Thursday, 3 September 2020

HNB Governor Says Introducing Euro on 1 Jan 2023 Feasible

ZAGREB, September 3, 2020 - Croatian National Bank (HNB) governor Boris Vujcic said on Thursday that although the coronavirus pandemic strongly affected Croatia's economy and public finances, the introduction of the euro on 1 January 2023 was feasible.

Speaking at a conference on the Croatian monetary market in Opatija, Vujcic estimated that GDP would drop 10% this year and increase 6% next year.

"We expect the economy to recover quickly," he said, adding that it was important to meet the remaining Maastricht criteria and carry out the reforms Croatia committed to in the application to enter European Exchange Rate Mechanism (ERM II).

Vujcic said a dynamic economic recovery and maintaining fiscal indicators within the reference framework as of next year were crucial for introducing the euro.

The National Plan for replacing the kuna with the euro is being completed so that we are prepared to introduce the euro on the first day of 2023 and this project, done in cooperation with the government, will be presented soon, while adoption and implementation are expected in the autumn, he said.

The National Plan will regulate the practical steps of introducing the euro as well as inform citizens about it, Vujcic said, recalling that polls showed that sceptical citizens mostly feared that their living standards would decline and prices increase.

It is expected that the Council of the EU will establish in July 2022 that Croatia meets all the requirements, he said, adding that Croatia committed to effect by March 2022 additional reforms to strengthen the fight against money laundering, reduce the administrative and financial burden on the economy, improve management in state companies and strengthen the national bankruptcy framework.

Croatia has been meeting all nominal convergence criteria since 2016 but the pandemic crisis will temporarily obstruct the meeting of fiscal criteria, Vujcic said.

The impact of the epidemic on this year's economy is very strong but real GDP is expected to significantly increase in 2021 after a strong contraction this year, he said, adding that inflation and long term interest rates are very low and that such trends are expected to continue.

The governor said the central bank would continue to implement a stable exchange rate policy, keeping the kuna-euro exchange rate close to the central parity during the ERM II period.

Croatia entered ERM II on July 10 and the central parity was set as HRK 7.53450 for one euro, which was the exchange rate on that day.

Vujcic said HNB and Central European Bank analyses confirmed that the exchange rate was neither undervalued nor overvalued.

The criteria for introducing the euro are clear, no more discretionary decision making nor unwritten rules to which we were exposed before entering ERM II. The pace of the process is only up to us. We have to carry out the reforms we committed to after entering ERM II, spend at least two years in ERM II and meet the Maastricht convergence criteria, Vujcic said.

 

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Thursday, 27 February 2020

Almost Half the Measures to Join ERM II Fulfilled

ZAGREB, February 27, 2020 - Finance Minister Zdravko Marić said on Wednesday that Croatia has fulfilled almost half of the 19 measures in six different categories required to adopt the euro and join the Exchange Rate Mechanism (ERM II).

Early in July 2019 Croatia sent a letter of intent to join ERM II, along with an action plan containing reform measures that need to be implemented by May this year when the European Central Bank (ECB) is expected to deliver its decision on Croatia joining the banking union, i.e. on establishing close cooperation with the Croatian National Bank (HNB).

The fourth meeting of the National Council for the Adoption of the Euro as legal tender in Croatia was held on Wednesday. Speaking to the press the meeting, Marić said that currently almost half of the 19 measures in 6 different areas that Croatia committed to have been fulfilled. Six have been met entirely, three partially and the remaining nine are underway. He expects that all the remaining measures will have been fulfilled before the end of Croatia's presidency of the EU, or even earlier.

After that, depending on the results of the analysis of the quality of the portfolio, further talks will be held with European institutions regarding the next steps in the ERM II process, added Marić.

The measures implemented include the law on credit institutions, rules on the register of beneficial owners, amendments to the law on institutions, the law on the rights and duties of state officials, and so on. Among the laws that still need to be adopted are those relating to unassessed construction land, which is currently in procedure, and tenders for the sale of shares in about 90 state-owned companies.

HNB Governor Boris Vujčić said that the quality of Croatian banks was being examined as one of the conditions for the ECB's decision on close cooperation and Croatia's admission to the banking union.

