Monday, 3 January 2022

Euro Membership to Better Protect Croatia in Times of Crisis, Says HNB Governor

ZAGREB, 3 Jan 2022 - The membership of the euro area will provide Croatia with better protection in periods of economic crisis, the National Bank (HNB) Governor, Boris Vujčić, told the national broadcaster's (HRT) evening news program on Sunday.

The euro changeover is expected in one year's time, and Governor Vujčić said that a lot of logistical preparations lay ahead.

"We hope that we will enter the euro area in a year's time, and 2022 is the year of preparations," said Vujčić.

The final decision on the date will be known this summer, however, we are making preparations to be ready for the euro changeover on 1 January 2023, he said adding that the central bank, commercial lenders, and the enterprise sector are now due to make preparations for the introduction of the euro.

Dual display of prices

As of this summer, all should be ready to express prices both in the national currency and the euro, said the governor.

He also noted that the country should be ready to provide the market with the euro banknotes and coins upon the transition to that currency.

Asked about the pros and cons of the admission to the euro area, Vujčić said that Croatia would be provided with better protection in the cases of crisis.

The euro adoption will remove the currency exchange risks, and in this segment, Croatia will have the biggest advantages, since its economy is more euroized than any other euro area candidate so far, he explained.

A majority of time savings deposits are tied to the euro, he said adding that for instance, 10% depreciation of the kuna in terms of its exchange rate versus the euro would increase the debt of all the sectors by HRK 50 billion. This is a huge risk that can cause a recession, and our entry into the euro area will remove that risk, he said.

He added that there are currently 36 billion kunas in cash in circulation, and in the next 12 months the money should be either deposited with banks or spent.

The Croatian kuna joined ERM (Exchange Rate Mechanism) II on 10 July 2020 and observes a central rate of 7.53450 to the euro with a standard fluctuation band of ±15%.

Any aspirant for the euro area membership must participate in the mechanism without severe tensions and without devaluing its central rate against the euro for at least two years before it can qualify to adopt the euro. Being part of the Exchange Rate Mechanism is intended to help non-euro-area countries prepare themselves for becoming part of the euro area. It is an important milestone towards adopting the euro.

For more, check out our politics section.

Saturday, 1 January 2022

With Croatian Eurozone Entry Approaching, How Will We Exchange Kuna?

January the 1st, 2022 - Croatian Eurozone entry is rapidly approaching, and if all goes to plan, the kuna will enter into the history books early next year. How will we go about exchanging Croatian kuna for the euro, however? There are slightly different rules for coins and for banknotes.

As Poslovni Dnevnik/Ana Blaskovic writes, if anything in the economic field will mark 2022, it will be all of the hurried final preparations for the introduction of the euro and Croatian Eurozone entry in 2023. The green light for a step towards stronger integration into the European Union (EU) should, apparently, be given in the summer of this year when the exact date of the final transition will be revealed.

Replacing the national currency with the European single one is a massive logistical undertaking for which preparations are underway with the assumption that we will be paying for items in euros from the first day of 2023. Credit and other financial institutions have been in talks with regulators for some time about how to change their IT systems and adjust all of their business processes, a cost that, in the case of banks alone, is estimated to stand between 80m and 100m kuna.

According to the experience of other countries that joined the euro in the past, the central bank expects that when exchanging the kuna for the euro, about 36 percent of the amount of coins in circulation will be returned, ie 1.1 billion pieces of kuna coins and 99 percent of the amount of banknotes, ie more than 500 million pieces of kuna banknotes. Banknotes will be able to be exchanged for euros on a permanent basis, but the deadline for coins will be limited to three years from the introduction of the euro as Croatia's official currency.

The experiences of other European Union countries which are in the Eurozone are diverse. Twenty years after the euro emerged as the single currency, it is estimated that there are still around 8.5 billion euros left in the former national currencies, either under people's mattresses, in old jackets or as souvenirs from the past. The largest amount falls on the unreplaced German marks in which the (recalculated) amount stands at a whopping 6.3 billion euros.

