More Reforms Needed to Introduce Euro

By 17 January 2019

ZAGREB, January 17, 2019 - The adoption of the euro will benefit Croatian enterprises but will not resolve structural problems of the national economy, the chairman of the Croatian Chamber of Commerce (HGK), Luka Burilović, said on Thursday, calling for extra efforts to minimise the structural weaknesses of the economy before joining the common currency area.

"We see prevailing benefits of the adoption for our enterprises, but we must keep in mind that the adoption itself will not resolve the structural problems of the economy and that it is in our own interest to join the euro area as strong and stable as possible," Burilović said in a statement, commenting on the advantages and disadvantages of euro adoption.

That's why it is necessary to step up efforts to minimise the structural weaknesses of the Croatian economy in this pre-accession phase, he added.

Burilović noted that the Croatian economy is closely tied to the euro-area economy because euro-area member states are Croatia's most important trading partners. Two-thirds of Croatia's trade is done with the 19 members of the euro area, which also account for 66 percent of foreign direct investment in the country.

The Croatian tourism industry depends on visitors from the countries with the European currency, who generate about 70 percent of all tourism revenues and about 60 percent of tourist bed-nights in Croatia, Burilović said and added that the Croatian financial system is also highly euroised.

He said that it is much easier to do business and reduce business risks in a system in which revenues and obligations are in the same currency.

"That's why the principal benefit of the euro adoption for the Croatian economy is removing the currency risk," Burilović said, noting that at present the main instrument of monetary policy is to maintain the stability of the kuna exchange rate.

Another positive aspect of the adoption for Croatian citizens would be lower interest rates and more favourable borrowing conditions. Interest rates would be closer to those in the euro area, which are currently considerably lower than in Croatia, despite the fact that they are generally low.

Burilović said that the adoption would also provide a boost to exports and employment growth. "Lower capital costs and export risks and the removal of exchange-rate differences will make exporters more competitive," he concluded.

Earlier this month, European Commission Vice-President Valdis Dombrovskis said that Croatia was very seriously and intensively working on euro adoption and that the process of its accession to the euro area would be similar to that of Bulgaria, which has already sent in a letter of intent.

More news on the introduction of euro in Croatia can be found in the Business section.