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Croatia PM: ‘Not Optimistic’ About EU Budget Deal

As leaders from across Europe convened in Brussels on Friday to try to find a compromise on the European Union's (EU) long-term budget, the Croatian Prime Minister told CNBC that the negotiations are more about political posturing than money.

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Britain's David Cameron and Germany's Angela Merkel are hoping for deeper overall spending cuts, while France and Poland are seeking reductions in cuts to farm subsidies and regional development funds.

"Given the amount of tension among the EU members and the opposing positions on the philosophy of spending, I'm not very optimistic," Zoran Milanovic told CNBC Friday.

"It's not about money, it's about principles, it's about elections, it's about conveying a message to the electorate," he said, adding that the 1 billion euros per year that Germany is currently negotiating over, is only one percent of their budget and wouldn't constitute anything for the country.

Milanovic said that informally he was in the same camp as France and Poland and said that any extra money for the EU budget was crucial for cohesion funds, regional funds and real-life programs for countries like Croatia.

The social cohesion fund is aimed at leveling out wealth inequalities across the member nations and the European Commission is currently eyeing a treasure chest of 376 billion euros ($483 billion) for the 2014-2020 period.

(Read More: Forget Nobel Peace Prize, EU Launches Summit Warfare)

On July 1 2012 Croatia will become the 28th member of the EU at a time when others are stumbling over whether they want to remain in the euro bloc. But Prime Minister Zoran Milanovic explained that the country has been in the queue for the last twenty years.

"We have to put our public finances in order, we have to reduce public spending altogether," he told CNBC Friday.

"We are business friendly and my goal is to consolidate the country fiscally."

Milanovic underlines the fact that both Moody's and Fitch rating agencies have given Croatia an investment grade rating, but he stresses that he his still pushing to be in the top tier of European countries.

His words comes just three days after former PM Ivo Sanader was jailed for ten years for taking bribes whilst he was deputy foreign minister. The case has been closely watched by the European Union in order to make sure the country deals with any further, and more widespread, corruption.

"There was a long history of corruption, we are erasing that, we are changing the game altogether," Milanovic said.

(Read More: Croatia Sentences Ex-PM Sanader to 10 Years in Prison for Graft)

In November the International Monetary Fund (IMF), forecasted that Croatia's gross domestic product will shrink by 1.5 percent in 2012 but hopes remain that the economy will be back to expansion again in 2013. Meanwhile its debt-to-GDP ratio is estimated to be around 45 percent.

Croatia stands to receive roughly 10 billion euros ($12.7 billion) in grants from the EU over the next eight years. But it's private rather public investment rather than Milanovic sees as being equally important if the Adriatic Sea nation is to revive its struggling economy.

"There are two pillars...European cohesion funds because its 'quid pro quo' - it matters, we need to get something in return because we are opening ourselves altogether," he said.

"And private investments, because the state investments, public sector investments will not make a fundamental difference. I'm a social democrat but I know the rules of the game."

Despite the optimism, Milanovic was coy when quizzed over whether Croatia will seek to join the single currency after EU membership is confirmed.

"I don't know," he said. "It's in the schedule, it's on the timetable but let's see what happens and how the story unfolds. In the meantime we have to clear the house."

Contact Europe: Economy

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