percent, as the European Union’s newest member began using the bloc’s methodology for the first time.

The government expects the bigger estimate to trigger the European Union’s monitoring system of budget offenders, which applies to economies in which the deficit exceeds 3 percent of GDP, Marko Kristof, head of the statistics office, told reporters in Zagreb today.

“Based on this data, the European Commission is expected to start the excessive deficit procedure,” Kristof said. The wider figure includes state guarantees for Croatia’s shipyards and the recapitalization of state companies, he said.

Prime Minister Zoran Milanovic’s 22-month-old government will preside over a budget gap expansion to 5.5 percent of economic output in 2014, from an estimated 3.5 percent this year, according to a Finance Ministry outlook released last month.

The Brussels-based commission will look at a number of factors as required by the bloc’s Stability and Growth Pact to discern “whether Croatia is indeed in breach of the rules,” Simon O’Connor, spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters today in Brussels. “Should we conclude that that is the case, we would recommend” the opening of an excessive-deficit procedure against Croatia, he said.

The Adriatic state has been hobbled by four years of contraction or stagnation and is weighed down by rising interest payments, state company debts and higher salaries and pension payouts. This year’s growth forecast was cut to 0.2 percent from a prediction of 0.7 percent in February.

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