Croatia and the euro

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Eurozone participation
European Union (EU) member states
  19 in the eurozone
  2 in ERM II, without opt-outs (Bulgaria and Croatia)
  1 in ERM II, with an opt-out (Denmark)
  5 not in ERM II, but obliged to join the eurozone on meeting convergence criteria (Czech Republic, Hungary, Poland, Romania, and Sweden)
Non–EU member territories
  4 using the euro with a monetary agreement (Andorra, Monaco, San Marino, and Vatican City)
  2 using the euro unilaterally (Kosovo[a] and Montenegro)

Croatia's currency, the kuna, has used the euro (and prior to that one of the euro's major predecessors, the German mark or Deutschmark) as its main reference since its creation in 1994, and a long-held policy of the Croatian National Bank has been to keep the kuna's exchange rate with the euro within a relatively stable range.

Croatia's EU membership obliges it to introduce the euro once it fulfils the euro convergence criteria.[1] Prior to Croatian entry to the EU on 1 July 2013, Boris Vujčić, governor of the Croatian National Bank, stated that he would like the kuna to be replaced by the euro as soon as possible after accession.[2] This must be at least two years after Croatia joins the ERM II (in addition to it meeting other criteria). Croatia joined ERM II on 10 July 2020. The central rate of the kuna was set at 1 euro = 7.53450 kuna.[3] Prime Minister Andrej Plenković stated in November 2020 that Croatia intends to adopt the euro on 1 January 2023[4] and the Croatian government adopted an action plan for euro adoption later in December.[5]

Many small businesses in Croatia had debts denominated in euros before EU accession.[6] Croatians already use the euro for most savings and many informal transactions. Real estate, motor vehicle and accommodation prices are mostly quoted in euros.

Public opinion[]

Public support for the euro in Croatia[7]

Convergence status[]

In its first assessment under the convergence criteria in May 2014, the country satisfied the inflation and interest rate criteria, but did not satisfy the public finances, ERM membership and legislation compatibility criteria.[8] Subsequent convergence reports published in June 2016, May 2018 and June 2020 came to the same conclusions.


