Ten years after joining the European Union, Croatia is preparing to join the euro zone. Since last Wednesday, the date of the publication of the 2022 convergence report by the European Commission, Zagreb has fulfilled the criteria required to adopt the single currency. The country will therefore be able to switch, from January 1, 2023, from its national currency, the kuna, to the euro.
For the transition to take effect, the European Council will also have to express itself favourably. But the vote, which will be held next month, should hold no surprises. For the Croatian government, this is the culmination of a long journey. “With the entry into the euro zone, we are achieving one of our two main objectives, the other being access to the Schengen area”said Croatian Prime Minister Andrej Plenković.
Since its independence in 1991, Zagreb has made European integration and monetary stability its priorities. The period of hyperinflation of the 1980s, during the time of Yugoslavia and during the Balkan war, traumatized the Croats. This is why the euro is seen as a guarantee of security.
Large purchases were already made in euros
To meet the convergence criteria, a stable exchange rate, controlled inflation and sound public finances had to be displayed. ” To avoid the inflationary scenarios of the past, Croatian monetary policy since independence was to ensure the stability of the kuna and to curb inflation”notes Vedrana Pribičević, an economist at the Zagreb School of Business and Management.
The euro was also already very present in the country. “The kuna is an everyday currency. But when it comes to buying an apartment, a car, or opening a savings account, Croatians have long turned to the euro »continues Vedrana Pribičević.
When Croatia joined the European Stability Mechanism in 2020, it did so on the basis of the exchange rate that has been used since 1999: 1 euro for 7.5 kuna.
Finally, with regard to the consolidation of public finances, according to the economist “the Croatian government had more luck than merit: it bet on growth and it worked”. Between 2015 and 2020, Croatia averaged 3% growth each year. This made it possible to lower the debt/GDP ratio from 83.9% in 2014 to 71.1% in 2019. And this even if the amount of debt increased from 36.7 to 39.4 billion euros .
The development of new technologies
The twentieth economy to join the eurozone in 2023 is now largely dependent on tourism, which accounts for around a quarter of its GDP. But it is also seeing the development of a new sector, which is growing four times faster than the rest of the economy: that of IT and new technologies (5.6% of GDP in 2019). This expansion shows how much the Croatian economy has changed since 2008, after the country joined the Union: “It is no longer necessary to be close to power tosucceed in Croatia »summarizes Vedrana Pribičević.
With the introduction of the euro – which is however not unanimous in the country where 86% of citizens fear a price increase – the Croatian economy will be even more integrated into the European Union. The kuna, on the other hand, will be officially withdrawn from circulation on January 15, 2023, less than thirty years after its introduction in 1994.