Croat Parties Start Coalition Talks After Inconclusive Elections

  • Consultations begin after top two parties declare victory
  • Kingmaker party eschews coalition, may back minority cabinet

Croatia’s biggest political parties began wrangling over the right to lead coalition talks following inconclusive elections, risking a protracted battle as they woo a kingmaker that said it may support a minority administration.

Tomislav Karamarko’s Croatian Democratic Union, known as HDZ, and Prime Minister Zoran Milanovic’s Social Democrats started informal discussions on Monday with the third-placed Most, whose name means “bridge” in Croatian. Officials from both the opposition and the ruling coalition claimed victory but, with neither commanding a majority, the threat of political instability sent the yield on the country’s euro-denominated bond maturing in 2025 to a four-month high.

The finish by Most, an alliance of small local factions, echoed the success of anti-establishment parties across Europe. Party leader Bozo Petrov has vowed not to join a coalition with one of the two bigger forces. He softened his stance on Monday, providing a potential alternative to political deadlock that the country, recovering from a record economic slump that’s wiped 12 percent off the economy, wants to avoid.

“We’ve already said we don’t want to enter a coalition, but we could support a party that would accept our reforms,” Petrov told reporters in Zagreb. “We don’t want to cause a constitutional crisis -- we want to have a set of reforms that some other party can accept.”

President Kolinda Grabar Kitarovic congratulated HDZ, her former party, as the “relative winner” of the election in the early hours of Monday. Because voting must be repeated at seven balloting stations because of irregularities, according to the Electoral Commission, the president said she’ll wait for final results before picking a party to lead coalition talks next week. Once given a mandate, the recipient has two months to survive a confidence vote or pass the baton.

Unclear Result

HDZ won 59 of parliament’s 151 seats, according to preliminary official results. Milanovic’s party was second with 56 mandates. Deputy Prime Minister Vesna Pusic said that along with the other parties in the ruling coalition, seats held by ethnic-minority and other groups, it will control a total of 67. Most won 19 mandates.

“We can start majority negotiations with Most,” Pusic told Bloomberg. Miro Kovac, HDZ’s international secretary, told reporters his party would be in the next government. “We expect to reach some kind of consensus with Most about programs, as citizens have shown they want consensus and not infighting,” he told reporters.

Croatia’s kuna weakened 0.1 percent to 7.5665 against the euro at 5:56 p.m. in Zagreb, data compiled by Bloomberg showed. The yield on the country’s euro-denominated debt due in 2025 rose to 4.375 percent, the highest since July 9, from 4.292 percent on Friday.

Proposing Measures

Karamarko has pledged to bring in more investors and reduce unemployment that reached 16.2 percent in September. The opposition has also criticized Milanovic’s administration for its handling of the more than 330,000 migrants trudging through the country in Europe’s refugee crisis.

After leading the Adriatic state into the European Union in 2013, Milanovic’s administration fought to rebuild sagging support this year, forgiving debt of the poorest Croats and allowing Swiss-franc loans to be converted to euros. On Tuesday, Finance Minister Boris Lalovac raised the government’s growth forecast to 1.5 percent for 2015, the first year of economic expansion since 2008.

Petrov, a 36-year-old psychiatrist and mayor of Metkovic, a southeastern Croatian town of 15,000 people, found backing from other independents after cutting the salaries, travel costs, and other expenses for himself and his council members. Joined by deputy party leader Drago Prgomet, a surgeon and former senior HDZ member, Petrov campaigned on tax cuts, more reductions in central and regional governments and an overhaul of the country’s back-logged judiciary.

That may help tackle a public debt load that will climb to 91.7 percent of gross domestic product in 2016, according to the European Commission. It may also reduce the budget deficit, which the government estimates at 4.5 percent of GDP this year, above the EU’s 3 percent limit.

“It will be very interesting to watch what kind of reforms Most proposes,” said Marijana Ivanov, professor at the Zagreb School of Economics. “Negotiations on the new government will happen under great pressure, as Croatia’s credit rating may suffer if they last too long.”

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