Convergence criteria
Assessment month Country HICP inflation rate[9][nb 1] Excessive deficit procedure[10] Exchange rate Long-term interest rate[11][nb 2] Compatibility of legislation
Budget deficit to GDP[12] Debt-to-GDP ratio[13] ERM II member[14] Change in rate[15][16][nb 3]
2014 ECB Report[nb 4] Reference values Max. 1.7%[nb 5]
(as of 30 Apr 2014)
None open (as of 30 Apr 2014) Min. 2 years
(as of 30 Apr 2014)
Max. ±15%[nb 6]
(for 2013)
Max. 6.2%[nb 7]
(as of 30 Apr 2014)
Yes[17][18]
(as of 30 Apr 2014)
Max. 3.0%
(Fiscal year 2013)[19]
Max. 60%
(Fiscal year 2013)[19]
 Croatia 1.1% Open No -0.8% 4.8% No
4.9% 67.1%
2016 ECB Report[nb 8] Reference values Max. 0.7%[nb 9]
(as of 30 Apr 2016)
None open (as of 18 May 2016) Min. 2 years
(as of 18 May 2016)
Max. ±15%[nb 6]
(for 2015)
Max. 4.0%[nb 10]
(as of 30 Apr 2016)
Yes[20][21]
(as of 18 May 2016)
Max. 3.0%
(Fiscal year 2015)[22]
Max. 60%
(Fiscal year 2015)[22]
 Croatia -0.4% Open No 0.3% 3.7% No
3.2% 86.7%
2018 ECB Report[nb 11] Reference values Max. 1.9%[nb 12]
(as of 31 Mar 2018)
None open (as of 3 May 2018) Min. 2 years
(as of 3 May 2018)
Max. ±15%[nb 6]
(for 2017)
Max. 3.2%[nb 13]
(as of 31 Mar 2018)
Yes[23][24]
(as of 20 March 2018)
Max. 3.0%
(Fiscal year 2017)[25]
Max. 60%
(Fiscal year 2017)[25]
 Croatia 1.3% None No 0.9% 2.6% No
-0.8% (surplus) 78.0%
2020 ECB Report[nb 14] Reference values Max. 1.8%[nb 15]
(as of 31 Mar 2020)
None open (as of 7 May 2020) Min. 2 years
(as of 7 May 2020)
Max. ±15%[nb 6]
(for 2019)
Max. 2.9%[nb 16]
(as of 31 Mar 2020)
Yes[26][27]
(as of 24 March 2020)
Max. 3.0%
(Fiscal year 2019)[28]
Max. 60%
(Fiscal year 2019)[28]
 Croatia 0.9% None No 0.0% 0.9% No
-0.4% (surplus) 73.2%
  Criterion fulfilled
  Criterion potentially fulfilled: If the budget deficit exceeds the 3% limit, but is "close" to this value (the European Commission has deemed 3.5% to be close by in the past),[29] then the criteria can still potentially be fulfilled if either the deficits in the previous two years are significantly declining towards the 3% limit, or if the excessive deficit is the result of exceptional circumstances which are temporary in nature (i.e. one-off expenditures triggered by a significant economic downturn, or by the implementation of economic reforms that are expected to deliver a significant positive impact on the government's future fiscal budgets). However, even if such "special circumstances" are found to exist, additional criteria must also be met to comply with the fiscal budget criterion.[30][31] Additionally, if the debt-to-GDP ratio exceeds 60% but is "sufficiently diminishing and approaching the reference value at a satisfactory pace" it can be deemed to be in compliance.[31]
  Criterion not fulfilled
Notes
  1. ^ The rate of increase of the 12-month average HICP over the prior 12-month average must be no more than 1.5% larger than the unweighted arithmetic average of the similar HICP inflation rates in the 3 EU member states with the lowest HICP inflation. If any of these 3 states have a HICP rate significantly below the similarly averaged HICP rate for the eurozone (which according to ECB practice means more than 2% below), and if this low HICP rate has been primarily caused by exceptional circumstances (i.e. severe wage cuts or a strong recession), then such a state is not included in the calculation of the reference value and is replaced by the EU state with the fourth lowest HICP rate.
  2. ^ The arithmetic average of the annual yield of 10-year government bonds as of the end of the past 12 months must be no more than 2.0% larger than the unweighted arithmetic average of the bond yields in the 3 EU member states with the lowest HICP inflation. If any of these states have bond yields which are significantly larger than the similarly averaged yield for the eurozone (which according to previous ECB reports means more than 2% above) and at the same time does not have complete funding access to financial markets (which is the case for as long as a government receives bailout funds), then such a state is not be included in the calculation of the reference value.
  3. ^ The change in the annual average exchange rate against the euro.
  4. ^ Reference values from the ECB convergence report of June 2014.[17]
  5. ^ Latvia, Portugal and Ireland were the reference states, with Greece, Bulgaria and Cyprus excluded as outliers.[17]
  6. ^ a b c d The maximum allowed change in rate is ± 2.25% for Denmark.
  7. ^ Latvia, Ireland and Portugal were the reference states.[17]
  8. ^ Reference values from the ECB convergence report of June 2016.[20]
  9. ^ Bulgaria, Slovenia and Spain were the reference states, with Cyprus and Romania excluded as outliers.[20]
  10. ^ Slovenia, Spain and Bulgaria were the reference states.[20]
  11. ^ Reference values from the ECB convergence report of May 2018.[23]
  12. ^ Cyprus, Ireland and Finland were the reference states.[23]
  13. ^ Cyprus, Ireland and Finland were the reference states.[23]
  14. ^ Reference values from the ECB convergence report of June 2020.[26]
  15. ^ Portugal, Cyprus, and Italy were the reference states.[26]
  16. ^ Portugal, Cyprus, and Italy were the reference states.[26]

Target date for euro adoption[]

I always quote the Bob Dylan song ‘When you ain’t got nothing, you got nothing to lose’. If you don’t have independent monetary policy what are you going to lose by entering into the monetary union?Boris Vujčić, Governor of the Croatian National Bank, makes an analogy about Croatia's long-held euro-focused monetary policy.[32]

Croatia's EU membership obliges it to join the eurozone once it fulfils the euro convergence criteria. Prior to Croatian entry to the EU on 1 July 2013, Boris Vujčić, governor of the Croatian National Bank, stated that he would like the kuna to be replaced by the euro as soon as possible after accession.[2] This must be at least two years after Croatia joins the ERM II (in addition to it meeting other criteria).

