Croatia is preparing to convert to the euro in the face of rising inflation

Croatia is preparing to convert to the euro in the face of rising inflation

Facebook
Twitter
LinkedIn

With soaring inflation and precarious geopolitical headwinds rocking Europe, Croatia is hoping its forthcoming euro changeover will provide some protection for the Balkan country in an uncertain world.

On January 1st, Croatia bids farewell to its currency – the kuna – and becomes the 20th member of the euro zone.

The former Yugoslav republic, which joined the European Union nearly a decade ago, recorded an annual inflation rate of almost 13 percent in September, compared with 10 percent in the euro zone.

In the run-up to the changeover, the authorities have constantly emphasized the benefits of the introduction of the euro for the country’s 3.9 million inhabitants.

“The euro brings resilience,” Croatian National Bank’s Ana Sabic told AFP, arguing that in tough economic times Zagreb will have access to more favorable credit terms if needed.

Since July, the European Central Bank has launched a policy of monetary tightening to curb runaway inflation caused by soaring energy and food prices triggered by the Russian war in Ukraine.

Analysts continue to argue that Eastern European countries in the EU with non-euro zone currencies, such as Poland or Hungary, were even more vulnerable to rising inflation.

“It’s actually an ideal time for the euro changeover,” said Goran Saravanja, chief economist at the Croatian Chamber of Commerce.

“When great uncertainty dominates the global economy, it is always better for a small and open economy like Croatia to be part of a larger federation like the eurozone,” he added.

Croatia’s main trading partners are in the eurozone, while the tourism sector – which accounts for 20 percent of its GDP – attracts large numbers of European visitors.

And the Croats have already largely adopted the euro, with around 80 percent of bank deposits being denominated in euros.

They have long valued their most prized possessions, such as cars and homes, in euros, showing a lack of confidence in the local currency from the former Yugoslavia, which was gripped by high inflation before its collapse.

During the time of Yugoslavia and after Croatia’s independence in 1991, real estate was valued mainly in Deutschmarks until the introduction of the euro two decades ago.

– hopes and fears –

“Life is getting easier, we calculate everything in euros anyway,” said Roman, an economist from Zagreb, who declined to give his last name.

Milan Batur, a retired pharmacist, dismissed the concerns of those who fear some traders will take advantage of the imminent transition to the currency to round up prices.

“It’s other things, wars, shortages, that drive prices up. We cannot blame everything on the euro,” said Batur.

However, some still fear the move will take a financial hit.

“The calendar might not be ideal, we might have moved it a bit because of the world situation,” Zdravka Antonic, a florist at a Zagreb market, told AFP.

“People are already worried about how this is all going to end and the euro is only adding to the uncertainty.”

Since the beginning of September, the price of bouquets of flowers, like other goods and services, has had a double label – with an exchange rate set by Brussels of 7.53 kuna to one euro.

The system will remain in effect throughout 2023.

“A country with its own currency is more independent. But when we joined the EU, we also accepted the euro,” says Ana Brkic, a vegetable seller.

Conservative and right-wing opposition groups protested the introduction of the new currency, saying the kuna was an important symbol of national identity and arguing that the euro would only benefit larger countries like Germany and France.

But an attempt last year to trigger a nationwide referendum to contest the introduction of the euro ended in failure.

Some Croatians fear that once the euro is introduced, the stark reality that they are much poorer than many of their EU neighbors will only permeate further.

According to the latest Eurostat survey from 2018, the average monthly salary in Croatia was only 1,179 euros compared to more than 2,300 euros in the EU.

An estimated 300,000 Croatian pensioners receive a pension of just under 260 euros a month.

“It will create feelings of poverty and misery,” said Ana Knezevic, director of the national consumer protection association.

More to explorer

Why You Need A Form FL-142

When dealing with divorce, you need vital documentation. One key form you will encounter in California is Form FL-142, the Declaration of