Thursday, 23 September 2021

Croatian Eurozone Accession: Changes to Begin as Early as Next Summer

September the 23rd, 2021 - Croatian Eurozone accession might still seem like a far away event on the domestic political stage, but it is edging ever closer and things are set to start being quite significantly different as of next summer.

As Poslovni Dnevnik writes, preparations for Croatian Eurozone accession have already started, and one of the measures is to ensure that prices don't increase significantly, which is something most people fear when asked what their worries surrounding the process of phasing out the Croatian kuna is.

Tihomir Mavricek pointed out that this will be among the very first things that will be tackled, and that the fixed exchange rate will be determined just before the decision of the EU Council on the introduction of the euro as Croatia's official currency.

"It will be around 7.53, but it will finally be determined in May or June next year and will become valid from January the 1st, 2023. Until December the 31st, 2022, the commercial exchange rate will be valid, it'll be as we have it now," he explained for HRT.

"There's no need to be afraid of price increases"

Many people are afraid of price increases as a result of Croatian Eurozone accession, but Mavricek has assured that the practice of countries that have already adopted the euro has shown that the replacement of the national currency has had very little effect on price growth, ie inflation.

"The countries that first adopted the euro had a small so-called harmonised growth of the consumer price index, which ranged between 0.09 and 0.28 percentage points. Countries that later adopted the euro had one which stood at around 0.3 - so we don't expect any significant impact on prices, maybe of some 0.37 percentage points, with the biggest impact coming from services and a slightly smaller number of commonly used products, such as pastries and newspapers,'' said Mavricek.

After the introduction of the euro in neighbouring Slovenia, prices in transport, restaurants and hairdressing/beauty salons increased, while in Slovakia the prices of food and construction works increased.

"Research has shown that these increases mostly regard products that don't affect people with lower incomes when compared to those with higher incomes, such as sectors like accommodation services, restaurants, and sports services - these are usually services used by people with higher incomes," explained Mavricek.

For more on Croatian Eurozone accession, check out our dedicated politics section.

Thursday, 16 September 2021

Croatia Set to Amend 118 Laws and Regulations Before Switching to the Euro

ZAGREB, 16 Sept 2021 - The government on Thursday adopted a conclusion on amending 46 laws and 72 regulations until 15 July 2022  as part of the roadmap for the euro changeover process.

Finance Minister Zdravko Marić informed the cabinet that in the last month, the competent agencies had itemized a total of 118 laws and regulations which should be amended within the national plan for the adoption of the euro.

The time frame for Croatia's admission to the euro area in 2023 thus entails the amending of the necessary legislation until 15 July 2022.

Prime Minister Andrej Plenković recalled that three days ago, the European Commission Executive Vice President  Valdis Dombrovskis, who attended the 11th meeting of the national council for the introduction of the euro as Croatia's official currency, strongly supported the work and ambitions of the government and other Croatian institutions to join the euro area.

Last Thursday the Irish Finance Minister and Eurogroup President, Paschal Donohoe visited Zagreb and said that Croatia had made important and positive progress on the road to euro area membership.

For more about politics in Croatia, follow TCN's dedicated page.

Tuesday, 14 September 2021

Croatia and EU Discuss Production of New Croatian Euro Coins

September the 14th, 2021 - The topic of new Croatian euro coins is being intensively discussed among all involved parties as Croatia's entry into the Eurozone edges ever closer.

As Poslovni Dnevnik writes, a memorandum of understanding was recently signed by the Executive Vice President of the European Commission Valdis Dombrovskis, the Commissioner for Economy Paolo Gentiloni, the President of the Eurogroup Paschal Donohoe and the Governor of the Croatian National Bank Boris Vujcic.

A memorandum of understanding between Croatia, eurozone members and the European Commission on the start of production of new Croatian euro coins and preparatory activities before the start of production was signed on Friday, after a meeting of Eurogroup leaders in Brdo near Kranj, the Croatian National Bank and the European Commission both reported.

The agreement regulates issues related to the preparatory activities for the introduction of the euro in the Republic of Croatia, which includes the production of a certain amount of test euro coins. The topic of Croatia's entry into the Eurozone has been overshadowed over the last eighteen or so months by much more pressing matters, including the state of the economy as a result of the ongoing global coronavirus pandemic, but plans are still very much being made.

The CNB statement states that on the basis of this memorandum, Croatia can start with its Eurozone preparatory activities, meaning it can now start drafting a detailed scenario for the changeover to the euro in the country, the proper preparation for the distribution of brand new Croatian euro coins, the withdrawal of the kuna as the national currency and the visual selection of the Croatian national side on new euro coins.