He said that so far five Croatian banks selected by the ECB had been subjected to a stress test, and an examination of the quality of bank assets was now underway and should be completed soon, said Vujčić.

According to a government press release, Prime Minister Andrej Plenković said that adoption of the euro as legal tender and joining the Schengen area were the two objectives of Croatia's deeper integration with the European Union.

Meeting the criteria for the adoption of the euro as well as for macroeconomic and fiscal stability is one of Croatia's key objectives, he underscored.

"In 2017, during the term of this government, Croatia exited the excessive deficit procedure and last year we were assessed as no longer recording macroeconomic imbalances," he said and added that Croatia used this status and sent a letter of intent to join ERM II, which precedes the introduction of the euro.

Plenković said that Croatia is the smallest EU member state that is currently not in the euro area.

About 61% of loans in Croatia are foreign currency loans or those pegged to a foreign currency and 51% of deposits are in euro or in kuna indexed to the euro.

"The message is that Croatia is already a highly euroised country," added Plenković.

About 56% of Croatia's commodity exports go to euro-area countries and 66% of spending by foreign tourists is generated by those from countries in the euro area, he said.

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

Saturday, 28 December 2019

Croatian Politics 2019: A Year in Review

What follows is a review of events in Croatian politics in 2019, as reported by TCN. If you would like to refresh your memory about the events which has led us here, read the reviews for the three previous years (2016, 2017, 2018).

The year started with a high-profile failure by the government. Months after it was announced that Croatia would buy used Israeli F-16 fighter planes, the US government vetoed the sale and the whole project fell through. Despite earlier warnings from experts that the deal was in question, ministers continued to claim that everything was alight. However, after a meeting between high-ranking officials from the United States and Israel, the truth was revealed. Ministers lost their nerves and the government launched an immediate investigation, which expectedly ended without any real results, and also announced that it would re-start the process. To show its level of seriousness, it even established a commission! Twelve months later, the process of deciding which aircraft to buy still hasn't move any further on and is not expected to end for at least another year.

The migrant crisis continued to be in the news this year. The inflow of migrants over the borders with Bosnia and Herzegovina and Serbia increased somewhat, together with media coverage about alleged brutality of Croatian police and illegal pushbacks of migrants to Bosnia. The authorities were quick to deny everything, but the sheer number of documented cases makes it apparent that at least some of the allegations are founded.

Efforts to limit media freedoms continued this year and some reporters were even briefly arrested. Journalists, NGOs and international organisations stood up to these attempts, but the final score is still unknown.

Repression continued in other ways as well, with courts ruling that peaceful protesters should go to prison, Croatia's human rights situation being criticised from abroad, ethnically-motivated assaults (several of them) taking place, ombudswomen’s warnings not being heard, journalists receiving instructions from the president on what to do, and diplomats spreading hate...

Historical revisionism was in full force once again this year. As a result, representatives of Jews, Serbs and anti-fascist organisations once again boycotted the government’s annual commemoration at the site of the Jasenovac concentration camp.

European elections were held in May (with even Pamela Anderson giving recommendations to Croatian voters). While the ruling HDZ party had high hopes earlier in the year (and was supported by German Chancellor Angela Merkel, who attended one of its rather controversial rallies in Zagreb), the actual results were much tighter and were interpreted by everyone as a success for the opposition (particularly SDP) and a disappointment for the government.

June brought us a few days of excitement when it seemed possible that prime minister Plenković might just succeed in his life-long dream of getting a top EU job. Despite denying he ever wanted such a thing, he was rumoured to be trying to become president of the European Commission (or president of the European Council, or perhaps something else). In the end, he had to return to Croatia empty handed, again denying his alleged attempts.

Unlike Plenković, foreign minister Marija Pejčinović-Burić was more successful in the area of career development. In June, she was elected secretary-general of the Council of Europe. She promptly resigned her post in Croatia and has not been heard about since. Another happy politician is Dubravka Šuica, who has been appointed Croatia’s commissioner in the European Commission.

Mostly good economic news continued. Public debt is at its lowest level in decades, the European Commission concluded that Croatia no longer suffered from excessive economic imbalances, and GDP growth is holding up.

