Friday, 29 January 2021

Boris Vujcic Awarded for Croatian Monetary Reform Policy

January the 29th, 2021 - Boris Vujcic, the Croatian National Bank's Governor, has been awarded for the Croatian monetary reform policy which enabled the stability of the Croatian kuna against the euro.

As Poslovni Dnevnik/Ana Blaskovic writes, CNB Governor Boris Vujcic has received the Lamfalussy Award for 2021, named after the "father of the euro" Baron Alexandre Lamfalussy, of the Hungarian National Bank.

Vujcic was awarded for the Croatian monetary reform policy, which enabled the stability of the kuna against the euro, which subsequently enabled Croatia to join the European Exchange Rate Mechanism back during the summer, and they also state his key role as deputy chief negotiator with the European Union (EU).

In his thanks for this recognition, Vujcic focused his speech on the issue of monetary policy in emerging markets when the largest central banks resort to unconventional instruments.

With humorous associations to the novel A Hitchhiker’s Guide to the Galaxy and Monty Python, he emphasised the extremely low real interest rates that are likely to become permanent features of economies.

"The main reason why emerging market countries started implementing APP from today's perspective is obvious - these programmes were successful," said Vujcic, recalling that the CNB made one of the largest buyouts in emerging markets last year, about 5.5% of the country's GDP, which is only about half the amount of the ECB programme in that year”.

He added that Croatia's conclusion of a currency swap agreement with the ECB and its entry into ERM II also helped stabilise the market. He pointed out that the recent development of the monetary policy regime in emerging markets “cannot be taken for granted” because they do not issue reserve currencies and heavily depend on foreign borrowing.

The Belgian economist and central banker Lamfalussy was born in Hungary in 1929. He participated in the work of the Delors Commission, which laid down the foundations of the European Economic and Monetary Union, with a prominent role in founding the ECB and creating regulation of the European financial system. He died in 2015, the Lamfalussy Prize was established back in 2014 and is awarded for outstanding professional achievements and life achievements of individuals that affect the work of central banks and the functioning of the international financial system.

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Wednesday, 15 January 2020

Will Croatia Fulfil All Conditions for Eurozone Entry by April 2020?

As Marina Klepo/Novac writes on the 14th of January, 2020, in the second half of this year, with parliamentary elections expected, the Croatian Government hopes to receive a call from the competent European institutions that Croatia can enter the European Exchange Rate Mechanism (ERM2), a so-called ''waiting room'' in which each EU member state must spend at least two years before Eurozone entry and the adoption of the euro as an official currency.

If Croatia implements all of the measures it has committed itself to, at least according to the European Commission Vice-President for the Euro and Social Dialogue, Valdis Dombrovskis, Croatia could achieve this goal "as early as the second half of 2020".

Along with the letter of intent, in July last year, the Croatian Government also sent a detailed follow-up action plan of nineteen measures and activities it intends to implement in order to enter ERM2, and thus be granted Eurozone entry eventually. It seems that the passage of time in fulfilling these obligations is quite solid.

According to Zvonimir Savic, coordinator of activities related to Croatia's Eurozone entry, the pace of implementation of the listed measures is "quite good". Of the nineteen measures that involved nine institutions, just over four have been fully implemented so far. The implementation of twelve of them is underway, ie, they're all at some stage of implementation.

''Given that several of them are related to the passing of legislation in Parliament, it takes a little more time. But if all goes to plan we expect that all measures will be fulfilled in April, and in May at the latest,'' says Savic. He explains that Croatia is expected to inform the European Commission when it fulfills all nineteen measures.

It has been agreed with institutions such as the European Commission (EC), Eurostat and the European Central Bank (ECB) that what the government proposes in the action plan must absolutely be fulfilled for the country's future Eurozone entry. Although these promises don't really seem particularly demanding, because many measures, such as the law on the rights of officials, were already on the agenda, Savic added that some of them were quite complex. In any case, their timely implementation is of paramount importance for the government at this point.

