29 July 2022.
AN OFFICIAL ON JANUARY 1, 2023
Croatia: Full Steam Ahead Towards Eurozone

It is fficial: On January 1, 2023, the Euro will be Croatia’s legal tender and payments with the existing Kuna is to be phased out completely within two weeks that will follow.

The European Union has July 12, 2022, removed the final obstacles to Croatia adopting the euro, enabling
the first expansion of the currency bloc in almost a decade as the exchange rate fell to its weakest level against the dollar in 20 years.

The European Union (EU) finance ministers, in the presence of Croatia’s outgoing finance minister Zdravko Maric, approved July 13, 2022, three laws that paved the way for Croatia to become the 20th member of the eurozone on January 1, 2023.

Created in 1999 among 11 countries including Germany and France, the euro has gone through seven previous enlargements starting with Greece in 2001. The appeal of euro membership is reflected by the last three expansions, which brought in Baltic states between 2011 and 2015. The last EU member country to join the European single-currency area was Lithuania in 2015.

Croatia’s acceptance into the European Union on the 1st of July 2013 evidently marked the beginning of the end of the Kuna as Croatia’s currency ever since its proud introduction amidst the ravages of Homeland War during which Croatia defended itself from brutal Serbian aggression on 30th May 1994.
Entering the European Union in 2013 brought with it many changes be they for better or for worse and one of the most significant is upon Croatians with Croatia entering the Eurozone in 2023.

Many predict that the effect of this transition will make life even harder for ordinary people especially pensioners while others continue convincing the people that bringing in the euro will be better than “the invention of sliced bread”. Preparations are underway to ensure that everything is ready for the new currency. The production of coins and monetary paper notes has commenced full speed ahead during the past two weeks.

Despite the “very strong challenges” of high inflation and dented economic growth, Croatian outgoing finance minister Zdravko Maric said he is pleased to see his country switch to the euro. At this time when the Eurozone itself is facing rising levels of inflation and stagnating growth, the decision for Croatia to join the EU’s common currency may come as a surprise to quite a few.  A lot of economists in Germany, however, see things differently. Especially as the next candidate after Croatia is Bulgaria, which has already applied for membership and aims to become the 21st country to introduce the common currency in 2024. Croatia is the third poorest country in the EU, Bulgaria with a gross domestic product of less than 10,000 euros per capita ranks last in economic power.

Croatia is not giving up a stable currency, but rather hopes to benefit from the more favourable debt conditions in the monetary union. The country relies more than any other EU state on tourists, who generate a fifth of gross domestic product and find holidaying much easier when they needn’t grapple with exchange rates. Meanwhile, most private and corporate bank deposits are held in euros, along with more than two-thirds of debt totalling about 520 billion kuna ($75 billion). Euro-area membership will lower interest rates, improve credit ratings, and make Croatia more attractive to investors, according to Croatian National Bank Governor Boris Vujcic.

The European Central Bank has already announced that it will use a new monetary policy instrument to ensure that interest rate differentials within the monetary union remain low during the crisis. The Germany based Kiel Institute for the World Economy worries that because of years of misguided developments in the Eurozone with ultra-loose monetary policy and lax debt rules, the monetary union is only attracting the wrong people. Brussels was desperate to give the signal that the Eurozone is growing, especially since Brexit. And it is noted that Croatia’s entry into the Eurozone represents a most significant event for the EU since Brexit. It is suggestive of concern that strong EU member states of Sweden and Denmark still do not want to introduce the euro or enter the Eurozone. The Kiel Institute has also expressed the opinion that as long as the major problems of the Eurozone monetary union have not been solved, the circle should not be widened: “As long as you haven’t stabilised your house, you shouldn’t grow.”

The Euro has been the currency of the European union since 1992 and with Croatia joining the Eurozone, changes will be visible in the upcoming period from small households to large companies. The question on everyone’s mind is will life be more costly with the Euro?

Croatia is not giving up a stable currency, but rather hopes to benefit from the more favourable debt conditions in the monetary union. The country relies more than any other EU state on tourists, who generate a fifth of gross domestic product and find holidaying much easier when they needn’t grapple with exchange rates. Meanwhile, most private and corporate bank deposits are held in euros, along with more than two-thirds of debt totalling about 520 billion kuna ($75 billion). Euro-area membership will lower interest rates, improve credit ratings, and make Croatia more attractive to investors, according to Croatian National Bank Governor Boris Vujcic.

The European Central Bank has already announced that it will use a new monetary policy instrument to ensure that interest rate differentials within the monetary union remain low during the crisis. The Germany based Kiel Institute for the World Economy worries that because of years of misguided developments in the Eurozone with ultra-loose monetary policy and lax debt rules, the monetary union is only attracting the wrong people. Brussels was desperate to give the signal that the Eurozone is growing, especially since Brexit. And it is noted that Croatia’s entry into the Eurozone represents a most significant event for the EU since Brexit. It is suggestive of concern that strong EU member states of Sweden and Denmark still do not want to introduce the euro or enter the Eurozone. The Kiel Institute has also expressed the opinion that as long as the major problems of the Eurozone monetary union have not been solved, the circle should not be widened: “As long as you haven’t stabilised your house, you shouldn’t grow.”

The Euro has been the currency of the European union since 1992 and with Croatia joining the Eurozone, changes will be visible in the upcoming period from small households to large companies. The question on everyone’s mind is will life be more costly with the Euro?

text author: Ina Vukić /HIC.hr
foto: HIC archive