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Having made its application for EU membership in 2003 and having seen its accession bid stall with Slovenia's insistence on resolving its border dispute; Croatia finally completed its accession negotiations on June 30 2011. At the present time, the country is set to sign its accession treaty to the EU in late November or early December this year in order to become the 28th member of the bloc in 2013....

Having made its application for EU membership in 2003 and having seen its accession bid stall with Slovenia's insistence on resolving its border dispute; Croatia finally completed its accession negotiations on June 30 2011. At the present time, the country is set to sign its accession treaty to the EU in late November or early December this year in order to become the 28th member of the bloc in 2013. However, in light of the current economic climate, this might be a nervy affair since Croatia, like all European markets, has felt the effects of the global downturn and saw a slowdown of economic output through 2010-2011. "The environment here is that there's a lot of doom and gloom in the economy, which is one of the worst in the world. There will be a change of government," warns one partner. "The market is still pretty much dead," agrees another, adding that "there are no liquid funds in the country".

The state still has substantial liquidity problems and has been exploring different avenues to raise money, some more spurious than others. "They started to look at tax and employment laws. They [also] start investigations and then impose fines to get liquidity," says a partner. There are even rumours that the state might have to turn to privatisation as the only solution. "The government hasn't done a lot to incentivise growth of the economy. They're politically motivated to get things done. There is a desire to get things going," says a partner, concluding that the government will "have to privatise through concessions because they have no money".

The description of the market generally given by local lawyers is the following. Up until 2010, the banks were granting loans at "horrible" interest rates. It was not competitive but it did generate profits. However, in an effort to get the market moving these interest rates were slashed. On the whole, the banks are still reluctant to lend, this is not because they do not have the money but rather because there are no good projects around. It is very tough for newly established companies to convince banks to lend although they are still willing to lend to established Croatian companies.

Renewable energy is proving to be an interesting sector. There have been some notable wind farm projects and to a lesser extent, in hydropower. In terms of financing for wind parks, this is chiefly done privately and by foreign banks. Some seem to suggest that the interest in renewables has advanced. "Last year, everyone had a renewable deal. It was grabbed by investors for projects. We see activity but it's not overwhelming. We see movements of more developed transactions," says one partner.

Public-private partnerships (PPP) seem to be an area where there is potential. "The government is trying to push PPPs," says a partner: "In Croatia there was talk of PPPs a couple of years ago [which] culminated with the handball championships [in January 2009] where PPPs should have happened. But new legislation was demanding [by providing strict rules on the approval of such projects]. Now, it is picking up again with the airport [and] there will be more PPPs in years to come, once a project is successful."

Despite it having been a difficult year for most law firms in real estate, commentators cautiously agree that the sector is starting to pick up. "I think in the second half of this year there will be bigger transactions. Maybe in real estate financing and project finance; it is difficult to say," one partner comments.

It is becoming more apparent that M&A will present increased opportunities for a variety of reasons. "What will probably happen is that current shareholders, if they can't keep up with the projects, will sell them off in necessity. That's what happens," says one partner. "There is a lot of M&A activity in preparation for joining the EU," says another partner. Forecasts from commentators in the market predict that there will be possible moves in the telecommunications and renewable energy sectors.

With Croatia having been cleared for EU membership in 2013, the harmonisation of its legal system is more or less complete. However, as one partner notes: "Enforcement is not up to date but we are trying. It is the classic story, technical harmonisation ahead of the government's and the people's understanding of what's going on."