It can also start with the implementation of technical preparations for the common side of the new euro coins, the preparation of a production plant for the production of euro coins, the procurement of plates for minting euro coins as well as the procurement and production of tools for minting those same coins. Finally, the country is free to start making test copies of Croatian euro coins.

For more, make sure to check out our dedicated politics section.

Tuesday, 14 September 2021

Switching Kuna Cash for Euros - Time Limits Vary for Coins and Notes

September the 14th, 2021 - As Croatia prepares to adopt the euro as its national currency and send the kuna to the history books, just how much time do we actually have to switch any kuna cash to euros?

As Poslovni Dnevnik writes, last Friday, at a Eurogroup meeting in the Slovenian capital city of Ljubljana, a "Memorandum of Understanding" was signed between the European Central Bank, the Croatian National Bank and the European Commission. Tihomir Mavricek, Executive Director of the CNB's Cash Department, spoke about the bureaucratic phrase (memorandum of understanding) regarding the issuance and production of euro coins in Croatia on HRT's Studio 4 show.

Mavricek simplified the memorandum, why it is important and whether it means that Croatia can mint the euro itself.

The memorandum signed has its own symbolism and practical side. It is symbolic because it is the first official document signed between the three parties, and practical because it completes all of Croatia's preparations for accession to the Eurozone.

How much does it cost to mint the euro?

When asked who will do it in Croatia and how much it will cost, Mavricek said that it will be minted by the Croatian Monetary Institute.

''They've already started their preparations, and the real minting of euro banknotes is possible only after the Council of the European Union makes a decision on Croatia's accession to the Eurozone,'' said Mavricek.

''Based on the memorandum, we can make one million test pieces of each of the eight denominations of euro coins. We can test how ready we'd be to mint all the necessary quantities of euro coins after the Council's decision,'' he said, adding that the cost of making one euro coin costs about 10 cents on average.

Kuna cash and its storage

As for the storage of the Croatian kuna, which will soon be replaced by the euro, he said that since the beginning of the introduction of the kuna, the CNB has produced 2.8 billion pieces of kuna coins.

''If we lined them up next to each other and vertically, we'd get 4500 km of coins, which is from Zagreb to Riyadh in Saudi Arabia. They weigh about 10,000 tonnes. Based on the experience of other countries, we expect that about 35 percent of those coins will be returned, or 1.13 billion pieces. That's about 5200 tonnes, which corresponds to the weight of 124 new Zagreb trams. If a truck can load 20 tonnes of coins, we're talking about about 260 trucks of kuna coins,'' Mavricek illustrated.

He said that there would be fewer euro coins, but not because of the exchange rate or the ratio of approximately 7.5: 1.

''There's a conversion methodology developed by the European Monetary Institute, which is based on the fact that we have the same number of coins and banknotes as we had for our national currency. According to the budget formula, we'll get approximately the same number of coins and banknotes, but it will still be a little less,'' Mavricek explained.

He added that according to information from the Deutsche Bundesbank, a huge amount of German marks remained everywhere, and still do. According to some estimates, it amounts to almost 6 billion marks. Even today, stamps can be converted into euros.

''The CNB is preparing for the safe storage of both kuna cash (banknotes) and coins. Banknote issues have already been resolved, and for coins it is currently being resolved. It will be in a safe location that will be guarded non-stop,'' Mavricek said.

Deadlines for exchange of kuna cash and coins

-''Unlike kuna banknotes that will be exchanged for euros indefinitely, kuna coins will only be able to be exchanged for a period of three years. The first year will see all banks take responsibility for that, and then the following two will be dealt with solely by the CNB,'' Mavricek explained, adding that the returned kuna cash will be stored on an area of ​​about 2,000 m2.

He believes that minting euros in Croatia will be cheaper than having them done for the country elsewhere and by someone else.

For more, check out our dedicated lifestyle section.

Tuesday, 7 September 2021

How Will Croatian Schengen and Eurozone Entry Help Exporters?

September the 7th, 2021 - The country's many exporters are set to have life made that bit easier for them with Croatian Schengen entry on the horizon, further aided by the country finally entering the Eurozone.

As Poslovni Dnevnik/Darko Bicak writes, Minister of Economy and Sustainable Development Tomislav Coric recently said that for small and open economies, such as that boasted Croatia, exports are a prerequisite for development and survival.

