What does "array cannot have a deferred shape" mean in fortran?

That is exactly what the error is telling you: kron must have an explicit shape. If you do not want to pass the array sizes beforehand, you'd have to define kron as

real, dimension(lbound(a,dim=1):ubound(a,dim=1),&
                lbound(a,dim=2):ubound(a,dim=2)) :: kron

Using this particular explicit declaration above does compile for me on gfortran 4.6.3.