The Croatian National Bank had anticipated euro adoption within two or three years of EU entry.[33][34] However, the EU's response to the financial crises in eurozone delayed Croatia's adoption of the euro.[35] The country's own contracting economy also posed a challenge to its meeting of the convergence criteria.[36] While keen on euro adoption, one month before Croatia's EU entry governor Vujčić stated "...we have no date [to join the single currency] in mind at the moment".[2] The European Central Bank was expecting Croatia to be approved for ERM II membership in 2016 at the earliest, with euro adoption in 2019.[37][38]

In April 2015, President Kolinda Grabar-Kitarović stated in a Bloomberg interview that she was "confident that Croatia would introduce the euro by 2020", although the then-Prime Minister Zoran Milanović subsequently refused to commit to such timeline for the euro adoption [39]

In November 2017, Prime Minister Andrej Plenković said that Croatia is aiming to join ERM II by 2020 and to introduce the euro initially by 2025.[40] Jean-Claude Juncker, President of the European Commission, stated in June 2019 that "Croatia is ready to join the ERM-2".[41]

A letter of intent of joining the ERM II mechanism was sent on 5 July 2019 to the ECB, signed by Minister of Finance Zdravko Marić, and the governor of the Croatian National Bank Boris Vujčić.[42][43] The letter marks the first formal step towards the adoption of the euro. Croatia committed to joining the Banking union of the European Union as part of its efforts to join ERM II. On 23 November 2019, European Commissioner Valdis Dombrovskis said that Croatia could join ERM II in the second half of 2020.[44]

Croatia joined ERM II on 10 July 2020.[45] The central rate of the kuna was set at 1 euro = 7.53450 kuna.[3]The earliest date for euro adoption, which requires two years of ERM participation, is 10 July 2022.

In June 2021, Prime Minister Plenković said the government's ambition is to join the eurozone on 1 January 2023.[46] On 21 July, Plenković stated that national identifying marks on the would be the Croatian checkerboard, the map of Croatia, a marten, Nikola Tesla and the Glagolitic script.[47][48] In September, speaking at the 11th meeting of the National Council for the Introduction of the Euro as Croatia's official currency, Plenković said Croatia had the full support of the European Commission and the European Central Bank to join the euro area. He restated his confidence Croatia would be ready to enter the euro area on 1 January 2023.[49] In September 2021, following the meeting of the Eurogroup in Slovenia, Croatia signed an official agreement (a Memorandum of Understanding) with the European Commission and eurozone member states on practical steps for the actual minting of Croatian euro coins.[50] On December 7th, 2021, Croatia and the European Commission signed a Partnership Agreement for the organization of information and communication campaigns, concerning the changeover from the kuna to the euro in Croatia.[51][52]

In December 2021, Finance Minister Zdravko Maric announced that the bill on introducing the euro currency in Croatia was being drafted and could be outlined in mid-January, with its final adaption expected in April, 2022. The formal announcement of accession to the euro area is expected mid-2022. He further stated, “As of 1 January 2023 we will change over to the euro overnight and then have another two weeks for both currencies in circulation and citizens will be able to continue to pay in kuna but after that payments will be in euro. The dual prices will remain for at least one year,”.[53]

In January 2022, Croatian Prime Minister Andrej Plenković has announced that from September 5, prices will be displayed in both kunas and euros in the country, and through the whole of 2023. In 2023 everyone will be able to exchange kunas for euros free of charge in banks, in the Croatian Post offices, and in Financial services and payment systems branches. [54]

See also[]

Notes[]

  1. ^ Kosovo is the subject of a territorial dispute between the Republic of Kosovo and the Republic of Serbia. The Republic of Kosovo unilaterally declared independence on 17 February 2008. Serbia continues to claim it as part of its own sovereign territory. The two governments began to normalise relations in 2013, as part of the 2013 Brussels Agreement. Kosovo is currently recognised as an independent state by 97 out of the 193 United Nations member states. In total, 112 UN member states have recognised Kosovo at some point, of which 15 later withdrew their recognition.

