Croatia looks to oil and gas fields in Adriatic Sea

European Union newcomer Croatia is looking to undiscovered oil and gas fields in the Adriatic Sea to revive its ailing economy, according to the country’s president.

Ivo Josipovic told CNN that Croatia – soon to become the 28th member of the European Union – is searching for partners in the energy sector to help reveal oil and gas “green fields” in the waters that separate the Balkan nations and Italy.

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The country, which relies heavily on its sun-kissed Adriatic coast to attract tourists and boost the economy, is seeking new revenue streams to combat a high national debt and a lack of competitiveness.

In 2012, Croatia’s economy contracted by 2% and is expected to contract by 1% this year, according to Eurostat – the European Commission’s data service.

“There is one way to change the economy and that is to motivate investors to come to Croatia,” Josipovic told CNN in an exclusive interview.

Croatia – a small country of 4.3 million people – is also battling against chronic unemployment over 18%, with only Greece and Spain having a higher jobless rate. But Josipovic is adamant that Croatia’s European membership, which officially begins on July 1, will attract foreign investment and prevent a so-called “brain drain” in the country’s workforce.

“Brain drain is always connected to a bad economic situation, with the EU or without the EU,” he said. He added: “But somehow by foreign investment or companies, I expect some brains to come to Croatia as well.”

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One major obstacle to foreign investment is Croatia’s problems with endemic corruption. Since breaking away from Yugoslavia in the early 1990s, Croatia has struggled to choke off profiteering from those in positions of power.

In November last year, the country’s former prime minister, Ivo Sanader, was jailed for 10 years after being found guilty of taking pay-offs from foreign companies.

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Sanader – who was premier from 2004 to 2009 – fled the country but was arrested in Austria. He is now appealing his sentence.

Josipovic said: “Corruption is now considered as something that is not acceptable for our society and anyone who is caught will go to jail. Of course, efficiency of investigation is needed through our judiciary.”

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Transparency International – an organization tackling corruption – ranked Croatia below Rwanda, Jordan and Cuba in its Corruption Perceptions Index for 2012. But the country still came in above Italy - Europe’s third largest economy.

Of the former Yugoslav states, Croatia will be only the second country behind Slovenia to join the EU, but the country also has designs to one day join Europe’s embattled single currency area, the eurozone.

Josipovic said the euro is already a de facto currency in Croatia but the country needs at least five years to meet the euro area criteria before it can think about joining.

“[There is] no special target year,” he told CNN. “But we think we already have the euro because if you ask someone the price, they tell you in euros. Our savings in banks are 80% or more in euros because our citizens believe in the euro because the buy euro and save in euro.”

Despite not being in the single currency, many small businesses in Croatia have debts denominated in euros rather than in kuna – the country’s domestic currency - exposing them to exchange rate risk.