Croatia introduces Euro – what are experts' approaches?

By joining the euro zone, Croatia will benefit from lower inflation, monetary stability, lower interest rates and will improve its political position, experts believe. Croatia has been in the Eurozone (and the Schengen Area ) since yesterday. It became the 20th country to use the single currency. On holidays in Dubrovnik, we will no longer pay with kunas. How will the Croatian economy fare?

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Croatia joins the Eurozone...

You can pay with kunas in Croatia only until January 15 in commercial and service facilities. After that, only the euro will be in circulation. The exchange rate of kuna to euro was fixed at 7.53450 kuna for 1 euro. Croatian banks will exchange kuna for euro throughout 2023.

The Croatian political class treats entry into the euro zone as a success, as a symbolic completion of the European integration process. Prime Minister of Croatia Andrej Plenković recently said in an interview with Le Monde that "entering the euro zone is like a dream come true for Croatia."

Let us recall that the decision to admit the country with the capital in Zagreb to the euro area was made by the European Council on July 12, 2022. Croatia had to meet the so-called convergence criteria, i.e. the conditions for having a healthy economy and financial system (e.g. stable prices, balanced public finances, stable exchange rate).

…but will it be good for her?

Will Croatia's entry into the eurozone benefit its economy? According to experts, the euro will help to "protect" the Croatian economy, which is one of the smallest and weakest in the EU. And it has been plagued recently by quite high inflation (13.5% versus 10% in the Eurozone). "The euro will certainly bring economic stability and security," Ana recently assured Sabic of the Croatian Central Bank. She indicated that the introduction of the euro means the elimination of exchange rate risk and better credit conditions in the face of recession.

president of the Croatian National Bank, Boris Vujčić , said: “Thanks to the adoption of the euro, currency risk will disappear and Croatia will be more attractive for investment and safer in times of crisis. The euro is also a key value of European unity and will allow us to play an even more active role in the European project.”

“In the long term, Croatia will benefit from lower inflation, monetary stability, lower interest rates and of course an improved political position by joining the Eurozone,” said Jacob Kirkegaard , a senior fellow at the German Marshall Fund.

Croatia - annualized GDP growth rate

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Source: Trading Economics

Croatia - inflation

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Source: Trading Economics

Croatia is one of the countries with the highest share of tourism in GDP - about 20%, in 2021 it brought about EUR 10 billion in revenue to Croatian entities in this industry. And here we come to the fact that the euro has actually been widely used in Croatia for many years - it was possible to pay with it in hotels, restaurants and stalls. Moreover, for several years Croatian banks have been granting loans in euro and accepting deposits in this currency.

Most Croatian citizens fear that the adoption of the euro will increase prices. However, analyzes carried out after the accession of the Baltic states to the zone show that the path of inflation increased slightly as a result of their entry into the zone. On the other hand, we currently have a time of high and rising inflation, so in the case of Croatia it may be different, as companies may want to use the euro entry to raise prices and services.