It is followed by the Austrian schilling, which accounts for another 505 million euros, and the Belgian franc, accounting for 428 million euros. In neighbouring Slovenia, for example, the former Slovenian tolars account for 80 million euros, according to Bloomberg.

Part of the reason for nostalgia or forgetfulness probably lies in the fact that some countries have left an unlimited deadline to exchange their currencies, like Germany, at least when it comes to banknotes. Spain, France and Austria, on the other hand, have long since closed the door to such a possibility, leaving any pesetas or francs to become collector's items for those nostalgic about pre-euro Europe.

Croatia already has experience in exchanging currencies. When the kuna was introduced after the stabilisation programme on May the 30th, 1994, it replaced the Croatian dinar as a temporary currency issued by the Ministry of Finance with the signature of the Minister. The CNB exchanged dinars on a regular basis until the end of 1994 and subsequently until the end of June 1995. With this being a memory, it's hoped that Croatian Eurozone entry will also be that bit smoother for a country that has been very much in transition in many respects since the end of the Homeland War.

"Since the replacement of Croatian dinars hasn't been possible since mid-1995, Croatian dinar banknotes have exclusively numismatic value," the central bank said. According to their data, 37 percent of the total printed 513.6 million dinar banknotes remained unchanged, so it will be interesting to see how much kuna will remain nostalgically in pockets, down the sides of sofas, under beds and in varying collections of old and foreign money that many people keep.

"Given the fact that after three years, kuna coins will no longer be able to be exchanged for euros and will no longer play a role as a means of payment, they will be able to be adequately disposed of without any risk of reappearing on the exchange. Therefore, cooperation has been initiated with the Ministry of Defense in finding adequate, supervised and protected space that the Croatian National Bank will lease for the storage of withdrawn kuna coins,'' the CNB said, adding that they expect a lease agreement with the Defense Ministry in regard to that.

In parallel with their withdrawal from circulation, kuna banknotes will be successively destroyed with banknote processing systems that have the ability to totally destroy them. Four months before the introduction of the euro, banks will be supplied with banknotes, and a month later with euro coins. When the countdown begins in the last 30 days, the euro will be ready in the offices of Fina and Croatian Post (Hrvatska posta), and the indirect pre-supply of companies and shops will begin.

On the very day of the introduction of the euro, ie Croatian Eurozone entry, the "big bang" approach will be applied to savings and loans. This means that all kuna savings and deposits on current, savings and other accounts, as well as all loans will become euro loans at a fixed exchange rate free of charge. The key assumption is that any change in interest rates (in the case of variable interest rates) must not be to the detriment of the client, while fixed interest rates will remain the same.

The first two weeks after Croatian Eurozone entry will be a period of double circulation in which cash can be exchanged free of charge at banks, Fina and post offices, and then only at banks for which they will be entitled to charge a fee. A year later, the Croatian kuna will be able to be exchanged for euros only at the Croatian National Bank, free of charge.

Since one of the biggest fears that accompanies the whole saga surrounding the euro is the fear of rising prices, which is no longer insignificant in the face of accelerating inflation, it will be crucial to dual disclose the prices that will last at least one year starting in August. An information campaign will follow in which people will be encouraged to deposit as many kuna coins and banknotes as possible to banks in order to easily convert them to euros at a fixed exchange rate and free of charge on the day of the introduction of the euro.

For more on Croatian Eurozone entry, follow our politics section.

Thursday, 30 December 2021

German Financial Expert Claims Croatia Isn't Ready for Eurozone Entry

December the 30th, 2021 - One German financial expert has claimed that Eurozone entry for Croatia, which is due to take place quite soon, is still premature. Is the country ready for the changes? Apparently not, according to Otmar Issing.

As Poslovni Dnevnik writes, in addition to joining the Schengen area, Croatia's Eurozone entry has been cited as one of the main goals of Croatian foreign policy for years now. This goal should be achieved at the beginning of 2023, for which Croatia has the support of Brussels.

That said, there are some economists such as former European Central Bank (ECB) Executive Board member Otmar Issing of Germany who believe that Eurozone entry for Croatia would be premature, Deutsche Welle reports.

