Tuesday, 30 April 2019

Croatian National Bank Promotes Adoption of Euro

ZAGREB, April 30, 2019 - Fifty-two percent of Croatian citizens support adoption of the euro, 40 percent are against and eight percent are undecided, Croatian National Bank (HNB) governor Boris Vujčić said in Zagreb on Tuesday, citing the results of the latest survey conducted by the central bank every six months.

Vujčić was speaking at a panel entitled "When will Croatia adopt the euro?" Citing the advantages of a switch from the national currency the kuna to the European Union's single currency, he said: "The adoption of the euro would reduce investment insecurity, higher interest rates and high costs."

Vujčić also noted that most Croatian citizens hold their savings denominated in euros, and since most of the loans are also tied to the single currency, its adoption by Croatia would reduce the exchange rate risk.

Those opposed to adopting the euro cited a fear of sharp price increases as their main concern, which Vujčić described as unfounded. "That's a myth and it did not happen in any of the countries that have adopted the euro," he said, adding that there would always be inflation but that it should not be blamed on the adoption of the new currency.

Energy and Environment Minister Tomislav Ćorić said that Croatian citizens and businesses were "still not knowledgeable enough about the effects of euro adoption, both positive and negative ones."

Vujčić would not say when Croatia could be expected to be admitted to the Exchange Rate Mechanism (ERM II), as a step preceding accession to the euro area. He, however, said that talks were under way with the European Commission and the European Central Bank about the content of a letter which he and Finance Minister Zdravko Marić would have to send in when applying for ERM II membership.

After joining ERM II, Croatia will have two years to meet the euro area membership criteria and then wait for a positive response from the European Commission. "Even if all that goes smoothly, it won't happen before 2023," Vujčić said.

More news about potential introduction of the euro can be found in the Business section.

Tuesday, 16 April 2019

Croatia Still in Crisis, Says Ex-Croatian National Bank Governor

ZAGREB, April 16, 2019 - Former Croatian National Bank Governor Željko Rohatinski says in his book "Crisis in Croatia" that the country is still in a crisis and that cooperation between companies, banks and the state as well as greater engagement on the state's part are necessary to overcome it.

"In the book I analyse the development of the economic situation in Croatia from 2008 to 2018. There are indicators according to which we are coming out of the crisis. However, the accumulated problems are still of such intensity that we are actually still in crisis. Also, options are being considered as to what and who should be more active for the solution to be better and quicker. In my opinion, it's necessary to establish synergy between three important subjects: companies, banks and the state. This can't be unorganised and the state has a big role in it all," Rohatinski said at the book's launch on Tuesday.

In 2018, Croatia returned to the economic level of 2008, which was neither quick nor cheap, he said, estimating that 26 billion euro was lost in GDP in the said period as well as 180,000 jobs. The predicted GDP growth of 2.5 or 3% is not enough as it will keep Croatia at the bottom of the EU for a long time, he added.

Zagreb Faculty of Economics professor Marijana Ivanov, one of the book's consulting editors, said one of its messages was that Croatia must be the one governing change. It transpires from the book that, although we have officially come out of the crisis, we are still standing still, she added.

Drago Jakovčević, another Zagreb Faculty of Economics professor, said Rohatinski analysed the crisis also through the people most affected by it, first and foremost those who lost their jobs.

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

Wednesday, 20 March 2019

Croatia's Paradox: Work But No Workers, Workers But No Work

The Republic of Croatia is in a group of four European Union member states with a lower uncovered demand for workers when compared to one year earlier. The Croatian paradox of staff fighting over workers who either don't exist or don't want to work, while would-be staff complain about there being no jobs continues.

As Ana Blaskovic/Poslovni Dnevnik writes on the 19th of March, 2019, the workforce problem is rapidly becoming one of the most burning issues not only here in Croatia but across the European Union. In the last quarter of last year, Croatia ranked among the four EU member states with a lower uncovered demand for workers than was recorded during the same period last year, Eurostat figures show.

At the Union level, as well as at its very core in which the euro currency wains, the rate of vacancies grew to 2.3 percent during the fourth quarter of 2018. Just for comparison, this rate, which shows uncovered demand for labour, was 2.1 percent in the previous quarter, and 2.2 percent in the Eurozone.

The availability of labour in the last year has become the top theme for domestic employers. While a few years ago this issue was only mentioned from time to time, in the last surveys answered by business owners, it emerged at the very top of the list. In Poslovni Dnevnik's recent interview with AmCham, Andrea Doko Jelušić pointed out that when the last survey was taken, their members underlined this topic as the main constraining factor in 2018, while back in 2017, it was placed on the list for the first time ever.