One of the companies which was in the public focus this year was Croatia Airlines, Croatia’s national flag carrier. Its business results were dismal and the search for possible strategic partners was on, but without any real results. The government eventually decided to cover some of the debts, but as the year comes to and end, there is no long-term solution in sight. In the meantime, Zagreb Airport continues to lose airlines using its services.

The construction of an LNG terminal on the island of Krk has apparently started out with strong support from the US government, after many years of delays and announcements. The project is funded from the state budget, since there was no interest among anyone to actually use the terminal. The government claims that there will be interest once the terminal is built, but it would not be the first major government-funded project in Croatia’s history to fail to deliver on its promises.

The construction of Pelješac bridge continues to go at an even faster pace than expected (despite occasional Bosnian protests), mostly thanks to the efforts by the Chinese construction company which won the tender, which also brought about a marked improvement in the relations between Croatia and China. Unfortunately, the construction of the access roads leading up to the bridge has not progressed nearly as fast, with tenders being decided just several months ago. It is quite possible that, when the bridge is built, it will be unusable for a while because there will be no roads leading to it.

Emigration continues amid Croatia's demographic crisis, although somewhat slower than in previous years, probably as a result of the fact that most of those who could have left have already done so. The authorities talk about demographic revival, but nothing much has happened so far.

Political scandals were as numerous as ever. The regional development minister had an accident while driving without a driving license, the agriculture minister forgot to list all his assets on an official statement, the administration minister had his own scandals which were too numerous even to count, and the state assets minister had problems of his own. The Prime minister strongly supported his ministers before some of them resigned, and then he changed his mind and dismissed the rest of them.

The ruling coalition remained stable this year, despite occasional rumours of impending collapse. Ultimatums were rejected, resignations demanded, talks announced, decisions to stay in coalition made, threats given... Just the usual stuff.

As expected, the border dispute between Croatia and Slovenia has not been resolved this year. Slovenia was disappointed with the EU’s decision not to get involved in a dispute between its two members. The chances that this issue will feature in our review for 2020 are quite high.

In October, the European Commission announced that Croatia has fulfilled all the technical conditions to join the Schengen area. However, the final decision will require the unanimous support of all EU member states, and Slovenia does not seem ready to give its approval until the border dispute with Croatia is resolved. 

Another major project is the introduction of euro in Croatia. After a lot of talk, the government has finally sent an official request. The process will certainly take years and opinion is divided as to whether it is a good idea or not.

One of the highlights were the trade union's activities. Earlier in the year, the unions managed to collect enough signatures for a referendum against the government’s pension reform and an increase in the retirement age. The government capitulated and revoked already approved laws (although it previously warned that such a decision would be a disaster).

The other major trade union success was the primary and secondary school strike later in the year. After almost two months, the government capitulated and gave the unions more or less everything they had asked for.

One of the highlights of the next six months will be Croatia’s EU presidency. The government is promoting it as a great success, although all EU member states sooner or later get their chance to hold the rotating presidency. While Croatia's plans are ambitious, their delivery will probably be more modest.

The major event at the end of the year was the first round of Croatia's presidential elections.

While the post is largely ceremonial, elections are held every five years and still manage to occupy public attention for months. Three major candidates launched their bids: incumbent president Kolinda Grabar-Kitarović (officially an independent candidate who in reality is HDZ), former SDP prime minister Zoran Milanović, and singer Miroslav Škoro, who presented himself as a candidate of change, despite having been an MP, a diplomat and a former HDZ member.

The first round was held on December 22. Zoran Milanović won with 29.6% of the vote, followed by Kolinda Grabar-Kitarović with 26.7%. Škoro was third with 24.5%. Milanović and Grabar-Kitarović will take part in the run-off on January 5.

Tuesday, 17 December 2019

Cross-Border Payments in Euro Get Cheaper in Non-Eurozone Member States

ZAGREB, December 17, 2019 - According to new European Union rules on cross-border payments, which went into force on Monday, fees for cross-border payments in euro in non-eurozone countries will be the same as fees charged for domestic transactions.

"These rules will allow all our citizens and companies to equally benefit from cheap cross-border euro payments. This is a positive and concrete example of how the Single Market can bring real benefits to European consumers," European Commission Executive Vice-President Valdis Dombrovskis said.