As he said in an interview with the Frankfurter Allgemeine Zeitungu (FAZ), currently no country is ready to join the Eurozone. "At the moment, I can't see any country that is ready enough to join the Eurozone," Issing told FAZ on the occasion of the recent twentieth anniversary of the introduction of the euro into circulation back on January the 1st, 2002, which those of us who grew up in Europe remember so well.

"It can't be said that every new member of the Eurozone necessarily contributes to the weakening of the euro, but these countries must guarantee some lasting stability. It isn't enough to get ready for the wedding and then return back to your old habits once you're married,'' said Issing, who also played the role of ECB chief economist from 1998 to 2006 and was credited with strategically planning the introduction of the euro as the bloc's single currency.

The last EU member state to enter the Eurozone in 2015 was Lithuania, and currently Bulgaria is also aiming to join. In fact, according to the membership agreement, all members of the European Union are obliged to accept a common currency when they meet the criteria, the only exceptions to this was the United Kingdom, which kept pound sterling, and Denmark.

Issing believes that the heterogeneity of Eurozone member states and thus different focuses when it comes to interests is already a big problem for the ECB. He believes that the governors of the national central banks should follow a common course and not simply blindly follow national financial policy. Issing also defended the euro against accusations that its introduction has made everything more expensive.

"It can look like that when it comes to purchasing daily necessities, so that's the impression people have. But when we look at spending which occurs in regard to most of the household budget, such as rent or heating costs, those costs have remained stable even after the introduction of the euro,'' Issing told FAZ.

Issing, who previously held the same position at the German central bank before taking office at the ECB, said the decision to print non-national symbols on euro banknotes at the time was a decision that proved correct in the end.

“Imagine if the French wanted to put Napoleon on their banknotes. How would the countries who were occupied by Napoleon react to this? That's why we decided on the symbolic motif of the bridges,'' Issing concluded.

For more, check out our politics section.

Tuesday, 14 December 2021

Plenković: 2022 Essential Because of Accession to Schengen and Euro Area

ZAGREB, 14 Dec 2021 - Next year is very important because we expect a final decision on Croatia's accession to the Schengen and euro areas, Prime Minister Andrej Plenković said on Tuesday, recalling that Croatia has access to about €25 billion from European sources for this decade.

Addressing a launch conference for the Croatian-language special annual edition of the global magazine The Economist, Plenković said that Croatia has about €25 billion at its disposal for this decade, including regular funds from the seven-year European budget, funds from the NextGenerationEU, and about one billion euro for reconstruction following last year's devastating earthquakes.

"That is more than we have ever had....and these are mostly grants," he underscored.

This year's conference dealt with the transformation of the Croatian economy through the National Recovery and Resilience Plan (NPOO) 2021-2026 as the basis for the absorption of funds from the NextGenerationEU mechanism, under which Croatia has access to €6.3 billion in grants and another €3.6 billion in favorable loans.

The NPOO has been approved by the European Commission and Council, Croatia has already received an advance payment of HRK 6.14 billion, and in the first half of 2022 it will receive a new tranche, Plenković said, adding that there are some EU countries that have not yet even delivered their national plans.

The NPOO is the reform basis and financing basis for economic growth and is forecast to increase Croatia's GDP in 2022 and 2023 by 1.4 percentage points.

Economy proved to be exceptionally tough

Plenković said that the national economy showed exceptional strength, agility, and resilience, particularly since the tourism season was beyond all expectations. He also mentioned growth in personal consumption and economic growth which is expected to exceed nine percent, which is more than the eight percent drop in GDP last year.

The most important thing is that Croatia has maintained its image among international organizations, financial institutions, markets, and credit rating agencies, he noted.

"Anyone who is following us sees our credibility and the direction of our actions," said Plenković and highlighted that the direction is based on a speedy return on the path to decreasing public debt and a balanced budget, which cannot be expected this year or next.

He recalled that the Fitch agency has upgraded Croatia's credit rating to its highest level since rating agencies have appraised Croatia.

