Harman Patil

Croatia and the euro

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Croatia and the euro

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.

Contents

Croatia's EU membership obliges it to eventually join the eurozone, as such the country plans to join the European Monetary System, the pathway to euro adoption. 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. This must be at least two years after Croatia joins the ERM2 (in addition to it meeting other criteria). The Croatian National Bank had anticipated euro adoption within two or three years of EU entry. However, the EU's response to the ongoing financial crises in eurozone states may delay Croatia's adoption of the euro. The country's own contracting economy also poses a major challenge to it meeting the convergence criteria. While keen on euro adoption, one month before Croatia's EU entry governor Vujčić admitted "...we have no date [to join the single currency] in mind at the moment". Before Croatia can join ERM II, it must reduce its budget deficit by about 1.5 billion kuna (June 2013 figures). The European Central Bank expects Croatia to be approved for ERM II membership in 2016 at the earliest, with euro adoption in 2019.

Many small businesses in Croatia had debts denominated in euros before EU accession. Croatian people 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

According to a eurobarometer poll in April 2015, 53% of Croatians are in favour of introducing the euro while 40% are opposed, roughly unchanged from 2014.

Convergence Status

In its first assessment under the convergence criteria in May 2014, the country satisfied the inflation, interest rate and legislation compatibility criteria, but did not satisfy the public finances and ERM membership criteria. Its second convergence report published in June 2016 came to the same conclusions.

Notes

Target date for euro adoption

In April 2015, President Kolinda Grabar-Kitarović stated in a Bloomberg interview she was "confident that Croatia would introduce the euro by 2020", while Prime Minister Zoran Milanović said at the government session that "some occasional announcements when Croatia will introduce the euro shouldn't be taken seriously. We'll try to make it as soon as possible, but I distance myself from any dates and ask that you don't comment on it. When the country is ready, it will enter the euro area. The criteria are very clear."

References

Croatia and the euro Wikipedia


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