"For instance, a family in Romania that wants to send money in euro to their child doing an Erasmus exchange in Paris will no longer have to factor in additional costs, as they will now be paying the same fee as for a domestic transaction in Romania," he added.

"As of today, consumers and businesses in non-eurozone Member States will enjoy cheaper cross-border payments in euro. New EU rules will ensure that all cross-border payments in euro in non-eurozone Member States - Bulgaria, Croatia, Czechia, Denmark, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, Sweden, United Kingdom - will be priced the same as domestic payments," the European Commission said in a press release.

The Commission said it would closely monitor the application of these rules, and would liaise closely with competent national authorities to ensure that they were implemented correctly.

More news about Croatia and the EU can be found in the Politics section.

Saturday, 14 December 2019

"Croatia Should Think Twice Before Introducing Euro"

ZAGREB, December 14, 2019 - The Social Democratic Party's presidential candidate, Zoran Milanović, said in Ogulin on Friday that Croatia should think carefully before introducing the euro because if it does it, it will lose its national currency for good "and the kuna is what it is, but it is ours."

"Several countries that have been members of the EU for quite some time have not joined the euro area - the Czech Republic, Poland and Hungary. A housing loan in Greece, which has introduced the euro, is more expensive than at Zagrebačka Banka, where housing loans are more expensive than in Italy. So there are no right and unquestionable arguments about the introduction of the euro being the right thing to do," he said.

Milanović also commented on insulting posters against him that he saw pinned to trees in Ogulin.

"I know what the message behind them is because there are people of Serb ethnicity here who have the same surname as I do ... those are messages of intimidation. People (responsible for that) have been trading in fear for more than 20 years. They idolise a Communist general, Tito's general, who was their leader, and they keep saying those senseless things," Milanović said, accusing the ruling HDZ party of being behind the posters.

"That is not a normal Croatia," he said, adding that the government was dealing with unimportant things and that other countries were outperforming Croatia in all areas.

He also spoke critically about the judicial system, saying that "thieves are not sentenced because of the expiry of the statute of limitations and lack of evidence, which is insulting."

He also noted that health care could not be free but that it had to be available.

Calling on citizens to go to the polls on December 22, he said that since the start of his political career he had never enjoyed any preferential treatment and that he did not want anything for Croatia but to be a normal country "while the philosophy of the right, particularly the HDZ's right, is a philosophy of proscription and social domination."

Such an attitude "leads to rebellion and dissatisfaction, wars start when you treat people as second-class citizens, when you vilify entire nations or groups, which is what the HDZ does," said Milanović.

More news about presidential elections can be found in the Politics section.

Saturday, 23 November 2019

Croatia Could Enter ERM II in Second Half of 2020

ZAGREB, November 23, 2019 - If it implements the measures it is obliged to implement, Croatia could enter the European Exchange Rate Mechanism (ERM II) in the second half of 2020, European Commissioner for the Euro and Social Dialogue Valdis Dombrovskis told the conference "Future of the euro area as a currency union - Croatia on the path to the euro" on Friday.

The conference was organised by the Croatian Statehood Foundation, the Hanns Seidel Foundation and the Wilfried Martens Centre for European Studies.

Croatia needs to fulfil 19 measures in six various areas which it undertook to do in a letter of intent for membership of ERM II and the banking union. These measures are related to strengthening the capacity of the national statistics office, improving the business environment, state assets management, strengthening foundations for economic growth, etc.

Dombrovskis addressed the conference via video link and said that the efficient implementation of the measures and obligations was essential and that if it occurred, Croatia could enter the ERM II in the second half of 2020 already.

Dombrovskis added that joining the eurozone was a huge challenge for Croatia but that those efforts would pay off in terms of greater stability, opportunities and prosperity.

Finance Minister Zdravko Marić said that Croatia's two letters of intent were accompanied with an action plan that sets out all the activities and measures. Two areas related to monetary and fiscal policy have already produced results and now focus is being shifted to structural policies, which includes state assets management and further facilitating business.

Evaluation by European institutions and eurozone members will depend on the quality of the results that the measures produce, Marić said, adding that Croatia would have to be in the ERM II for at least two years during which compliance with the Maastricht criteria would be tested. "If Croatia was in the ERM II today it would meet all five Maastricht criteria," he added.