"This is the framework with which Croatia is entering 2022, which should be very significant institutionally because we expect a final decision on accession to the Schengen and euro areas," said Plenković.

He emphasized the importance of political stability, noting that the period from 2021 to 2028 will have just one intensive period of about 12 months of electioneering.

Government faced unbelievable challenges last year

Speaking of last year, Plenković said that all governments faced an unbelievable challenge as a consequence of coronavirus and had to find solutions to enable normal functioning and economic trends.

That led to a decline in all trends and weaker economic activities, but the government managed to overcome that and it does not regret the expenditure due to the coronavirus crisis which has exceeded HRK 40 billion.

"We have no regrets because we did not see any mass layoffs or bankruptcies," the PM underscored, recalling government support for wages in the private sector among other measures.

Challenges of climate change and demographic revitalization

Globally, the pandemic is still continuing and no one can know when it will end and what new variants we will meet, or what measures we will have to take. However, we will do everything we can to protect the health of citizens while ensuring economic, financial, and social flows, he said.

Everyone has had to learn how to balance - governments, companies, educational institutions, and international institutions, he said.

In the global context, Plenković reflected on relations between the USA and China, the need to strengthen the EU's strategic autonomy in all possible aspects, relations with Russia in the context of Europe's stability, and the issues of migration, climate change, and demographic revitalization.

Polarisation in society during the coronavirus crisis

Plenković said that the coronavirus crisis has led to an exceptional polarisation in the social and political environment, both in Croatia and in the world.

He highlighted the impact of the Internet, social networks, and false information that deceives people, which is why they do not trust institutions, public health, and science.

The latest edition of The Economist was presented by Ivan Vrdoljak from the Livit company. The edition is published in Croatian and provides analyses and forecasts for next year.

Vrdoljak said that The Economist was wrong in its projection of Croatian growth for this year due to unexpectedly fast recovery.

The Economist has forecast growth of 4.7% whereas the government expects growth of about 9%. The Economist projected next year's Croatian GDP growth at 4.1% and inflation at 1.7%, added  Vrdoljak.

For more, check out our dedicated politics section.

Friday, 10 December 2021

Marić: Croatia's Eurozone Entry to Benefit Economy and Households

ZAGREB, 10 Dec 2021 - There is a strong consensus that accession to the euro area will benefit the Croatian economy and households, Finance Minister Zdravko Marić told reporters in the northern Adriatic resort town of Rovinj on Friday after a conference on this subject organised by the Večernji List newspaper and Istria County. 

That's why Croatia should do all that is necessary to reduce and minimise any negative risks, such as inflation, and take advantage of positive effects, which outnumber negative ones, for the benefit of its economy and citizens, Marić said.

"Over the past few months we have been witnessing price increases, but they have nothing to do with our eurozone entry. That's a global issue caused by disruptions to supply chains and increases in prices of energy and resources," he added.

Noting that inflation was the biggest risk on Croatia's path to eurozone membership, Marić cited statistics showing that inflation had been around 4% in the past several months and around 2.5% for the whole of this year, which puts Croatia "slightly below the EU average."

Croatian National Bank Governor Boris Vujčić said that Croatia was the country that would profit the most from eurozone membership.

"One of the benefits of joining the European monetary union is the reduction of foreign exchange risk, which is biggest in Croatia among all EU countries that have not yet adopted the euro. We have a very high level of euroisation. Most of the debt of all sectors in Croatia, including households, companies and government, is tied to the euro. In kuna, it amounts to over HRK 520 billion, which means that 75% of the debt of all sectors is either in euro or indexed to the euro," Vujčić said.

He added that with entry into the euro area interest rates would start to fall, the sovereign credit rating would increase and Croatia would become more attractive to tourism and investment.

For more on politics, follow TCN's dedicated page.

Saturday, 30 October 2021

Euro Introduction Referendum: 157 Thousand Signatures Collected in Zagreb

October 30, 2021 - Croatian authorities such as the President, the PM, the FinMin and the HNB have recently commented on the process of euro introduction. Meanwhile, a collection of signatures is being carried out throughout the country to promote a euro introduction referendum to reaffirm the kuna as the official currency in Croatia.