Reflecting on the workforce as an inevitable issue of the competitiveness of the domestic economy, CNB/HNB Governor Boris Vujčić said on Monday that Croatia is specific in the EU because as many as 40 percent of working-age citizens don't work. "When looking at the employment rate, Croatia is the second worst in the European Union after Greece, which means that everyone else has to work harder to maintain the same level of living standards," said the governor.

The key to the mobilisation of this population, Vujčić believes, is to evaluate the positive changes in pension regulations which extend the working life. The EU and the Eurozone are currently experiencing the most problems with finding workers in the service sector, with the job vacancy rate standing at 2.6 percent. Industry and construction account for 2.1 percent in the EU, and 2 percent in the Eurozone. In Croatia, the vacancy rate in the fourth quarter fell to 1.4 percent, which was the lowest level in just over a year. The highest jump in labour demand for the same period last year was in the fourth quarter in the Czech Republic, Austria, Malta, and Germany.

Make sure to follow our dedicated business and politics pages for much more.


Click here for the original article by Ana Blaskovic for Poslovni Dnevnik

Tuesday, 26 February 2019

Move towards ERM Membership Likely in Second Quarter

ZAGREB, February 26, 2019 - Croatian National Bank (HNB) Governor Boris Vujčić announced on Monday that a letter of intent for ERM membership (European Exchange Rate Mechanism II) was expected to be sent "some time in the second quarter of this year."

Responding to questions to the press after delivering a lecture on Croatia's prospects of entering the euro area at the Croatian Academy of Sciences and Arts (HAZU), Vujčić said that the letter would certainly not be sent by the end of this month and would most likely be sent "some time in the second quarter".

"In any case, first there will be a report from the European Commission, then we will continue consultations with our partners - the European Central Bank, the Commission and the Eurogroup, and after that we will decide on an exact date," Vujčić said, adding that he hoped Croatia would soon get out of the excessive imbalance procedure, on which the Commission is soon to release a report.

Asked if Croatia could be expected to join the exchange rate mechanism in 2020, the governor said this was a tentative time frame, but he would not speculate about an exact date.

Vujčić said that Croatia "de facto" meets all five nominal convergence criteria, while "de iure" it does not meet one relating to exchange rate stability. He said that the exchange rate stability requirement can be met only within the exchange rate mechanism, and that this is the first key step for entering the mechanism.

On the other hand, there is a range of indicators relating to excessive macroeconomic imbalances, such as public debt, external debt, unemployment rates and labour market participation. "Here we stand much better than we did five years ago because external imbalances have been reduced as a result of the decline in public debt, which right now is three times faster than that required by the EU procedures."

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

Saturday, 16 February 2019

Croatian National Bank to Curb All-Purpose Loans

ZAGREB, February 16, 2019 - The Croatian National Bank (HNB) has been warning since late 2018 about a strong increase in all-purpose personal loans, and in an interview with the Novi List daily of Saturday, Governor Boris Vujčić said the central bank would introduce measures to curb their excessive growth.

HNB statistics show that total household lending in late 2018 was 124.4 billion kuna, 5.5 billion kuna or 4.6% more than at the end of 2017.

With a 38.3% share in total household loans, all-purpose personal loans were 11% up in December 2018 to 47.7 billion kuna. December 2018 was the seventh consecutive month to see a two-digit increase in all-purpose loans.

The HNB said in late 2018 that the high growth of unsecured cash loans with relatively long repayment periods was worrying and that it would have to analyse the situation to see if it required action on its part.

The central bank also warned that all-purpose loans could be obtained very quickly and that clients should therefore be careful not to take loans on impulse.

In the interview with Novi List, Governor Vujčić said that all-purpose personal loans were mostly granted in the national currency kuna, with fixed interest rates, and that therefore risks were much smaller than had been the case with loans pegged to the Swiss franc.

Nonetheless, some parallels can be drawn, he said. "For example, due to the less strict criteria for the assessment of creditworthiness, in some cases banks approve a more expensive all-purpose loan that is less favourable for the client even if they estimate that the client's creditworthiness for a housing loan of the same value and with the same repayment period is poor," said the governor.

He said that this called for harmonising criteria for the assessment of creditworthiness for different types of loans.

"Also, we want banks to include potential losses related to this type of loans in their internal estimates of capital requirements as well as secure clear mechanisms for the return of a part of banker bonuses in case of excessive losses related to all-purpose loans," said Vujčić.

