"This is a good lap time. However, I call on everyone to take all the tasks that lie ahead of us seriously, aware that work is over when it is over. And when it is over in July 2013, it will only then begin," Milanovic said at a Cabinet meeting.

He added that someone might draw too optimistic conclusions from the report because legislative alignment with the acquis and the fulfilment of the assumed commitments were going well.

"Our real challenges here in Croatia are the budget and the high standards which we have set ourselves and which we intend to abide by," the prime minister said. He called on his ministers to have in mind the situation the country was in when drafting the budget for 2013.

"The situation is serious, but not dramatic. If we all approach the problem in that way, there is a way out," Milanovic said.

Foreign and European Affairs Minister Vesna Pusic said that the European Commission's latest report was the best progress report on Croatia since February 2001 when Zagreb ratified the Stabilisation and Association Agreement. She said that some of the EU countries waited for that report in order to open or complete the process of ratification of Croatia's EU accession treaty, which has so far been ratified by 16 of the 27 EU member states.

"We expect that four more countries will ratify the treaty by the end of the year, in which case we would end 2012 with 20 ratifications," Pusic said.

In its comprehensive monitoring report released on Wednesday, the European Commission praised Croatia for the progress made and specified 10 tasks which Croatia must carry out before joining the Union. The tasks relate to the chapters Competition Policy, Judiciary and Fundamental Rights, and Justice, Freedom and Security.