ZAGREB  - Croatian ex-prime minister Ivo Sanader and an official representing his conservative HDZ party on Monday pleaded not guilty to embezzling millions of euros of state funds at the start of a landmark trial. The first case of its kind against a political party in the former Yugoslav republic set to join the European Union next year is a serious blow for the former ruling party. Three out of four other officials implicated in the case pleaded guilty. “I don’t feel guilty on any count of the indictment and we will prove that it was fabricated,” Sanader told the Zagreb county court. The former prime minister is already facing trial on two other major corruption affairs. He was expelled from the HDZ in 2010.

The scandal-plagued Croatian Democratic Union (HDZ), ousted from power by a centre-left coalition in elections in December, has been trying to paint Sanader as a lone black sheep.

Anti-graft prosecutors have charged Sanader and the party with abuse of power for allegedly embezzling some ten million euros ($13 million) from state-run companies, saying the money was put into slush funds used mostly to finance the party and some officials.

The HDZ party is also accused of taking illegal donations.

Sanader, who prosecutors say earned two million euros through the scheme, is charged with ordering the heads of state-run firms and institutions to make business deals with Fimi Media, a local marketing firm.

They were apparently told to pay for fictitious services between late 2003 and mid-2009 while he was in power.

The fight against corruption is a key criterion for Zagreb’s bid to join the European Union in 2013.

HDZ official Damir Sesvecan pleaded not guilty on behalf of the party.

But three other defendants - two former HDZ officials: ex-treasurer Mladen Barisic and chief accountant Branka Pavosevic, and the head of the Fimi Media firm Nevenka Jurak - pleaded guilty.

A fourth suspect, former HDZ spokesman Ratko Macek also pleaded not guilty.

An lawyer for the HDZ party repeated the party’s claims that its leadership did not know about the slush funds.

“No party body was informed about the illegalities with which the HDZ was charged,” lawyer Davorin Budin told the court.

“We will prove that there was a double, parallel system of financing within the HDZ,” he said.

Sanader led the HDZ from 2000 until July 2009 when he suddenly stepped down.

The 58-year-old said earlier he would prove the charges were politically motivated.

The trial is another blow for the HDZ, which has been weakened by internal wrangling ahead of the elections for a new leader in May.

The party ruled Croatia almost continuously since its 1991 independence.

Prosecutors and the defence want to call more then 100 witnesses including HDZ current head and former prime minister Jadranka Kosor.

It resumes on Tuesday is expected to last at least until the end of the year.