Fighting corruption is a key requirement for the former Yugoslav republic as it hopes to complete EU accession talks this year and join in 2012. Prime Minister Jadranka Kosor's government has encouraged police and prosecutors' high-level anti-graft efforts in the past eight months, as they investigated state companies including banks, a top food firm, universities and the state privatisation fund.

"We shall no longer stand by, silent and powerless, while dirty money buys Croatian property and economic resources, makes possible fake university diplomas, privileges and undeserved wealth," Josipovic told a crowd at the mediaeval St. Mark's square, which houses government and parliament buildings.

The bespectacled, soft-spoken intellectual with little experience in high politics won a runoff on Jan. 10 on a strong anti-corruption platform, promising "new justice" for Croatia. Josipovic succeeds veteran reformer Stjepan Mesic who had served his maximum two five-year terms. The president has a say in intelligence, army and foreign policy, and is seen as the highest moral authority in the country.

The inauguration brought together heads of most Balkan states but also highlighted lingering tensions in the region. Serbian President Boris Tadic stayed away from a ceremony attended by the president of Kosovo, a former Serb province that declared independence from Belgrade in 2008.