He recalled that the national economy was highly euroised, noting that removing the currency risk was high on the list of benefits of introducing the euro. As for the negative aspects of accession to the euro area, he cited the fear of price hikes among citizens.

The government has mechanisms to deal with that, such as dual pricing for the period of at least six months prior to and after the introduction of the euro, as well as tax policy measures, notably those regarding VAT, said Marić and noted that the experience so far showed that the lowering of the standard VAT rate did not necessarily result in lower prices.

Croatian National Bank Governor (HNB) Boris Vujčić said that the banking union was established with the aim of protecting taxpayers as much as possible from poor bank policies. That also entails supervision of systemically important European banks by the European Central Bank.

Vujčić added that Croatia's accession to the common system of bank supervision was a precondition for entering the ERM II but that he did not consider it a major benefit in itself considering that Croatia has a very stable banking system, which is much better capitalised than the euro area banking system.

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

Friday, 15 November 2019

Joining Euro Area Would End Croatian Exporters' Agony

ZAGREB, November 15, 2019 - Entering the euro area will mean "the end of the agony" for Croatian exporters as the threat of the kuna gaining will be eliminated and the same rules will apply as in other EU member states, a panel in Šibenik heard on Friday.

The panel on the impact of the introduction of the euro on exports was held as part of the 18th Croatian Bank for Reconstruction and Development conference on export stimulation.

Finance Minister Zdravko Marić said Croatia could introduce the euro in 2023 but that this was not only up to it.

Croatia has to meet 19 benchmarks to which it committed in the letter of intent to join the Exchange Rate Mechanism (ERM II) and the letter on close cooperation with the European Central Bank (ECB), which envisages stress tests for Croatia's largest banks, he said.

Everything will be finalised by the end of Croatia's presidency of the Council of the EU next June, he added.

Croatian National Bank deputy governor Sandra Švaljek said the conversion exchange rate would be known six months before Croatia joined the euro area. It will be agreed with the ECB and the area's member states, but it is much more important to define the central parity, which will happen before joining ERM II, she added.

Švaljek said it was necessary to work on as optimal an exchange rate as possible when Croatia joined the euro area, adding that a depreciation of the kuna would suit exporters but not those who owed money in euros.

Marko Jurčić of the Croatian Chamber of Commerce said joining the euro area would mean "the end of the agony" for exporters, given their constant appeals for the weakening of the kuna, as the exchange rate would no longer impact their competitiveness and they would play by the rules in force in other EU member states.

The introduction of the euro does not mean the economy will grow or fall as some countries that do not have the euro, such as Czechia and Poland, are recording strong growths, Jurčić said.

Introducing the euro is a political decision that will eliminate many risks but exporters need help in many other ways, he added.

The president of the board of Slovenia's Export and Development Bank, Sibil Svilan, said the euro and Europe were no longer sacred and that when it was introducing the euro, Slovenia, as an export-oriented country, knew it was the right decision.

He said it was important that Slovenia's decision to introduce the euro was made at a referendum, which gave legitimacy to everything that happened later on, such as higher prices. He also recalled that upon introducing the euro, Germany was hit by a recession.

Dagmara Zawadzka of Poland's development bank said exports and the internationalisation of doing business were very important for an economy's development, noting that Poland was recording strong export growth.

She said Poland would not join the euro area in the near future and that the exchange rate risk was not a big problem for large companies. Introducing the euro would significantly help most SMEs in Poland, for which said risk poses a significant barrier, and they would profit from joining the euro area, she added.

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

Tuesday, 12 November 2019

Strategic Goal to Introduce Euro by End of Next Government Term

ZAGREB, November 12, 2019 - In the EU accession treaty Croatia undertook the obligation to adopt the euro as its official currency and the strategic goal is to meet the criteria by the end of the next government's term, Prime Minister Andrej Plenković said on Tuesday.

The economic benefits of the euro are many, the currency risk in the economy will be eliminated, the cost of borrowing will drop for all domestic sectors, and citizens and businesses will have lower financing costs than they would if Croatia stayed outside the euro area, he said at the Croatian Financial Institutions Day conference, organised by the Chamber of Commerce (HGK).

