Croatia may adopt the euro in 2023

Croatia’s one euro coin

The design of the Croatian euro coins was presented at the beginning of February.

(Photo: imago images/Pixsell)

Brussels The euro zone will soon welcome its twentieth member. Croatia now meets all the criteria to adopt the single currency on January 1, 2023. This was announced by the EU Commission and the European Central Bank (ECB) on Wednesday.

The euro zone is thus growing for the first time since 2015, when Lithuania was admitted. Measured in terms of economic output, the Balkan country will take 14th place in the currency union.

Accession will not only strengthen the Croatian economy, but the entire currency area, said EU Commission President Ursula von der Leyen. The euro is now “one of the most powerful currencies in the world”. Commission Vice-President Valdis Dombrovskis praised the introduction of the euro less than ten years after Croatia’s EU accession as a “great achievement”. The government pushed the project forward with diligence and perseverance. At the beginning of the year, Eurogroup President Paschal Donohoe spoke of Croatia’s “enormous efforts” to prepare for the introduction of the euro.

After the Commission, the 27 EU finance ministers still have to agree. A decision in the EU Council is expected before the summer break in July. This is considered a formality.

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The Croatian parliament had already passed a law introducing the euro with a large majority in May. From September, all shops in Croatia must now display their prices in euros and the previous national currency, the kuna. The currency changeover then takes place on the night of January 1st.

The Commission and the Central Bank give their approval

Despite the uncertain effects of the Ukraine war, the EU Commission and the ECB have now certified Croatia’s suitability for the euro. Every two years, both institutions publish separate “convergence reports” on the seven EU countries that do not yet belong to the euro zone (Sweden, Poland, Hungary, the Czech Republic, Romania, Bulgaria, Croatia).

All EU members except Denmark have contractually committed to adopting the common currency at some point. However, governments can choose the pace themselves. Sweden, for example, is still using the crown today. In Eastern Europe, too, some governments are in no hurry to join the euro because they appreciate the advantages of an independent monetary policy.

Ursula von der Leyen

The EU Commission President hopes that Croatia’s accession will strengthen the entire currency area.

(Photo: AP)

The convergence reports from the Commission and the ECB assess indicators such as inflation, debt, interest rates and exchange rate stability. The underlying data in this year’s report essentially reflects the situation before the Ukraine war.

Inflation in Croatia was 4.7 percent in April – well below the euro zone average of 8.1 percent. Due to rising energy and raw material prices, the inflation rate in Croatia is expected to increase further in the coming months. The ECB said there were concerns about inflation in the longer term. You have to take appropriate countermeasures. But the current value is sufficient for joining the euro.

>> Read here: Commentary – The ECB chief’s reassurances on inflation seem like mockery today

The budget deficit in 2021 was below the Maastricht upper limit of three percent. At 80 percent, the debt ratio was above the permitted 60 percent mark, but since it fell sharply in the past year, the criterion is considered to have been met, according to the ECB report.

Bulgaria does not yet meet the criteria for joining the euro

The currency watchdogs were also satisfied with the exchange rate stability of the local currency kuna. The exchange rate shows little volatility, the report said. The kuna has been closely tied to the euro since July 2020. At that time, Croatia joined the European Exchange Rate Mechanism II together with Bulgaria. Since then, the ECB has been working closely with the central banks of Croatia and Bulgaria and has assumed certain supervisory tasks.

The rating agency Fitch also came to the conclusion this week that Croatia meets “all the necessary criteria” with regard to the necessary structural reforms. There is also “sufficient political support” for the country’s euro membership.

The second euro candidate, Bulgaria, on the other hand, where accession is planned for 2024, does not yet meet the criteria according to the ECB and the Commission. Among other things, inflation is too high. The Commission also ruled that the national legislation does not yet meet all the requirements of the monetary union. Bulgaria has been in the EU six years longer than Croatia.

More: EU Commission suspends debt pact for another year – criticism comes from Berlin

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