When it has completed its ''homework'', the government will inform the Eurogroup, the representatives of all existing Eurozone member states, and thereby request participation in the exchange rate mechanism. However, the decision is up to them, and they will consider Croatia's application and decide when Croatia can enter ERM2.

''It's realistic to expect a response from the Eurogroup in the second half of next year. They need to confirm that we've fulfilled the measures and that, for example, from January the 1st, 2021, Croatia enters ERM2,'' Savic notes.

Finance Minister Zdravko Maric also stresses that he expects that all measures included in the action plan will be fulfilled on time, and the Croatian National Bank's Governor Boris Vujcic is also satisfied with the way things are going so far when it comes to preparations and fulfilling obligations for this step of Eurozone entry approval.

The action plan consists of six areas: bank rehabilitation, the macroprudential framework, anti-money laundering, statistics, public sector management, and Croatia's business environment. In the past month, many of the laws that need to be passed have come under public scrutiny. Among these are the Law on Official Statistics, the Law on Credit Institutions, the Law on the Recovery of Credit Institutions, the Law on the Croatian National Bank (CNB/HNB), the Law on Confirmation of Agreements and the Unification of Contributions to the Single Resolution Fund, and so on.

Among other things, these legal changes imply that the CNB, for example, will have additional macro-prudential measures and, where necessary, be able to prescribe them to preserve the stability of the financial system.

The amendments to the law on credit institutions also regulate the exchange of information on the creditworthiness of retail clients. The Croatian Registry of Credit Obligations (HROK), established by banks fifteen years ago, ceased to operate in mid-2018 due to the application of a general data protection (GDPR) regulation in the European Union. In line with the new legal provisions, it is now expected that the exchange of data will start again in the middle of this year.

Additionally, the NRS benchmark interest rate, which serves as an index for determining the variable portion of interest rate on consumer loans, will be calculated and published by the CNB in ​​the future, and not by the Croatian Banking Association.

Much like the Ministry of Finance and the CNB, who have been very up-to-date on the work of preparing for Croatia's eventual Eurozone entry, the Ministry of Economy, for example, has introduced an electronic start-up business, and by March it must present a plan to reduce the massive, draconian administrative burdens placed on businesses in Croatia. The government should then adopt it.

Greater activity is also expected from the Ministry of State Property, which by April must define possible fluctuations and announce tenders for the sale of state shares in at least 90 companies. One tender has now been announced and regards the sale of stakes in as many as thirty companies.

If Croatia joins ERM2 early next year, the national currency will be pegged to the euro, a mid-exchange rate will be established and the Maastricht criteria will all be met.

Member states' experiences and length of stay within the ERM2 mechanism have tended to all be very different, ranging from 2.5 years (Slovenia) to over ten years (Lithuania), indicating that joining the ERM2 does not have to lead to the introduction of the euro in the short term. Only the United Kingdom has an opt-out from Eurozone entry.

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Tuesday, 8 January 2019

Croatia Working Hard on Introduction of Euro, Says EU Official

ZAGREB, January 8, 2019 - The European Commission Vice President responsible for the Euro and Social Dialogue, Valdis Domobrovskis, said on Tuesday that Croatia was working hard on the introduction of euro as its official currency, and that the process of Croatia's admission to the 19-strong euro area would be similar to the process involving Bulgaria that had already sent a letter of intent.

Croatia is working seriously and intensively to create the prerequisites for its admission to the euro area, Latvian Dombrovkis told the press on Tuesday in Riga on the margins of a conference on Latvia's five years in the euro area.

In 2019, Latvia is celebrating five years in the euro area, and it will also be twenty years since the European citizens can pay in euros.

The two-day conference in the Latvian capital city was organised by the European Commission. Dombrovskis recalled that the expansion of the euro area was an open procedure based on rules, and that all EU member-states, except Denmark and Great Britain, were obliged to introduce the euro as their official currency. There are no deadlines for the obligatory adoption of the euro as the sole legal tender in an EU member-state.