Marko Milanović Litre, Member of Parliament of the Croatian Sovereignists and a representative of the Organizing Committee of the euro introduction referendum initiative Let's Protect the Croatian Kuna, said in Zagreb today that 157,000 signatures had been collected in five days and that the organizers were satisfied with the collection dynamics, reports Index.hr.

The initiative for the euro introduction referendum was launched by the Croatian Sovereignists, the Croatian Party of Rights, the Independent for Croatia, and the Generation of Renewal, and by November 7 they should collect 368,867 valid signatures of citizens. 

Signatures are collected at 250 locations throughout the country, and citizens thus declare whether they are in favor of the provision in the Constitution that the currency of the Republic of Croatia is the kuna, which is divided into one hundred lipa, and that the decision to change the currency is made by voters in a referendum.

"In the first five days, thanks to our volunteers, members of the Croatian Party of Rights, and Croatian Sovereignists, we managed to collect 157,000 signatures by 5 pm yesterday'', Milanović Litre told a news conference at the place where signatures are collected in Zagreb's central square.

He expressed satisfaction with the dynamics of collecting signatures.

"At the moment, we are satisfied with the dynamics of collecting signatures, especially after the first day and the media presence we received. It is much clearer to people what we stand for and what our goal is with this referendum initiative, which is greater democracy in Croatia", Milanović Litre said.

He assessed that the ruling party is ignorant of their initiative and stated that Croatia has the right to decide at what point it will accept the euro.

"They can repeat their mantras that it has already been decided in a referendum on joining the EU, which is not true. That is half the truth. Croatia has the right to decide when to adopt the euro. It must not be a decree of one person and his interests, but the decision of the Croatian people to decide on their own destiny", Milanović Litre said, among other things.

"We will fight for the kuna to remain because we are currently in the biggest economic crisis in human history and we cannot rush into a new monetary union that will have its own interests'', said Croatian Sovereign MP Milanović Litre.

For more, check out our politics section.

Thursday, 28 October 2021

President: Euro Adoption Will Have More Pluses Than Minuses for Croatia

ZAGREB, 28 Oct 2021 - President Zoran Milanović said on Wednesday that Croatia would have more benefits than disadvantages from the euro adoption and that Malta could help Zagreb with its experience in the euro area.

Malta has been in the euro area since 1 January 2008, and today when Milanović met with his Maltese counterpart George Vella, he said that he believes that country can help Croatia with its experience.

"This is a country which has been inside for a long time, it has the experience and that experience is good," said Milanović and added that the Maltese economy is "exposed to the services sector and in particular to tourism," and has several common points with Croatia's economy.

"Our economy, unfortunately, or luckily, or just as a point - is not exceptionally export-orientated. We are a service-based economy and that is one of the reasons why I think the euro would be better for Croatia than it would be worse," said Milanović.

The president underscored that introducing the euro "isn't pittance" and that "it seems we will relinquish our national currency forever."

"That is not done with an excited heart, but with a sober head."

Milanović asked Malta to support Croatia, as the youngest EU member state, and its accession to the Schengen Area and criticized the Union for "procrastination and delay."

Romania and Bulgaria have been members of the EU since 2007 and are still waiting for a green light to access that area.

The time has already ripened for them to join the Schengen Area, however, political mainstream in the largest countries simply have a problem, which I understand, and that is the problem of right-wing voters hence they need "to tread on eggs cautiously," as the saying goes, he said.

For more, check out our politics section.

Wednesday, 27 October 2021

HNB Governor Says in 2022 Exact Date for Switching to Euro Will Be Defined

ZAGREB, 27 Oct 2021 - Croatian National Bank (HNB) Governor Boris Vujčić said on Wednesday that next year Croatia would know the exact date for its changeover to the euro, adding that a strong campaign will be conducted in 2022 to inform the public of all the details.

Addressing a conference on what switching to the euro would mean for SMEs, which was organized by the 24 Sata daily, Vujčić underscored that Croatia has set a date for the introduction of the euro currency, but next year only will we know the exact date of the euro changeover.