References[]

  1. ^ "Joining the euro area". Council of the EU and the European Council. General Secretariat of the Council. Retrieved 24 July 2021.
  2. ^ a b c THOMSON, AINSLEY (4 June 2013). "Croatia Aims for Speedy Adoption of Euro". Wall Street Journal. Retrieved 7 September 2013.
  3. ^ a b "Communiqué on Croatia" (Press release). European Central Bank. 10 July 2020. Retrieved 11 July 2020.
  4. ^ Reuters Staff (11 November 2020). "Croatia eyes euro adoption in 2023 -PM". Reuters. Retrieved 9 June 2021.
  5. ^ "Croatia adopts plan for replacing kuna by euro to protect consumer rights". SeeNews. Retrieved 9 June 2021.
  6. ^ Joy, Oliver (21 January 2013). "Did Croatia get lucky on EU membership?". CNN.
  7. ^ "Public Opinion 1999–2020". European Commission. Retrieved 11 July 2020.
  8. ^ "Convergence Report - 2014" (PDF). European Commission. April 2014. Retrieved 26 February 2014.
  9. ^ "HICP (2005=100): Monthly data (12-month average rate of annual change)". Eurostat. 16 August 2012. Retrieved 6 September 2012.
  10. ^ "The corrective arm/ Excessive Deficit Procedure". European Commission. Retrieved 2018-06-02.
  11. ^ "Long-term interest rate statistics for EU Member States (monthly data for the average of the past year)". Eurostat. Retrieved 18 December 2012.
  12. ^ "Government deficit/surplus data". Eurostat. 22 April 2013. Retrieved 22 April 2013.
  13. ^ "General government gross debt (EDP concept), consolidated - annual data". Eurostat. Retrieved 2018-06-02.
  14. ^ "ERM II – the EU's Exchange Rate Mechanism". European Commission. Retrieved 2018-06-02.
  15. ^ "Euro/ECU exchange rates - annual data (average)". Eurostat. Retrieved 5 July 2014.
  16. ^ "Former euro area national currencies vs. euro/ECU - annual data (average)". Eurostat. Retrieved 5 July 2014.
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  30. ^ "EMI Annual Report 1994" (PDF). European Monetary Institute (EMI). April 1995. Retrieved 22 November 2012.
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  33. ^ "Vujčić: uvođenje eura dvije, tri godine nakon ulaska u EU". Poslovni dnevnik (in Croatian). HINA. 1 July 2006. Retrieved 1 January 2011. statements made by Boris Vujčić, deputy governor of the Croatian National Bank (now governor (2013)), at the Dubrovnik economic conference, June 2006
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  40. ^ Ilic, Igor (30 October 2017). "Croatia wants to adopt euro within 7-8 years: prime minister". Reuters. Retrieved 31 October 2017.
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  46. ^ "Four big projects will be completed, reforms will continue in next 3 years". Government of the Republic of Croatia. 28 June 2021. Retrieved 12 July 2021.
  47. ^ "Plenković otkrio koji hrvatski simboli će biti na eurima: 'Građani su izabrali - Nikolu Teslu!'". Jutarnji list (in Croatian). 21 July 2021. Retrieved 21 July 2021.{{cite web}}: CS1 maint: url-status (link)
  48. ^ Vladisavljevic, Anja (21 July 2021). "Croatia's Euro to Feature Inventor Tesla, Claimed Also by Serbia". BalkanInsight. Retrieved 22 July 2021.
  49. ^ "PM confident Croatia will be ready to join euro area on 1 Jan 2023". Government of the Republic of Croatia. 13 September 2021. Retrieved 22 September 2021.
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  51. ^ "Euro changeover: Partnership Agreement with Croatia for the organisation of information and communication campaigns signed". European Commission. 9 December 2021. Retrieved 31 December 2021.
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  54. ^ "Croatia to display prices in both Kuna and Euro from September 5". euronews. 18 January 2022. Retrieved 20 January 2022.
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