The European Commission supports member-states' efforts to introduce the euro, and provides not only political but also the necessary technical and financial support, the Commissioner said.

He said that the next financial perspective would also include a programme of financial support to the reforms carried out by EU member states aspiring to join the euro area membership.

Croatia and Bulgaria have expressed their intention to join the euro area five years after the last round of its expansion.

Aspirants are expected to enter the European Exchange Rate Mechanism II (ERM II) as well as the Single Supervisory Mechanism (SSM). The SSM, which refers to the system of banking supervision in Europe, comprises the European Central Bank and the national supervisory authorities of the participating countries.

The ECB thus can supervise local financial institutions and the process implies the implementation of legislative, operative and technical preparations, all of which takes time.

Croatia will likely enter the ERM II during 2020, a year after the submission of its letter of intent.

Bulgaria, which in 2018 sent a letter to the ECB and other European institutions about its plan to join the ERM II, will probably enter the ERM II in mid-2019, according to Dombrovskis.

After that, it will take at least three years for Bulgaria to adopt the euro provided that Sofia meets all the criteria: two years in the Exchange Rate Mechanism and a minimum one year for the evaluation of the aspirant's achievements and for practical preparations for the replacement of its currency lev with the euro.

More news on the Croatian monetary policy can be found in our Business section.

Monday, 7 January 2019

Partners Support Croatia's Efforts to Introduce Euro, Says HNB Governor

ZAGREB, January 7, 2019 - The Croatian National Bank Governor Boris Vujčić said on Monday that Croatia was ready to take steps to enter the European Exchange Rate Mechanism (ERM), a system for the preparation of the introduction of the euro, stressing that European partners supported Croatia's efforts to introduce euro, owing to its quality indicators and the resilience of the banking sector.

Vujčić attended a conference called "Five Years with the Euro", organised in Riga by the European Commission to mark the introduction of the euro in Latvia.

He underscored that it was much harder to introduce the euro today than it was when Latvia did, as it was much harder to enter the European Union today than it was in the past.

Commenting on meeting the criteria for entering the euro area, Vujčić said the most difficult thing was to enter the ERM II, because there are no clear criteria that a country needs to meet to enter that mechanism.

More news in the Croatian National Bank can be found in our Business section.

Saturday, 1 December 2018

Croatia’s ERM II Exchange Rate to Be Known Soon

ZAGREB, December 1, 2018 – Croatian National Bank Governor Boris Vujčić said on Friday that Croatian citizens would not have conversion costs when the country entered the euro area and that the ERM II exchange rate with which Croatia was expected to enter the Exchange Rate Mechanism could be known as early as next year.

He was responding to questions from the press at the government after the first meeting of the national council for the introduction of the euro in Croatia.

As part of ERM II, the national currency of a member state is tied to the euro and a median exchange rate is established. It is the result of a balanced exchange rate, which means the currency must not be either undervalued or overvalued.

"There will be no conversion cost. It will be automatic, based on the exchange rate to be established earlier," Vujčić said, adding that the rate might be known as early as next year. "That will be the rate with which we will enter the Exchange Rate Mechanism and which we will de facto have to maintain while in the Mechanism, which essentially means that this will be, possibly with very small oscillations, the conversion rate."

He said there would be no cost for citizens and that their deposits and loans denominated in euro would have to be changed based on that exchange rate.

Asked if this meant that the exchange rate with which Croatia would enter ERM II would be very close to the current exchange rate given that it would not be able to vary markedly as of next year, Vujčić said the rate would be close to the one Croatia had over the past 25 years, which "didn't oscillate much."

He recalled that the government and the central bank presented a joint euro strategy late last year, which underwent public consultation and which the government adopted in May.

Vujčić said talks about the next steps were being held with European partners and that the first step was entering ERM II, which envisages close cooperation with the euro area and joining the banking union.

