Andrea Doko Jelusic, AmCham Croatia: Croatia’s Experience is an Important and Positive Lesson for other EU Member States Adopting the Euro

Andrea Doko Jelusic, Executive Director, AmCham Croatia Introductory Remarks at the Bulgaria in the Eurozone: What is Next Conference, April 5th, 2023, Sofia

Ladies and gentlemen,

I would like to thank you for the invitation to participate on this very important event and I am delighted to be in Sofia.

It is truly a great honour and privilege to be here with you to share Croatia’s experience on our process of joining the eurozone.

Becoming 20th euro area member on 1 January 2023 deepens economic and social integration of Croatia within the European Union, but also strengthens our economy and makes it more resilient. We expect a positive impact on the economy and citizens through an increase in the level of production, competitiveness, and wages.

The very announcement of entry into the euro area led to the fact that all three of the most important credit rating agencies (Fitch, S&P and Moody’s) increased Croatia’s credit rating. This best describes the security the euro brings to our country, economy, and households. Croatia’s highest investment rating so far is also a message of confidence and an important signal to investors. This will also have an effect to the cost of capital for the economy and the population, which will indirectly decrease.

There are numerous positive effects of the accession of the Republic of Croatia to the Eurozone: elimination of currency risk, transactional costs, decrease of interest rates, greater resilience of the economy, simpler and transparent process for foreign investors.

Croatian citizens were mostly concerned about abusive price setting during the changeover. According to the Eurobarometer Survey from July 2021, 61% of respondents from Croatia were in favour of introducing the euro, but also respondents were mostly concerned about abusive price setting during the changeover (82%).

Croatian Government was fully aware of this concern and that is why the core principle of the national changeover plan was consumer protection, which included price monitoring, strict oversight of retailers and citizens being able to report their complaints, all with an aim to help minimise the risk of price growth due to the introduction of the euro. The legal obligation of e period of dual display (in euro and in kuna) of prices for all business entities began on September 5, 2022.

The main act for the preparing the euro introduction in Croatia was the Euro Act. It transposed the main features of the process set out by the Council into Croatian legislation, determining the date of the introduction of the euro and setting the conversion rate between the kuna and the euro.

Furthermore, it prescribed the rule on the conversion of prices and other monetary values, determined the duration of the transitional period during which dual circulation of the kuna and the euro would be possible, as well as defined the obligation of dual display of prices and the manner of monitoring its implementation. The Euro Act also contained a provision on the continuity of contracts and other legal instruments.

In addition to the Euro Act “Guidelines for adaptation of the economy in the process of the changeover from the Croatian kuna to the euro” were published.  The Guidelines provided practical explanations and assistance to businesses in the process of adjustment including adaptation of accounting and financial reporting, adaptation of IT systems, dual display of prices, invoices and payrolls.

However, what we have witnessed in the first weeks of euro introduction in January, was unjustified price increases by certain number of business entities (mostly in services sector – for example bakeries and coffee shops).

Government had to react by measures like enhanced inspection and monitoring. These measures have already shown positive results and the situation has stabilized.

The State Inspectorate has carried nearly 1500 inspections in which, so far, in 305 inspections, unjustified price increases have been found after 31 December 2022.

Furthermore, we had a dual circulation of kuna and euro from 1 January until 14 January and dual display of prices will continue until 31 December 2023.

Preliminary evidence presented recently by ECB show that the changeover from kuna to euro has so far had relatively little impact on Croatian consumer prices and price perceptions.

In its latest forecasts, European Commission expects inflation for Croatia to slow down to 6.5% in 2023. This is similar to the forecasts of the Ministry of Finance: 5.7% inflation in 2023.

Croatia’s experience is an important lesson for other EU Member States adopting the euro, as it confirms that the economic costs arising from the effect of the changeover on inflation are mild and of a one-off nature.

From the perspective of the business community, it is worth mentioning that AmCham Croatia conducted a business climate survey in December 2022 and January 2023 in which 73% of respondents believe that the introduction of the euro in Croatia will have a positive effect on their business, while only 4% consider it negative.