Conversion costs will be eliminated and the joint currency will contribute to international trade and competitiveness, Plenković added.

The euro is the second largest and strongest global currency used by more than 340 million people in the euro area, he said, adding that of all the EU member states outside the area, Croatia had the smallest population yet was the most euroised.

Croatia has the highest deposit euroisation of all EU member states outside the eurozone, Croats express value, calculate and save in euros, as a result of which household savings in euros have never been below 66% of all savings, revolving around 76% over the past nine and a half years, Plenković said.

Forty-six percent of household loans are in the domestic currency with a currency clause and businesses are also significantly tied to the euro, 58% of commodity exports are exports to the euro area and 56% of all nights are generated by tourists from the euro area, and 50% of bank loans are in a foreign currency or in the domestic currency with a currency clause, he added.

The plan is for Croatia to enter the European Exchange Rate Mechanism II upon confirmation of compliance with all conditions in the second half of 2020, Plenković said. Croatia will spend between two and a half and three years in ERM II and entry into the euro area is expected in January 2023 at the earliest or in January 2024.

HGK president Luka Burilović said the positive effects of the european currency include a lower price of capital, easier awarding of a better credit rating, the elimination of the currency clause risk, and higher competitiveness of exporters.

"We can hope that Croatia will have a stronger position in attracting foreign direct investment," he said. The euro is not a magic wand or a universal cure for economic problems but should be utilised as a generator for the realisation of strategic goals, he added.

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

Wednesday, 7 August 2019

ECB to Conduct Stress Test of Five Croatian Banks

ZAGREB, August 7, 2019 - The European Central Bank (ECB) said on Wednesday it would carry out a stress test of five Croatian banks, a preliminary step in Zagreb’s bid to join the euro zone, Reuters reported.

According to the article headlined "ECB to test five Croatian banks as country aims for euro entry" those banks are Zagrebačka banka, Privredna banka Zagreb, Erste & Steiermärkische Bank, OTP banka Hrvatska and Hrvatska poštanska banka

The results can be expected in May 2020, the ECB added.

"Croatia last month submitted a formal bid to join the European Exchange Rate Mechanism (ERM-2), an early stage on the path to membership of the euro currency," Reuters reported.

After Croatia submitted a formal letter of intent to join the European Exchange Rate Mechanism II, Eurogroup president Mario Centeno said that the euro area finance ministers welcomed Zagreb's move, news agencies reported in early July.

The letter of intent is an early stage on the path to membership of the euro currency, and the commitments offered by Croatia in its letter were welcomed by the bloc’s finance ministers at a meeting on 8 July.

Croatia sent the letter on July 4 to euro area member states, Denmark and EU institutions, making the first formal step towards participation in ERMII, which precedes the introduction of the euro as the official currency.

Enclosed with the letter was an action plan describing in detail the reforms Croatia will carry out before entering ERMII, the Finance Ministry said.

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

Wednesday, 17 July 2019

Milanović Supports the Introduction of Euro

ZAGREB, July 17, 2019 - The Social Democratic Party (SDP) candidate for president, Zoran Milanović, on Tuesday said that he is not opposed to introducing the euro currency in Croatia, but the condition for that is continual talks which will lead to a decision on the fate of the country.

"Croatia in the euro area in five years' time, why not?" Milanović said in a video posted on his Facebook profile and underscored that that does not mean cheaper money because lower interest rates exist only in functioning countries.

He said that he was not for introducing the euro at a referendum and at meetings with the International Monetary Fund, which he called "the world's financial policeman", but "as a community of people who think and make decisions on their fate in the next ten, twenty, thirty years."

He assessed that introducing the euro means that Croatia will not have a national currency. "That means a currency on whose trends decisions are made by the people we don't elect. And I reiterate, why not? But not in this way," he said.

"Introducing the euro in Croatia does not mean cheaper money! We see that in a series of examples in Europe in which countries which are not in the euro area have the lowest interest rates. Interest rates do not depend on whether you are in the euro area but to what extent you are a functioning state, whether endemic thievery exists or order and the rule of law. That is why I advocate a modern Croatia, talks, not dictate," said Milanović.

More news about the presidential elections can be found in the Politics section.

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