If that is to be 1 January 2023, we have only 14 months for preparations, he said.

A law will be passed precisely regulating the changeover from the kuna to the euro, and the main principle will be to protect consumers so they are not brought into a worse position than they were prior to the conversion.

"The experience in all the countries that have entered the euro area indicate that wages increased more than prices while the standard of living increased and that is why the support for the euro in those countries is very high," he underscored. In other transition countries where the euro was introduced, the support is about 80% which Vujčić believes is proof that the fear of declining living standards is unreasonable.

Dual display of prices

The governor said that in the countries that adopted the euro the practice of dual display of prices was useful.

The dual display will also cover wages and not only prices, he also explained.

The logistics of exchanging the currencies have been worked on for a year and a half already, he said.

Payments will continue in both currencies for the next two weeks after the euro is introduced, explained Vujčić.

Finance Minister Zdrako Marić also underscored that based on current forecasts, the earliest the euro could be introduced is 1 January 2023.

He explained that prices in both currencies will be shown on articles five months prior to introducing the euro and for 1 year after its introduction. Marić believes that legislation related to the euro should be adopted in the spring of next year.

The president of the Croatian Chamber of Crafts and Trades (HOK), Dragutin Ranogajec, expects problems to occur during the 14 day period of payments in both currencies with regard to accounting and fiscalisation.

For more, check out our politics section.

Wednesday, 27 October 2021

MPs Talk Online Classes, Euro Referendum, Serb Rights in Vukovar

ZAGREB, 27 Oct 2021 - Social Democratic Party MP Sabina Glasovac said on Wednesday the measures against the spread of COVID-19 were inconsistent and illogical, calling out Prime Minister Andrej Plenković for deciding to close schools without explanation.

"We still don't know on what basis the measures are being adopted. Is it based on the number of new infections or those hospitalised? Or those who end up on ventilators? Or based on the number of deaths?" Glasovac said in parliament.

Euro referendum

Hrvoje Zekanović of the Croatian Sovereignists called on MPs to sign today a petition for a referendum on the introduction of the euro.

"It's time we say that we stand by the people, that we are not politicians but activists," he said, adding that the will of the people was more important than protecting the national currency and that "the people must decide on key matters."

Jeckov: Fight against Serbs is the basis of politics in Vukovar

Dragana Jeckov of the Independent Democratic Serb Party criticized a conclusion of the Vukovar City Council on the need to expand the rights of ethnic Serbs.

She said that every year the conclusion stated that the degree of tolerance between Croats and Serbs "has not progressed and that conditions have not been created for expanding the rights."

"This year, that justification sounds bad, which is that we must wait for the data of the population census to see exactly how many Serbs live in Vukovar," Jeckov added.

As long as the current city administration remains in power, the conditions to expand Serbs' rights will not be met because collective guilt is ascribed also to those born in 1997, 2007, and 2017, she said.

"The fight against Serbs and presenting Serbs as scapegoats are the basis of politics in Vukovar," Jeckov said, adding that Serbs only wanted what they were entitled to under the law and the constitution.

She said the city leaders continue to stigmatize Serbs. "They make the treatment of Serbs a measure of their own patriotism in order to be recognized as the only true patriots because they are always and strictly against anything Serb. Serbs are a threat to all in Vukovar, except during local elections when good and suitable Serbs are put on slates and then those same Serbs vote that there are no conditions to expand Serb rights in Vukovar."

Jeckov said it was not only about Cyrillic signs on public buildings but also proportionate representation and the rights to education and housing. "I am much more worried that the climate was better in 1997," she added.

For more, check out our politics section.

Saturday, 23 October 2021

Finance Minister Zdravko Maric Talks Rebalances, Projections, Eurozone

October the 23rd, 2021 - Finance Minister Zdravko Maric has spoken out about rebalances, projections for the future, stability and of course, the topic on the lips of most - Croatian Eurozone entry, which is edging ever closer.