He added that the European Commission and the European Central Bank were conducting due diligence of Croatia's economy as a prerequisite for continuing the talks.

Vujčić said he would soon resume talks on the contents of a letter which he and Finance Minister Zdravko Marić would send about membership of ERM II and in which Croatia would commit to certain things. By entering ERM II, Croatia must meet five convergence criteria which the Commission evaluates and if Croatia meets them, it enters the euro area, he added.

Addressing the same press conference, Minister Marić said that a country was invited to ERM II if it had a stable economy, sustainable growth rates and no imbalances.

Asked about the date of entering the euro area, he said the government's euro strategy did not specify formal deadlines for entering either ERM II or the euro area, and that one must also keep in mind that European partners would follow the whole process and make decisions about Croatia.

Marić recalled that 2005 was the last year when an EU member state entered ERM II and said Croatia must do all that was necessary so that, when certain steps intensified, it was as prepared as possible.

Asked about the previously mentioned five to 7-year deadline for entering the euro area, he said it was realistic.

The first meeting of the national council for the introduction of the euro was chaired by Prime Minister Andrej Plenković. It was attended by several ministers and representatives of employers and unions.

Marić called the meeting very constructive, saying employer and union representatives would not have attended had they anything against Croatia's entering the euro area.

Asked about employers' claims that they had not been sufficiently consulted about a minimum pay rise, he said Labour Minister Marko Pavić had announced that the government would correct the minimum pay by the end of the year but that the actual amount was not made public until the very end.

Marić said he was pleased that, even before VAT on fresh meat and fish, fruit, vegetables, eggs and nappies was due to be slashed on January 1, some retail chains had started to correct their prices.

For more on the Croatian National Bank, click here.

Monday, 29 October 2018

Croatia to Enter Euro Exchange Rate Mechanism II by 2020

ZAGREB, October 29, 2018 - During the dialogue with citizens by European Commission Vice President for the Euro and Social Dialogue Valdis Dombrovskis on Monday, Finance Minister Zdravko Marić underscored that Croatia could join the Exchange Rate Mechanism (ERMII) by 2020 and that, for the improvement of the living standards of people at risk of poverty, it would be necessary to boost economic growth and employment by concerted action.

Asked whether a referendum would be held regarding the introduction of the euro in Croatia and when it could be introduced, Marić underscored that the government's idea and wish is "by 2020 to join the Exchange Rate Mechanism II," which would last for a minimum of two years plus one more for adjustment and meeting the strictest criteria such as those relating to interest rates, exchange rates, prices, deficit and public debt. He also said that the referendum for accession to the EU was compulsory and that joining the EU comprehended introducing the euro.

I think that there won't be any need for a referendum and that is why in that context we have launched this debate, publicly, to argument the introduction of the euro so as to explain it as much as possible to all citizens, experts and broader public, Marić said.

During question time at the Faculty of Economics, one student claimed that the "European Union is turning a blind eye to economic crime," noting that the grey economy accounts for 30% of domestic GDP, placing Croatia immediately after Bulgaria and called out Minister Marić that by introducing the euro he wanted to pass the buck in that regard onto the European Union.

Marić responded "that is not passing the buck," and added that every country that has an above-average share of services (in GDP), not just tourism but other activities too, have a portion of grey economy. He said that not one EU Finance Council meeting went by without debating so-called circular fraud, aggressive tax planning and everything else "which is not a problem that is particular to Croatia but in many other countries too."

Responding to a question about the current social state of affairs in the EU, Dombrovskis said that the European economies have shown a growth for the past six years.

As far as the social picture is concerned, he underscored the level of employment. Europe currently has the highest historical level of employment - that means more people have a job in the EU than ever before. At the same time, when discussing the social picture it is necessary to be aware that the consequences of the crisis can still be felt, including a growing income gap, he said.

If you are interested in more articles about Croatia and the European Union, click here.

