PM: It’s realistic to promise Croatia’s entry into euro area in next four years

PM Andrej Plenkovic (screenshot)

ZAGREB, July 10 (Hina) – Prime Minister Andrej Plenkovic said on Friday that Croatia’s admission to the Exchange Rate Mechanism (ERM II) meant a lot for the country’s financial stability and strengthened its reputation.

After the European Central Bank (ECB) and the European Commission informed that the Croatian kuna was included in the Exchange Rate Mechanism (ERM II), Plenkovic told a news conference in Zagreb that it was realistic to promise that Croatia would enter the euro area until the end of the four-year term of the new government which is likely to be inaugurated in next few weeks.

The agreement on participation of the Croatian kuna in ERM II is accompanied by Croatia’s commitment to simultaneously join the Banking Union.

Plenkovic recalled a well-done job in the last 12 months which facilitated Croatia’s admission to the ERM II.

He pointed out a high euroisation in Croatia.

For instance, 71% of household savings have been kept in the euro in the last eight years. Also, more than half of the loans are pegged to the euro. Foreign visitors coming from the euro area’s member-states generate as many as three-fifths of overnight stays in Croatia, and 57% of the value of the commodity exports are to those countries.

As for the exact date when Croatia can expect the admission to the euro area, Plenkovic did not want to speculate on the dates, having in mind that for instance Slovenia, Cyprus and Malta entered the euro area three years after joining the ERM II, whereas Lithuania had been ten years in that sort of waiting room before its adoption of the euro.

Plenkovic said that there was a high probability for Croatia to enter the euro area until the end of the four year term of the next government provided that the country’s relevant authorities continued performing a good job.

He underlined that the fact that Croatia had been accepted into ERM-2 mechanism, a mandatory stage for joining the euro, would also definitely improve Croatia’s reputation among credit rating agencies.

FinMin: Croatia supposed to continue meeting Maastricht criteria

After entering the ERM II Croatia has to continue meeting the euro convergence criteria, which is the so-called Maastricht criteria, in order to be allowed to join the euro area, Croatian Finance Minister Zdravko Maric told the news conference.

Those criteria include the stability of the exchange rate, stable prices, stable interest rates alongside two important indicators considering the public finances: the budget deficit and the public debt.

Asked about a rise in the public deficit, Maric recalled that Croatia would have a high budget deficit this year instead of a surplus, due to the coronavirus pandemic and the subsequent crisis. This will also make a one-off increase in the public debt, he explained.

However, in the past three years, Croatia had managed to reduce the public debt to GDP ratio by three percentage points annually, which was four-time faster than what the Maastricht criteria stipulate, Maric said.

“With the aim of achieving a high degree of sustainable economic convergence and successful participation in the euro area, Croatia has committed to implement additional measures in reform areas and expressed its firm intention to adopt the euro, once the convergence criteria are met,” the ECB and the European Commission said in the press release.

“These measures pertain to the strengthening of the anti-money laundering framework, reducing the administrative and financial burden on the economy through further simplification of administrative procedures and decreases in parafiscal and non-tax charges, improved governance of state-owned enterprises and strengthening the national insolvency framework,” reads their press release.

HNB promises continuation of its stable policy

Croatian National Bank (HNB) governor Boris Vujcic recalled that the central rate of the Croatian kuna is set at 1 euro = 7.53450 kuna, which is the ECB’s reference rate for today.

He added that the HNB would continue pursuing the same monetary policy.

You can stay reassured that we will continue pursuing the stable monetary policy, the central bank’s governor said.

ECB today also adopted the decision on the establishment of close cooperation with the Croatian National Bank, by which the HNB has become a part of the SSM (single supervisory mechanism) even before Croatia’s joining the euro area, which means that the ECB is taking over the supervision of Croatian banks.

In the forthcoming period, the ECB will carry out its assessment and decide which Croatian banks meet the criterion to be classified as significant institutions. From 1 October 2020, the ECB will also exercise direct supervision of significant institutions in the Republic of Croatia.

With the establishment of close cooperation, HNB’s experts will become members of the ECB’s Joint Supervisory Teams (JTSs) and exercise direct supervision of significant institutions in the Republic of Croatia. Less significant institutions will be supervised by the Croatian central bank on behalf of the ECB.

The Croatian National Bank will also have its representative in the ECB’s highest supervisory decision-making body, having equal rights and obligations as other members, as well as a voting right.