As Poslovni Dnevnik/Ana Blaskovic writes, at the end of this year or at the very beginning of 2022, the situation in the Republic of Croatia should return to pre-crisis levels. This is of course good news for the domestic economy with the perspective of Eurozone entry in 2023, but this generally optimistic picture is still being threatened by numerous risks, from poor vaccination levels to so-called ''bubbles'' on the Croatian real estate market. These matters could be heard being discussed at the conference of the Zagreb Stock Exchange and pension funds entitled "The Challenge of Change/Izazov promjene".

Finance Minister Zdravko Maric announced that he would step out next week with a rebalance and a few new projections.

"At the end of this year, or at the beginning of next year, we should reach pre-pandemic figures," he assured. The Croatian Government will also refresh its fiscal expectations for the next three years, which will be marked by the implementation of the National Recovery and Resilience Plan, the effects of which should boost GDP by 1.5 percentage points on average.

818 million euros have been pumped into Croatia so far, and the new cash injections will depend on the fulfillment of 34 different criteria by the end of the year. If they're met, the government will submit a report to the European Commission (EC) in January or February, and then "we can expect a new payment in May or June."

In terms of Eurozone accession, Finance Minister Zdravko Maric says, everything is currently going according to plan. Interest rates and the exchange rate aren't in question, but inflation is a new fear. "Inflation is a priority for us because of society, the economy and of course because of people, but we should also look at it through Maastricht, even though Croatia is at the EU average. According to these projections, we should satisfy that as well. The real date of joining the Eurozone is 2023, I see no reason as to why we won't manage to meet the criteria,'' said Maric.

The introduction of the euro as Croatia's official currency could reduce the risk premium by two levels and thus partially amortise the possible growth of interest rates, which has been a current topic lately.

Croatian National Bank (CNB) Governor Boris Vujcic, on the other hand, expects a quick recovery "in the shape of the letter V", for 2021 in the form of GDP growth of 8.5 percent, and then of 4.1 percent. He noted that inflation is a consequence of supply disruptions, making it somewhat difficult for ordinary monetary tools to address it.

"Raising the reference interest rates over the next two years isn't going to significantly affect the price of oil and gas, which make up half of inflation," said Vujcic. He underlined that the current figures (3.5 percent in September, op.a.) are historically low, but that we have become accustomed to a long period of low inflation, which has in fact been too low.

"This year we expect an inflation rate of 2.3 percent, which isn't worrying, it's actually very close to the goal of monetary policy and it will calm down slightly next year,'' he assured.

Risks in the macro environment...

In addition to energy, the CNB sees numerous risks in the macro environment in the form of the slower cleaning of the market from bad companies and the creation of a real estate bubble, among other things. Prices are also being pushed by foreigners buying properties, especially on the coast.

“The availability of property has started to deteriorate, loan installments in relation to disposable income are slowly growing. "If this trend continues, property purchasing becomes inaccessible to a part of the population with lower incomes, and this should be kept in mind because it's now also becoming a political problem," the governor warned.

Assessing the risks to financial stability, Hanfa's Ante Zigman briefly summed it up by saying that "it isn't exactly great, but it isn't terrible either".

“We’re not too worried about it all, but we’re on guard,” he said. In the second quarter, the risks were somewhat reduced, and for the third, in which inflation returned to the scene, there is no data to be looked into yet. There are a range of risks present; from investment concentration, labour market issues to, once again, the issue of real estate.

"Currently, there are high risks of valuation, the question is whether or not we have an overheated market. The risk of things falling due to high valuations is very possible ", warned the head of Hanfa. Labour Minister Josip Aladrovic out that there is reason for optimism at the end of the global coronavirus pandemic.

"We've never had closer cooperation between politics and economics. The government acted in a timely and adequate manner, we can say that we saved the economy. We're now going into the job creation phase,'' he said, announcing that a very important role is played by pension funds that manage 130 billion kuna.

“They need to invest in long-term sustainable investments, which will create pensions and increase them in the future. It's up to us to redefine the regulations in the direction of the diversification of investments and goals, which we'll do in the short term and in cooperation with those pension funds,'' he concluded.

For more, follow our politics section.

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