"The country's GDP has been growing for years now, and of late, exports have been one of the main factors when it comes to economic growth and economic recovery. Exports recorded very good results even during pandemic-dominated 2020. This year, we've been recording a large recovery in terms of exports with 60 billion kuna, which is 11 billion kuna more than in pre-crisis 2019,'' said Coric.

He added that we must be careful in this analysis of the growth of the value of Croatian exports, because part of it is related to global inflation.

Minister Coric also pointed out that the achieved results are due to about 20,000 Croatian exporters who are the largest employers in the country, who also generate the largest share of total income and investments. He stated that both EU and national funds are a major source of funding for innovation and competitiveness of the domestic economy in the wake of the Green Plan.

"I'm aware of the challenges that Croatian exporters have been facing for years, and the Government is making great efforts to overcome bureaucratic obstacles for Croatian businessmen, and especially exporters, for greater growth and exports. By joining the Eurozone in two years, we'll take an additional step forward in eliminating exchange rate risks faced by Croatian entrepreneurs when doing business on our most important market - the single market.

In addition to the above, Croatian Schengen entry will be a benefit for all of the country's exporters because it will simplify and speed up mobility,'' concluded Minister Coric.

For more on Croatian Schengen and Eurozone entry, make sure to follow our politics section.

Monday, 19 July 2021

Voting for Appearance of Future Croatian Euro Coin Comes to a Close

July the 19th, 2021 - The voting process for the appearance of the brand new Croatian euro coin when the country joins the Eurozone has now drawn to a close, with a final choice to be made soon.

Croatia's planned Eurozone entry date is growing ever closer, which many have put to the back of their minds owing to more pressing circumstances surrounding the ongoing pandemic of late. The country's entry into the Eurozone comes with concerns for many, with others asking where the referendum on the matter was, not realising that all countries with the exception of Great Britain agreed to eventually sign up to the common currency when joining the European Union in the first place.

For others, no longer having the Croatian currency which is very sensitive to exchange rate fluctuations resulting in numerous issues when working with the euro, will come as a breath of fresh air and a fuller pocket. Others fear that the introduction of the Eurozone's currency will see prices rise, despite assurances that it won't happen. 

To make this serious matter a bit lighter and bring it directly to the public, voting on what the Croatian euro coin will look like took place, in which the public got to choose from several very Croatian coin designs.

As Poslovni Dnevnik writes, the symbols for the Croatian euro coin will be chosen from the kuna, the map of Croatia, the Glagolitic alphabet, Dubrovnik and the Croatian coat of arms.

Almost 50,000 people voted for their favourites via the Croatian National Bank's official website. Some would like the Glagolitic alphabet because that was the very first Croatian script, some would like the map and the country's famous checkers because that symbol is the closest to them, but some also had new ideas, their own suggestions, writes Dnevnik.hr.

Additional proposals will also be taken into account, Croatian National Bank Governor Boris Vujcic confirmed. "The motive that was most often proposed will definitely be considered to be placed on the Croatian euro coin,'' Vujcic concluded.

By the end of the week, the Croatian National Bank's commission will choose the final symbols and which will be on which Croatian euro coin. They will then immediately announce a tender for artists who need to design the look of the coins themselves with the selected motifs.

For more, follow our dedicated lifestyle section.

Monday, 5 July 2021

With Croatian Eurozone Entry Coming, Economist Talks Price Rises

July the 5th, 2021 - Croatian Eurozone entry might seem a far away event, but it is edging ever closer with discussions about what the Croatian design on Euro coins taking place. What will happen if you're making loan payments in Croatian currency? The details so far.

As Poslovni Dnevnik writes, on Thursday, after a session of the National Council for the Introduction of the Euro, Prime Minister Andrej Plenkovic and Croatian National Bank Governor Boris Vujcic stood before the press and talked about Croatian Eurozone entry. Plenkovic said that they were convinced that the country would be ready to enter the Eurozone on January the 1st, 2023, and Vujcic added that until that date, we need to work "at full speed".

The question of how ready Croatia actually is for this step and whether the aforementioned period is long enough to prepare everything was discussed by economic analyst dr. Sc. Petar Vuskovic, who believes that in technical terms, Croatian Eurozone entry can happen relatively quickly.

"Croatia is already highly euroised. This means that the kuna is just a currency model. In that sense, we're ready for the euro. We have to convert the kuna, adjust the ATM system, and harmonise accounting items,'' explained Vuskovic for Net.hr.

When people start talking about Croatian Eurozone entry and the removal of the kuna, what worries people the most is that with the arrival of the euro, everything will become more expensive.

