Central Bank governor: Euro membership will protect Croatia in times of crisis

NEWS 03.01.2022 08:46
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Source: Pixabay / Ilustracija

Joining the euro zone will provide Croatia with better protection in periods of economic crisis, the Central Bank (HNB) Governor, Boris Vujcic, told the national broadcaster's (HRT) evening news programme on Sunday.

The euro changeover is expected in one year’s time, and Governor Vujcic said that a lot of logistical preparations lay ahead.

“We hope that we will enter the euro area in a year’s time, and 2022 is the year of preparations,” said Vujcic.

The final decision on the date will be known this summer, however, we are making preparations to be ready for the euro changeover on 1 January 2023, he said adding that the central bank, commercial lenders and the enterprise sector are now due to make preparations for the introduction of the euro.

Dual display of prices

As of this summer, all should be ready to express prices both in the national currency and the euro, said the governor.

He also noted that the country should be ready to provide the market with the euro banknotes and coins upon the transition to that currency.

Asked about pros and cons of the admission to the euro area, Vujcic said that Croatia would be provided with better protection in the cases of crisis.

The euro adoption will remove the currency exchange risks, and in this segment, Croatia will have the biggest advantages, since its economy is more euroised than any other euro area candidate so far, he explained.

A majority of time savings deposits is tied to the euro, he said adding that for instance 10% depreciation of the kuna in terms of its exchange rate versus the euro would increase the debt of all the sectors by HRK 50 billion. This is a huge risk that can cause a recession, and our entry into the euro area will remove that risk, he said.

He added that there is currently 36 billion kuna in cash in circulation, and in the next 12 months the money should be either deposited with banks or spent.

The Croatian kuna joined ERM (Exchange Rate Mechanism) II on 10 July 2020 and observes a central rate of 7.53450 to the euro with a standard fluctuation band of ±15%.

Any aspirant for the euro area membership must participate in the mechanism without severe tensions and without devaluing its central rate against the euro for at least two years before it can qualify to adopt the euro. Being part of the Exchange Rate Mechanism is intended to help non euro-area countries prepare themselves for becoming part of the euro area. It is an important milestone towards adopting the euro.

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