"We're just at the beginning of a new stage. We are working on it on a number of levels and I think we're going in the right direction," Pusic said at a reception ahead of Orthodox Christmas organised by the Serb People's Council when asked to comment on current relations between the two countries.

She could not say when the two prime ministers would meet, but said she had already met with Serbian Foreign Minister Ivan Mrkic, that they were "communicating" and that they had agreed on some steps, including some border cooperation projects that could be financed with European Union funds.

"I expect we will meet again in the first half of this year," Pusic said, adding that the public would be informed about the meeting of the prime ministers on time.

"The topics which the prime ministers will discuss at that meeting will be defined, but generally speaking, we have three groups of topics - solving issues stemming from the war, facilitating trade now that Croatia is leaving CEFTA and entering the European free trade zone, and discussing issues of the common European future," Pusic said, adding that all officials of the two countries should discuss those topics.

Asked if it was politically wise of the government to raise some officials' salaries, she said the decision was "based on the logic that it's sometimes smart to invest ten to get a thousand and that it's perhaps not smart to save ten and lose a thousand."

Pusic said these officials filled positions "which require top managers who can easily be employed in the private sector in Croatia or abroad. These people are not dependent on politics. If we were not to have managers in these positions, we could lose everything which we could get as a state and a national economy through these agencies."

She recalled that upon joining the European Union in July, Croatia would be able to draw EUR 600-700 million from European funds. "If we have good teams, we will be able to utilise that money, but if not, we will end up as a net payer."