"The rise in prices due to the introduction of the euro will not occur because the rise in prices is predominantly dependent on the movement of raw material and energy prices. If you look at the countries that have already adopted the euro, price growth was at most a mere 0.3 percent. Annual inflation is, for example, one percent,'' explained Vuskovic, before adding:

"The euro will reduce loan installments. Countries that have the euro are considered currency-safe, so the cost of capital is lower. The euro means more than two billion kuna to the market that exchange offices and banks would have taken during exchange operations,'' Vuskovic concluded.

For more, follow our lifestyle section.

Wednesday, 24 March 2021

When Can We Expect Croatian Eurozone Membership? Earliest Date Revealed

March the 24th, 2021 - The subject of Croatia joining the Eurozone has been put on the backburner, at least in the public eye, ever since the coronavirus pandemic spread across the globe. Despite other things now taking priority in the media space, the matter of Croatian Eurozone membership is still very much a hot topic.

As Poslovni Dnevnik/Ana Blaskovic writes, Croatian Eurozone membership can officially begin on January the 1st, 2023 at the absolute earliest, and the biggest advantages of the country's adoption of the common European currency could be in the form of export-oriented companies within the area. The above was discussed at a recent conference on the matter organised by the student association Financial Club in Zagreb.

"Whether or not Croatia will enter the Eurozone on January the 1st, 2023 or a year or two later, all depends on when we'll manage to meet the nominal convergence criteria," said Croatian National Bank (HNB/CNB) Governor Boris Vujcic, recalling that Croatia did successfully join the European Exchange Rate Mechanism II (ERMII) last summer. The Governor noted that ERM II membership requires EU member states to spend at least two years within the mechanism, often known as the Eurozone's ''waiting room''.

If Croatia fails to meet the nominal convergence conditions of the so-called Maastricht criteria - a stable exchange rate, stable interest rates, a budget deficit and level of public debt, a country can then end up spending an unlimited period of time in the ERM II, as opposed to just a couple of years.

Vujcic referred to the research which revealed residents of Croatia are most afraid of falling living standards due to rising prices upon the realisation of Croatian Eurozone membership. Research in the countries that have already adopted the euro shows that this isn't actually a justified fear because in the year of the introduction of the euro, prices rose by an average of a mere 0.23 percentage points.

Economy Minister Tomislav Coric said that potentially the biggest winners from the country's introduction of the euro could be Croatia's exporters, given the disappearance of any currency risk. He pointed out that Croatian Eurozone membership is not a mere means to an end in itself, but instead is a very good tool for long-term economic growth, stability and development.

For current information about coronavirus specific to Croatia, including border rules, travel regulations, testing centres and more, click here.

Monday, 20 July 2020

Croatian Central Parity and Future Eurozone Entry Sees Questions Arise

As Marina Klepo/Novac writes on the 19th of July, 2020, when Croatia joins the Eurozone, it is very likely that the conversion rate will be 7.5345 kuna per euro, the level at which the average parity was determined when entering the ERM II, the so-called ''Eurozone waiting room'' in which would-be members spend time. However, changes are possible.

The term central parity means that the country needs to prove that it is able to keep the currency relatively stable, with the range of oscillations set at quite a generous rate, of plus/minus 15 percent.

In the case of the Croatian kuna, this means it can range from 8.6646 to 6.4043. Given the fact that since the very introduction of the kuna, it has never strengthened or weakened by more than five percent when compared to the average exchange rate, there should be no major turbulance. However, the central parity which has now been established doesn't have to be the exchange rate at which the actual conversion will take place: as that will be set six months before the introduction of the euro. The experience of other Eurozone countries shows that most of them did change their currencies at the parity set at the beginning, but not all of them did so. Of the eight countries that joined the Eurozone since its inception in 1999, two have changed their central parity due to appreciation pressures.

For the old Greek drachma, the exchange rate was first set at 353.109 drachma per euro, and finally it was 340.75, while in the case of the Slovak koruna, it changed three times: first to 38.455, then to 35.444, and finally to 30.128, which means that the former Slovakian national currency strengthened by 17.6 percent. Four countries - Malta, Estonia, Latvia and Lithuania - had a fixed exchange rate regime, and the Slovenian tolar and the Cypriot pound managed to maintain central parity after a short stay in the exchange rate mechanism. Bulgaria has also had a fixed exchange rate regime since way back in 1997, with the central parity set at 1.9558 levs per euro.

