How is Croatia adapting to the euro?

On the primary of January 2023, Croatia grew to become the twentieth nation to hitch the eurozone. The kuna, the native foreign money, has been changed by the euro.

With the one foreign money, the nation hopes to make its economic system stronger and extra secure, and to enhance the usual of residing of its inhabitants.

Some remorse passing of the kuna

On the fruit and veg market in Zagreb, reactions are combined.

"I am pleased with the change," says one shopper. "It is one thing new."

"It is not true costs have skyrocketed," says one other. "Possibly they're up a couple of cents, however that is nothing."

widget--size-fullwidth
widget--align-center">

Espresso, bread… the costs are increased now than earlier than the brand new yr and other people don’t have a lot cash to spend.

Ana Knežević

President, Croatian Affiliation for Customers Safety

Others are much less satisfied.

"Costs are a bit too excessive, that is all," says an older man. "I haven't got an issue changing. You simply must have cash!"

"We're not pleased, we favor our little kuna," one other says. "To me, a rustic that doesn't have its personal foreign money is not a rustic."

A majority in favour of the swap

45% of Croatians already had a euro account for large bills, however all now must get used to the one foreign money for on a regular basis purchases.

Ana Knežević is president of the Croatian Affiliation for Customers Safety.

"For the previous folks, it's troublesome to rely how a lot it's now when the costs are in euros. We've got double costs so it is extremely simple to check," she says.

Whereas older individuals are connected to the kuna, 55% of Croatians do favour adopting the euro, based on the Eurobarometer. However greater than 80% of them worry an increase in costs.

"Espresso, bread… the costs are increased now than earlier than the brand new yr," she continues. "Folks don’t have a lot cash to spend, meals may be very costly, heating, electrical energy can also be costly, so it is extremely troublesome to stay. Croatia is a small nation, pensions should not excessive so you may think about how they stay."

Increase for tourism and manufacturing

The swap to the euro and the entry into the Schengen space are anticipated to spice up sectors reminiscent of tourism, 24% of Croatia's GDP, but in addition manufacturing, which at over 12% of GDP is a vital export sector.

Končar Group works within the fields of power, infrastructure and electrical railway autos. The corporate exports greater than 60% of its manufacturing, of which 70% goes to international locations within the eurozone.

"If we glance again within the final 21 years after we really tied our foreign money, kuna, with euro, we can not say that the change might be super," says CEO Gordan Kolak. "However we expect the operation of the enterprise might be a lot simpler as a result of our clients would simply perceive our presents.

"After we are speaking about productiveness, when you find yourself speaking concerning the modernization of manufacturing, after we are speaking about digitalisation, all of those areas are rather more essential for us than euros as a foreign money."

In 2020, greater than 70% of Croatian items exports had been traded in euros, solely 16% in US dollars.

Adopting the euro appears pure for a rustic the place the one foreign money is already properly built-in.

Croatia's GDP grew by 6% in 2022, however the projection for 2023 is just one%, partly as a consequence of excessive inflation.

Interview: Governor of the Central Financial institution of Croatia Boris Vujcic

We spoke to the Governor of the Central Financial institution of Croatia Boris Vujcic to get his views on the arrival of the euro.

Boris Vujcic, Governor of the Central Financial institution of Croatia : I am pleased that we accomplished a undertaking which we began 5 years in the past, mainly. That is one thing which is able to carry extra resilience to the economic system. It'll make the Croatian economic system extra engaging for overseas direct funding. Transaction prices might be decrease. It is also essential as a result of we're a vacationer nation and as a vacationer nation, 70% of our vacationers come from the eurozone international locations. So in some ways, it is a good factor for Croatia.

Fanny Gauret, Euronews: So given the present inflation within the eurozone, do you assume it is a good time to modify to the euro?

Boris Vujcic: I feel that if we might have switched earlier, it could have been higher. For a small, open economic system like Croatia, it's significantly essential to be within the eurozone throughout instances of disaster. If you happen to have a look at a few of our neighbours who're members of the European Union and never members of the eurozone in the mean time, that they had various strain within the overseas trade market this yr after the aggression on Ukraine. So when you have a look at the price of borrowing, these prices at the moment are between for the businesses between 8% and 11% or for the family, 6 to 9%. Whereas in Croatia, we did not see any strain within the overseas trade market, nor we did must react with the rise within the rates of interest as a lot, as was the case in these international locations. So in the mean time already we see the advantages as a result of the markets have priced in that we'll get into the eurozone at first of this yr.

widget--size-fullwidth
widget--align-center">

We've got to now deal with doing the form of structural reforms that we nonetheless must do, with the assistance of a greater financial setting created by the euro entry and the Schengen area entry.

Boris Vujcic

Governor, Central Financial institution of Croatia

Fanny Gauret: So how about giving up the power to set your individual rates of interest?

Boris Vujcic: Principally, the anchor of our financial coverage was pegging the trade price to the euro, and that has been the case for the final 30 years. First to the Deutschmark after which to the euro. If you peg your trade price to euro, and when you've got a free stream of capital, you can not have actually an unbiased rate of interest coverage. So it is about dropping one thing that we did not have to start out with.

Fanny Gauret: What are the challenges of getting giant quantities of cash into the Croatian economic system, like, as an example, the true property market?

Boris Vujcic: We do not see something by way of the overheating of the economic system. What we do see is that, as you rightly say, the true property market is sizzling, the costs are going up now. I feel that subsequent yr, with rates of interest going up, we'll see the cooling of the true property sector. The one factor that won't change is overseas demand, which is predicted really to extend. We now see roughly 20% of the true property purchases coming from overseas, we’ll turn into much more engaging.

Fanny Gauret: So on a last be aware, what are the challenges forward?

Boris Vujcic: I feel it is not the magic factor that can resolve the structural financial points that we've. And we've to now deal with doing the form of structural reforms that we nonetheless must do, with the assistance of a greater financial setting created by the euro entry and the Schengen area entry.