Monday, 29 October 2018

European Commission Supports Croatia’s Introduction of Euro

ZAGREB, October 29, 2018 - Valdis Dombrovskis, the European Commission vice-president for the euro and social dialogue, said on Monday the Commission supported Croatia on its journey to the euro area, not just politically, but also through a structural reform programme, noting that economically 2018 was a good year for Croatia.

The Commission can help countries working on introducing the euro technically and financially, he said after meeting with Prime Minister Andrej Plenković and cabinet ministers.

At the meeting we discussed economic and fiscal matters and it must be said that 2018 has been a good year for Croatia. The economy shows robust growth, close to 3%, which is the European Union average, Dombrovskis told reporters, adding that a budget surplus was also recorded.

He said the government had announced its intention to join the Exchange Rate Mechanism (ERM II) in 2020 as a step towards introducing the euro, calling this a sort of waiting room before joining the euro area. Countries usually spend two years in ERM II but it may be longer.

Commissioner welcomes pension and other reforms

Dombrovskis underlined the need for awareness of the importance of structural reforms, saying they played an important role, not just for joining but also successfully participating in the euro area. He added that countries which intend to join must show a certain economic resilience.

He welcomed the reforms which have been launched, including the pension and education reforms, the strengthening of the financial sector, and efforts to reduce non-performing loans and to bolster the financial situation and sustainable economic growth. Dombrovskis also pointed to the macroeconomic imbalances which still exist in Croatia.

Finance Minister Zdravko Marić said the government was aware of the job ahead, such as dealing with unemployment. He added, however, that it was very important for Croatia to have exited the Excessive Deficit Procedure.

Agriculture Minister Tomislav Tolušić said Croatia "is doing its job, with which the European Commission is happy."

Euro adoption strategy

Dombrovskis arrived in Croatia for a two-day working visit and is due to be received by President Kolinda Grabar-Kitarović. He will meet parliamentarians and hold a roundtable discussion on the introduction of euro and the European budget at the Zagreb Faculty of Economics.

A year ago, the government and the Croatian National Bank (HNB) launched a document entitled "The Strategy for the Adoption of the Euro in the Republic of Croatia". On that occasion, Prime Minister Plenković said that his cabinet had set two important goals: one of them is to make Croatia prepared in 2019 to join the passport-free Schengen zone, and the other is to enable Croatia to join the euro area. Plenković said then that his cabinet's target would be to enable Croatia to enter ERM II in 2020 when Croatia will hold the rotating EU presidency from 1 January to 30 July.

I don't want to speculate on the date for the adoption of the euro. What is realistic and what we are working on is to make sure that 2020, when Croatia chairs the rotating presidency of the Council of the EU, is the year Croatia can become part of ERM II, he said at the presentation of the strategy on 30 October 2017.

If you want to more known about relations between Croatia and the European Commission, click here.

Tuesday, 4 September 2018

Finland Supports Croatia’s Schengen and Erurozone Plans

ZAGREB, September 4, 2018 - Croatian Prime Minister Andrej Plenković met with Finnish Foreign Minister Timo Soini in Zagreb on Monday, expressing hope that a decision on Croatia's accession to the Schengen area would be made by the start of 2020, a government statement said.

Tuesday, 24 July 2018

Introduction of Euro in Question?

Finance minister plans major tax cuts, while the rescue of the Uljanik shipyard and Petrokemija could cost more than six billion kuna.

Monday, 2 July 2018

Croatia to Join Schengen and Eurozone in Next Five Years

ZAGREB, July 2, 2018 - The next five years of Croatia's EU membership will be marked by two goals, joining the Schengen and euro areas, while the Pelješac bridge will symbolise the first five years, Prime Minister Andrej Plenković said on Monday at a conference on the first five years of Croatia's EU membership. "We have set ourselves two goals on the European journey. Schengen first, the euro area second. They will mark the next five years of membership," he said.

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