Analysts of the Dutch financial group ING believe that Bulgaria will maintain this established parity until it does eventually join the Eurozone, and they consider the case of Croatia a little more "nuanced", even though it has a quasi-fixed exchange rate. The Croatian National Bank applies a managed-fluctuating exchange rate regime, but intervenes in the market when pressures are expressed in the direction of weakening or strengthening the currency.

With all that in mind, they believe that maintaining exchange rate stability will not, generally speaking be a major challenge for Croatia, but they estimate that the central parity will be set at 7.55 kuna, given that it is "usually set around the current market level". This suggests that they expect mild depreciation pressures on the Croatian kuna in the coming years. In addition to the kuna and the lev, ERM II currently includes the Danish krone, which has been in the Eurozone's ''lobby'' since 1999.

For more, follow our lifestyle page.

Tuesday, 14 July 2020

Numerous Challenges Lie Ahead on Croatian Path to Eurozone Entry

If things go according to the plans and wishes of the Government, Croatia should replace the national currency with the euro about a year and a half before its 30th birthday, but as Poslovni Dnevnik/Jadranka Dozan writes on the 13th of July, 2020, there are numerous obstacles to overcome on the path to the Eurozone...

On Friday, Croatia got the green light Brussels for the entry of Croatia (and Bulgaria) into the European Exchange Rate Mechanism (ERM II), and we learned that the central parity between the euro and the kuna with which to enter the Eurozone's proverbial ''lobby'' was set at 7.5345 kuna for one euro, which was the state of the exchange rate on Friday.

At least two years should be spent in the Eurozone's waiting room, which would mean the introduction of a common European currency at the earliest in early 2023. How likely this actually is for Croatia is quite another story.

"Joining the ERM II doesn't mean that the process of adopting the euro is now on autopilot, because both Croatia and Bulgaria are still facing important challenges and will hardly meet all the convergence criteria anytime soon," said ING analysts.

In short, while the Croatian authorities calculate that we are currently on the way to meeting the necessary criteria, the bank's economists predict the introduction of the euro for Croatia (as well as for the Bulgarians) "well after January the 1st, 2023."

In the case of Croatia, they see the challenges primarily in the sphere of the sustainability of public finances (public debt, deficit), and for Bulgaria, the main thorn in the side of that country is its institutional framework and the rule of law.

A ticket to ERM II was actually expected as the Croatian Government managed to comply with the reform points promised in last year's action plan, and the banks have also passed a comprehensive ECB assessment. However, the news received a lot of attention and positive comments, including the reaction of the market through the decline in yields on Croatian government debt - it fell to about 1.1 percent in a ten-year period.

By joining the exchange rate mechanism, which is accompanied by the establishment of very, very close cooperation with the European Central Bank, Croatia will be able to count on more generous ECB support than the recently agreed two billion euro heavy package as an additional source of foreign exchange liquidity.

At the same time, after Brexit and with the current frictions over the adoption of the EU Economic Recovery Plan, this is a welcome message that there is still an appetite among some nations for greater integration within the Union for the bloc itself after all.

Of the EU countries that have not yet adopted the euro, most of them don't yet show any intention of doing so.

The advantages of Croatia's entry into the Eurozone are considered to outweigh the disadvantages. Thus, the Croatian Chamber of Commerce (HGK) points out that the introduction of the euro should facilitate the business of entrepreneurs with more ease.

In addition to the elimination of currency risk and exchange costs, as well as the potential growth of the credit rating and lower financing costs, they also emphasised the advantages of additional financing that Eurozone members have in the current coronavirus crisis.

Entrepreneurs who advocate Croatian Eurozone membership see this as a better chance to implement the reforms that are desperately needed in Croatia, but unfortunately only get done when the country is under significant external pressure.

In addition to the Maastricht criteria, part of the set of measures that Croatia has undertaken to implement within the ERM II application includes administrative, ie the parafiscal relief of the economy and residents, as well as measures related to improving bankruptcy legislation and management in state-owned enterprises.

When it comes to those against the introduction of the euro, the arguments are mainly buffered up by claims that Croatia isn't yet economically ready for this step. People, on the other hand, are most afraid of the potential for rising prices.

They cite examples from other countries that suggest that prices should not increase significantly, and in most countries there has been some increase in wages at the same time to make up for it.

Given the weak industry and large imports, the average price level of consumer goods and services in Croatia is still higher than in some Eurozone countries. Finance Minister Zdravko Maric emphasised that the tax policy is still in our hands, and this also has an impact on prices and the control of them.

For more on Croatia's path to the Eurozone, follow our politics section.

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