Efforts to catch up with competitors, providing further support to Ukraine, and boosting defence capabilities are the main challenges facing the European Union in 2025, during which Croatia will continue its further progress to reach the EU average in the economic sense.

This outgoing year in European politics has been exceptionally eventful.

In June, elections for the European Parliament were held, which, along with elections in some member states, brought a shift to the right in the balance of power.

In the European Parliament elections, right-wing centrist parties gathered in the European People’s Party (EPP) reinforced their dominant position, while left-wing centrist parties (Socialists and Democrats) managed to maintain their previous number of representatives.

Meanwhile, the liberals (Renew) and the Greens were big losers in the elections.

The far-right parties (Patriots for Europe) and the European Conservatives and Reformists (ECR) pushed the liberals from third to fifth place in terms of strength.

In the new 27-strong European Commission, which was inaugurated on 1 December with German Christian Democrat Ursula von der Leyen at its helm for a second term, the EPP has 15 members.

For the first time in the Commission, there is one representative from the right ECR and one from the extreme right, Patriots for Europe (PfE).

On 1 December, Portuguese Socialist Antonio Costa took over as the new president of the European Council, and Estonia’s Liberal Kaja Kallas became the new High Representative for Foreign Affairs and Security Policy.

In the European Council, the highest political body of the EU, which gathers the heads of state or government of member states, the EPP is also the largest group, with 11 members, and there are prospects that this number will increase next year.

Four members of the European Council, from Austria, Belgium, Bulgaria, and Ireland, currently hold the status of acting leaders, as governments have yet to be formed following parliamentary elections.

In Germany, the government led by the Social Democratic Chancellor will remain in power until the early elections scheduled for 23 February ,and the Christian Democrat Friedrich Merz stands the best chances of becoming the new German Chancellor.

According to Romania’s Constitution, the country is represented in the European Council by the President. The first round of the presidential elections, in which the pro-Russian right-wing candidate Călin Georgescu surprisingly won, was annulled, and new elections are expected to be held in February or March.

For the European Union, a particularly significant problem is the leadership vacuum in its two largest member states, Germany and France, which have always been considered the driving forces of European integration.

In Germany, after the elections in February, it will certainly take several months to form a new government, and it remains uncertain how stable it will be.

In France, President Emmanuel Macron is significantly weakened, and the parliament is divided into three irreconcilable blocs, none of which has a necessary majority. The current government depends on the support of the far right.

This vacuum is being attempted to be filled by Polish Prime Minister Donald Tusk, the leader of an increasingly important and powerful member state, as well as by the heads of EU institutions Ursula von der Leyen, Antonio Costa, and Kaja Kallas, along with the new NATO Secretary General Mark Rutte.

Biggest challenge – increasing the competitiveness of EU economy

One of the main topics in the EU, not just next year but throughout the entire term of the new European Commission, will be the competitiveness of the economy, as the EU is increasingly lagging behind the United States and China, particularly in high technologies and innovations.

For example, of the 50 largest technology companies, only four are European.

The agenda of the new Commission will largely rely on the report on the future of European competitiveness, prepared by former President of the European Central Bank and former Italian Prime Minister Mario Draghi.

The Commission is expected to publish the Competitiveness Compass on 15 January, which will be based on three pillars from Draghi’s report: closing the innovation gap with the US and China; decarbonisation and competitiveness; and increasing economic security while reducing dependencies.

Then, in February, the Commission is expected to unveil the Clean Industry Plan, a sort of European Green Deal 2.0, which will aim to integrate climate protection with industrial policy.

The budget

In order for the European economy to be able to compete with the United States and China, according to Draghi’s report, additional investments of around €750-800 billion annually will be needed. Therefore, a key issue in the upcoming period will be how to secure these funds.

This is closely linked to the question of the next seven-year budget (MFF or multiannual financial framework) for the period 2028-2034. The Commission will present a proposal for the new MFF in the second half of next year.

Croatia getting closer to EU average, its GDP increases 19% since Q4 of 2019

Croatia is slowly approaching the European average, but there is still a long way to go to reach that goal.

Since 2019, the last year before the pandemic, until today, Croatia has experienced the highest growth in the EU.

From the fourth quarter of 2019 to the third quarter of 2024, Croatia’s GDP has increased by over 19%.

During the same period, the GDP of the Eurozone grew by just over 5%.

According to the report from the Croatian Bureau of Statistics, Gross Domestic Product (GDP) per capita in Croatia, measured by Purchasing Power Parity (PPP) for 2023, reached 76% of the EU-27 average, with actual individual consumption (AIC) per capita also matching the EU average.

It is expected that this year, real GDP per capita will reach 78% of the European average.

This represents significant progress compared to 2013, the year of Croatia’s EU accession, when GDP per capita was 61% of the EU average.

However, a new population census was published in the meantime, showing that in 2021, Croatia had over 400,000 fewer residents than a decade earlier, which has partly contributed to the increase in GDP per capita.

Croatia’s economy continues to grow about four times faster than the EU average. A large part of this success is attributed to EU recovery funds following the pandemic, as Croatia has been a leader in drawing these funds, which must be spent by the end of 2026.

On the other hand, very little has been drawn from the regular seven-year EU budget (2021-2027) so far, as the absolute priority was to secure recovery funds as quickly as possible.

However, funds from the seven-year budget can be drawn until 2030, which guarantees that EU funds will continue to play a major role in development even after the recovery fund is depleted.

It is crucial to create conditions for long-term growth, even after the inflow of European funds slows down.