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Croatia adopted Euro.

 

Croatia euro

Ivo Božić, a stallholder selling trinkets at the Christmas market in Croatia’s capital Zagreb, is used to handling multiple currencies and thinks the country’s adoption of the euro will be a success. Croatia’s adoption of the euro on January 1 was a milestone for a nation of 4mn that has long strived for closer integration with the rest of the EU. It becomes the 20th country to use the single currency and will join Europe’s border-free Schengen zone. The switch from the kuna should bring benefits, said economists, because Croatia relies on the single currency area for more than half its external trade, two-thirds of foreign direct investment and about 70 per cent of its tourists.

Christine Lagarde, European Central Bank president, called the addition «a vote of confidence for the euro area» and said Croatia would benefit from the «shield of the euro». «Croatia is the country that stands to profit the most from entry into the euro-zone,» as it would eliminate foreign currency risk, said Boris Vujčić, governor of the Croatian central bank. «Foreign exchange risk in Croatia is the highest». «When your currency depreciates against the euro, it means your debt is worth more,» Vujčić told the Financial Times.

The benefits of the euro are «most visible during a crisis», Vujčić said, pointing to recent selling pressure on the Hungarian forint, Polish zloty and Czech koruna. In contrast, Croatia’s 10-year bond yield was about 3.5 per cent, lower than those of Italy and Greece and just above Spain’s. Vujčić recalled how prices soared in the former Yugoslavia and Croatia during the late 1980s and early 1990s, suggesting he would take a hawkish stance to tame the price rises that worry Europe’s policymakers. However, he admitted to a risk that Croatian consumers would blame the euro for high inflation, which hit 13.5 per cent last month.

Yet, on average, countries that have adopted the single currency have experienced only a 0.2 to 0.4 percentage point rise in inflation, albeit in periods of lower price growth. To improve transparency, shops in Croatia have had to display prices in both kuna and euro since September and will continue to do so until the end of this year. Studenac, a grocery chain, had to print 5mn new price labels. In the lead-up to the currency transition, staff had to explain to confused customers that it could only accept euros on January 1, after which both currencies would be used in parallel for two weeks. Seńczuk predicted that as well as boosting tourism, the euro would make Croatia «more attractive to foreign buyers looking for second homes».

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  1. Grace3 January 2023 at 11:40

    I think any country (Croatia included) needs much more time before actually going for only EURO. Kuna should remain in use for at least 1 more year. If you force EURO on people they won't like it at all and you won't get the acceptance you were counting on.

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    Replies
    1. Anthony3 January 2023 at 14:32

      Agreed. This should be a very gradual process that doesn't confuse people. Help them get used to the EURO being the only currency. This takes time. If they hurry this process it won't go well.

      Delete

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