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

Tuesday, 5 February 2019

Croatia's Foreign Debt is Lowest in Last Eleven Years

The trend of the Republic of Croatia's foreign debt falling on an annual basis has been going on since the end of 2015, according to RBA analysts in light of their review of the recently published data of the Croatian National Bank (CNB/HNB).

As Poslovni Dnevnik writes on the 5th of February, 2019, at the end of October last year, Croatia's gross foreign debt amounted to 38.4 billion euro, which is less by as much as 4.1 percent when compared to one year before, meaning that the country's foreign debt fell to its lowest level since back in September 2008, according to a new analysis carried out by Raiffeisenbank Austria (RBA).

RBA pointed out, in addition to the fact that the falling of Croatia's foreign debt has been a trend since 2015, that the fall of this debt in October in particular is the result of a decline in the debt(s) of other financial institutions, which fell by 13.1 percent, as it also did in other similar sectors.

Thus, the gross foreign debt of other Croatian (domestic) sectors dropped to 13.5 billion euro at the end of October, or by 5.3 percent year-on-year, continuing the trend of depreciation dating from January 2016, as was stated on Tuesday.

The gross foreign debt of the state amounted to 13.7 billion euro at the end of October, which was 0.4 percent less than it was one year earlier. The growth of Croatia's gross foreign debt at an annual level was recorded only in direct investments, by 4.4 percent, to 6.3 billion euro.

"We expect the data for the last two months of 2018 to point to the continuation of similar developments, and at the end of 2018, the relative indicator of external borrowing should be below 75 percent of GDP," RBA analysts point out.

They expect that this year's debt to gross domestic product (GDP) will decline, thanks to the growth of the domestic economy and further diversification of all of Croatia's key sectors. "Further reductions in debt in the corporate sector are expected as a result of the discrepancies in the cost of financing on domestic and foreign financial markets," analysts from RBA have stated.

However, a tightening monetary policy and worsening funding conditions in regional and global financial markets could warn of a potentially negative impact.

"[This is particularly concerning] in the case of Croatia's modest progress in the implementation of structural reforms, which leads to an increase in risk perception and, consequently, the risk premium of the country itself," concluded RBA's financial analysts.

Make sure to follow our dedicated business and politics pages for more infromation on Croatia's financial situation, doing business in Croatia, and the overall business and investment climate.

Monday, 4 February 2019

Croatia's Public Debt Decreased by 1.1% in October 2018

ZAGREB, February 4, 2019 - Croatia's public debt at the end of October 2018 was 280.3 billion kuna, which is 3.1 billion or 1.1 percent less than at the same time in the previous year, and could stay below 75 percent at the end of 2018, Raiffeisenbank Austria (RBA) said in an analysis of central bank data on Monday.

Compared with September 2018, public debt shrank by 1.5 billion kuna or 0.5 percent, figures from the Croatian National Bank (HNB) showed.

The annual decrease was due to a fall in both the external and the internal component of public debt. At the end of October 2018, compared with October 2017, the external component declined by 1.9 billion kuna or 1.8 percent to 103.2 billion kuna, while the internal component dropped by 1.1 billion kuna or 0.6 percent to 177.1 billion kuna.

General government guarantees issued on the domestic market reached 6.4 million kuna, of which 2 billion kuna accounted for guarantees for loans issued by the Croatian Bank for Reconstruction and Development (HBOR), while general government guarantees issued on foreign markets stood at 5.3 billion kuna.

On the last day of 2018, enforced state guarantees in the amount of 2.5 billion kuna were paid for Uljanik, which will result in the deterioration of the general government budget balance and affect public debt dynamics, RBA analysts said.

Ultimately, the amount of guarantees settled will be higher given that only a portion of the principal has been paid so far, while interest is yet to be paid. However, trends in fiscal statistics will remain relatively favourable, RBA said.

RBA predicts the public debt to GDP ratio will stay below 75 percent at the end of 2018, down about nine percentage points from its highest level recorded at the end of 2013.

At the end of September 2018, Croatia's public debt amounted to 281.8 billion kuna or 74.5 percent of GDP.

More news on the Croatian economy can be found in the Business section.

Monday, 4 February 2019

More Kuna and Euro Counterfeits Detected in Croatia in 2018

ZAGREB, Feb 4 (Hina) - A total of 499 counterfeit kuna banknotes were detected in Croatia in 2018, which was 97.2% or 246 banknotes more than in 2017, while the number of euro counterfeits increased by 89.5% to 1,488, the Croatian National Bank (HNB) stated on Monday.

