Croatia, Slovenia Solve Bank Dispute, Clear Way to EU Entry

Croatia and Slovenia solved a banking dispute stemming from the breakup of Yugoslavia, clearing the way for Slovenia to ratify its neighbor’s European Union entry planned for July.

The countries agreed to approach the Bank for International Settlements for a final settlement in a dispute stemming from the breakup of the Yugoslav-era predecessor of Slovenia’s Nova Ljubljanska Banka d.d.. Meantime, Croatia will suspend lawsuits in the matter, according to an announcement in Zagreb today. Croatian and Slovenian premiers Zoran Milanovic and Janez Jansa are expected to sign the agreement on March 11.

The plan clears the way for Slovenia to ratify Croatia’s EU accession in July. The two adjoining former Yugoslav republics have haggled for years over 270 million euros ($351 million) that Croatia wants Slovenia to pay in compensation for the split-up. Slovenia, an EU member that controls NLB, threatened to veto Croatia’s bid if claims were not withdrawn.

“We have effectively removed the last obstacle to EU entry,” said Croatian Premier Zoran Milanovic after the government meeting. Slovenian officials did not immediately comment.

Of the 27 EU members, Slovenia is the only yet to start ratification. Twenty-two states have done so, Germany, Denmark, Belgium and the Netherlands have started the process. Caretaker Prime Minister Janez Jansa said today the Alpine nation’s government has approved the accord.

Parliament’s Approval

“I expect Slovenian lawmakers in Parliament to take about 30 days to approve Croatia’s EU entry once the deal is completed,” Jansa told reporters.

The bloc’s Commissioner for Enlargement Stefan Fule considers this “a good deal for both countries and a good deal for enlargement,” EU spokesman Peter Stano told reporters in Brussels today.

Croatian government bonds rallied, pushing the yield on dollar-denominated notes due in March 2021 down 11 basis points, or 0.1 percentage point today, to 4.62 percent, a three-week low, by 12:29 p.m. in Zagreb, data compiled by Bloomberg shows.

“The agreement is a welcome development for Croatia and marks the first piece of good news the sovereign has enjoyed in a while,” said Abbas Ameli-Renani, a strategist at Royal Bank of Scotland Plc in London, in an e-mailed comment. “Sealing the deal is particularly important given the ongoing political turmoil in Slovenia.”

Political Crisis

Slovenia is struggling with a political crisis as it battles recession and the threat of becoming the sixth euro member to need a bailout. Parliament on Feb. 27 voted to replace Jansa with Alenka Bratusek, the leader of Positive Slovenija, who has to form a new government and have it approved by lawmakers by mid-March.

The two nations asked the Basel-based BIS once before to mediate in the conflict. The bank in 2010 rejected a arbitrator’s role, saying it could not bring any added value to negotiations.

The agreement also paves the way for NLB, Slovenia’s largest bank, to start operating in Croatia, after being banned over the issue.

“We will try to solve the issue in line with the succession agreement and under the auspices of the BIS,” Croatian Foreign Minister Vesna Pusic said.

Another 130,000 Croat savers, who after the breakup of former Yugoslavia chose not to transfer their claims to the Croatian government, are separately seeking about $204 million from the Ljubljana-based bank.

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