The euro in Croatia, a door to Europe that reinforces tourism and its influence in the Balkans

Croatia takes another step towards its integration into the European Union with the euro adoption and of the Schengen treaty for the free movement of people and goods. A situation that will allow the elimination of barriers in a key sector for its economy such as tourism and, at the same time, benefit from sharing a single market and currency equal to that of its main business customers.

The measure tries to give a key boost to Croatia, one of the countries that has been hardest hit by the war in Ukraine and whose first contact with the European Union dates back to 2003, when it applied for membership.

For its part, the EU thus strengthens its influence in the Balkansone of the priority areas for expansion of the Twenty-seven and where an important list of candidate states are located, such as Albania and Bosnia.

However, the implementation of the single currency raises the same suspicions as in other States where it was implemented. Only 55% of Croats support the arrival of the euro, according to the June Eurobarometer. Furthermore, 81% of Croats are convinced that the cost of living will increase.

[Croacia introduce el euro y ya son 20 los países que usan la divisa comunitaria]

And they have some reason. The European Commission estimates a price rise of between 0.1% and 0.3% with the introduction of the euro. However, there is confidence that this situation will be offset by lower conversion costs and lower interest rates. A) Yes, the goal is for inflation to fall to 5.7% by 2023 compared to the current 13.5%.

For Croatia, this union is a natural step in a State in which 60% of its loans and half of its bank deposits are already registered in euros. Not only that, it will allow you to take even more advantage of the arrival of tourists, taking into account that 75% come from the Schengen Treaty; that half of its foreign trade is with the Eurozone and that two thirds of its foreign direct investment also comes from there.

Soviet influence

Like a large part of the countries in the Balkan orbit, Croatia is a country of former Soviet influence that, after the failure of the extinct Yugoslavia, acquired its current status. In fact, since the turn of the century, the country was one of NATO’s priority partners until it became part of the Alliance in April 2009.

For the single currency, the entry of Croatia is another boost to the community project. More in a context in which it is in question due to its weakness against the dollar (1.07 dollars at the close of last Friday) and after seeing how parity was lost several times during 2022.

[Esta es la moneda de Croacia: dejará de existir]

In fact, the president of the European Commission, Ursula von der Leyenhas ensured that the arrival of member number 20 in the Eurozone gives strength to the currency, but also “makes us more resilient, facilitates investment and business across borders, gives life to our economies, opens jobs, improves the prosperity and macroeconomic stability.

In its brief period in the Union, Croatia has already held positions of relative importance within the EU. Specifically, between the months of January and July 2020, he held the Presidency of the Council of the EU. So far this has been his only presidency within the rotation system established.

But the arrival of Croatia to the Eurozone may also produce a change that is not so visible, but equally important for the future of monetary policy. The Governor of the Croatian National Bank, Boris Vujcic, joins the board of the European Central Bank. Therefore, it may also have a say in deciding what the future of interest rates should be.

Croatia has experience of the consequences for an economy of a very high inflation rate extended over time. A process that lived after the war in the Balkans. Hence, Vujcic himself has warned in Bloomberg that “paying close attention to slower growth now, at the expense of fighting inflation, is often tempting, but letting inflation take hold always comes at a higher cost than a temporary drop in GDP.” It follows from his words that his position will be to keep rates high during the coming months to get the euro area back to inflation levels of around 2%.

Since 12:00 a.m. this Sunday, all controls have been removed at 73 border crossings between Croatia and Slovenia Y Hungary, already converted into internal borders of Schengen. On the contrary, the border with other states such as Serbia, Bosnia-Herzegovina and Montenegro is reinforced, as required by community legislation.