Croat Parties Seal Coalition Deal, End Months of Uncertainty

  • HDZ, Bridge parties to hold joint press conference in Zagreb
  • Coalition to have support of 90 lawmakers, HDZ leader says

Croatia’s biggest political party joined forces with an ally to form a governing coalition, ending months of political uncertainty that has stalled an economic overhaul in the European Union’s youngest member.

After winning the most votes in a Sept. 11 snap election, the conservative Croatian Democratic Union, known as HDZ, and the Bridge party pooled their combined 74 mandates in the 151-seat parliament. With support from the Croatian Peasant Party, ethnic-minority and other deputies, the coalition will have the backing of 90 lawmakers, HDZ leader Andrej Plenkovic said in Zagreb.

“We agreed on a model of the government, and I expect a stable parliamentary majority and a stable government,” Plenkovic said. “Next week, we’ll be working on the composition of the government.”

An agreement will move Croatia closer to ending the political turmoil that has prevailed since the June collapse of the previous government in a conflict-of-interest scandal surrounding former HDZ leader Tomislav Karamarko. The cabinet’s implosion derailed a planned administrative overhaul and threatened to undermine an economic recovery from the longest recession on record in the Adriatic country of 4.2 million.

‘Good News’

Plenkovic, a 46-year-old career diplomat, must now demonstrate to President Kolinda Grabar Kitarovic that he has the support needed to survive a confidence vote. If she’s convinced, she’ll name him premier-designate and he’ll have 60 days to form a cabinet and obtain parliament’s approval. Kitarovic has said she’ll next meet party leaders on Oct. 10.

Bridge will control the ministries of interior, justice, environment and energy, and administration, Plenkovic said, signaling the Finance Ministry, currently headed by HDZ appointee Zdravko Maric, would stay under his party’s control.

“Good news – should be supportive for this credit,” Tim Ash, an economist at Nomura International Plc, said in a note. “Important still will be Maric’s continued stay in the position, and also his own weight within the cabinet to carry forward reform.”

Plenkovic’s “more inclusive/consensual” personality than HDZ’s former leader “bodes well for political stability,” Ash said. Under Plenkovic’s leadership, HDZ has pledged to cut income and value added taxes. He has also vowed to reduce public debt that’s reached 87 percent of gross domestic product after a 2008-2014 recession wiped 12 percent off of economic output.

The yield on Croatia’s 2025 euro-denominated government bond rose 2 basis points at 12:30 p.m. to 2.84 percent. The yield hit a record-low 2.68 percent last week.

“This coalition government has a fair chance to be stable,” Zarko Puhovski, a political-science professor at the University of Zagreb, said by phone. “Their government will probably continue with current policies, including fiscal consolidation and control of the budget gap.”

Bridge, an alliance of local mayors that won support from voters disillusioned with Croatia’s dominant political forces, has demanded the creation of an exclusive economic and fishing zone in the Adriatic Sea, fewer benefits for politicians and lawmakers, and more control over the central bank, a goal that’s already drawn criticism from the European Central Bank.

Croatia’s government should continue with fiscal consolidation efforts, including cutting public sector staff and subsidies, strengthening tax collection and introducing property taxation, World Bank senior economist Sanja Madzarevic Sujster said on Wednesday in Zagreb.

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