A total of 236 counterfeit kuna banknotes were withdrawn from circulation from July to December 2018, and given the average of 258 million kuna banknotes in circulation in the second half of 2018, 0.91 counterfeit kuna banknotes were detected per one million genuine banknotes in circulation in the said period.

In the second half of 2018, most frequently counterfeited domestic currency denomination was a 200-kuna banknote, with 124 counterfeits or 52.5%, and 50- and 500-kuna banknotes, which together accounted for 36.4% of total registered kuna banknote counterfeits, the bank reports.

In the second half of 2018, a total of 285 counterfeit euro banknotes were withdrawn from circulation.

In that period "the largest number of withdrawn counterfeits were 50-euro banknotes (157 banknotes), accounting for 55.1% of the total number of registered counterfeit euro banknotes."

"As regards their number and quality of production, counterfeit banknotes registered in 2018 did not cause any disturbances in the cash operations of specialised institutions and the public or large-scale financial damage," the central bank said.

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

Thursday, 10 January 2019

Euro in Croatia Senseless Without Responsible National Institutions

For some, the mere idea of the introduction of the euro in Croatia is enough to induce passionate debate. For others, the introduction of the single European currency is the next step to leaving the country's tumultuous past behind, and joining the ''ever closer union'' that Eurocrats in Brussels speak so highly of. While the United Kingdom managed to secure a way out of the currency's introduction much earlier, Croatia had to agree to take on the euro in order to join the bloc.

Introducing the euro in Croatia is likely to bring problems as well as solve them, but what use is the adoption of the single currency when many of Croatia's national institutions are in total disarray? Until state institutions can be brought into line, the introduction of the euro and the overhaul that involves will only work to contribute to existing issues, rather than help to solve them.

As Ana Blaskovic/Poslovni Dnevnik writes on the 9th of January, 2019, just over a year after the announcement of the Croatian Government's intention to introduce the euro, encouraged by positive signals from Europe, Croatia will send a letter of intent to enter the exchange rate mechanism (ERM) by the summer. The aforementioned mechanism is known as the ''waiting room" for a country's introduction of the euro as its currency. Although the letter is only the first formal step in the process of replacing the kuna with the formerly problematic single currency, its content is not merely a pleasant yet rather empty formality.

The letter will involve the Croatian Government agreeing on a series of concrete reform moves, in a relatively short period of about a year. "The ball is now in the government's court to make a list of moves that can be completed within a year, within the gauge that they're achievable, easily measurable, and are written in the letter of intent," an interlocutor close to the central bank told Poslovni Dnevnik.

Judging by the Bulgarian version of the letter that Sofia officially sent to a number of European Union addresses at the end of July, the answer to the question of what exactly Andreja Plenković's government could or should put on paper doesn't need great philosophical effort put into it. There is already a list of specific recommendations from Brussels for the Republic of Croatia.

Reforms is a word that everyone in Croatia gets sick of hearing, and this next political move involves a well-known series of infamous reforms, the implementation of which has been largely shifted to ''next year''. The euro in Croatia however, demands certain reforms be met, and sooner rather than later.

For example, there are administration reforms (including those regarding salaries), reforms to the utterly bizarre Croatian justice system, the establishing of a more just system of social benefits and rights, the strengthening of the fiscal framework, and the introduction of property taxes, a controversial idea which Plenković has moved around quite a lot on.

"The European Commission supports member states' efforts to introduce the euro, not only politically, but in also providing the necessary technical assistance and potential financial resources," said Valdis Dombrovskis, adding that Croatia is very serious in its intentions and is working intensively to meet the conditions for its eventual entry into the eurozone. One of the panelists at that conference was the Croatian National Bank's Boris Vujčić, which is also regarded by all as a firm sign of Croatia's support.

"The most difficult thing to do is to enter the ERM II, because there are no clear criteria that a country needs to meet in order to enter the exchange rate mechanism. Once you're in the ERM, the criteria for introducing the euro is clear, although some of it is constantly changing, so you do need a bit of luck on your side in order to be able to fulfil it,'' said Latvia's governer. One thing is certain, unlike the correspondence Croatia has had with the European Commission until now (primarily concerning becoming a member of the EU), the rules for a country's adoption of the euro are much stricter.

Make sure to stay up to date for more information on the intended introduction of the euro in Croatia and much more by following our dedicated politics page.


Click here for the original article by Ana Blaskovic for Poslovni Dnevnik

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.

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