Eurozone: A Hobson’s Choice For Croatia

European Commission president  Jean-Claude Juncker welcomes  Croatian President Kolinda Grabar-Kitarovic (R)   prior to a meeting at the EU commission  headquarters in Brussels, Belgium, 30 April 2015.  Photo: EPA/Oliver Hoslet

European Commission president
Jean-Claude Juncker welcomes
Croatian President Kolinda Grabar-Kitarovic (R)
prior to a meeting at the EU commission
headquarters in Brussels, Belgium, 30 April 2015.
Photo: EPA/Oliver Hoslet

Rather often one comes across people debating, surveys taken on whether Croatia should join the Eurozone. The reality, though, is that if Croatia wants to say a member of the European Union it must join the Eurozone, sooner or later. It’s like a Hobson’s choice: Take it or leave it. To qualify for Eurozone membership every EU country (except UK and Denmark) must meet the required Convergence criteria and these are:
• Budget deficit must not exceed 3% of GDP (“Stability and Growth Pact” applies after Euro adoption/ i.e. agreement among EU member states to facilitate and maintain the stability of the Economic and Monetary Union [EMU]);
• Public debt must not exceed 60% of GDP (“Stability and Growth Pact” applies after adoption of Euro too);
• The currency should be stable against the Euro for at least two years – no devaluation;
• Inflation must not be 1.5% points above the average of the three economies with the lowest inflation;
• Interest Rates: Long-term government bond yields must not be more than 2% points higher than in the three lowest inflation member states.

 

 

Croatia has quite a bit of work to do before it satisfies the Eurozone Convergence criteria and on 30 April 2015, in Brussels it transpired from the meeting between European Commission president Jean Claude Juncker and Croatian President Kolinda Grabar-Kitarovic that Croatia does not meet the conditions for Eurozone membership – certainly not before 2020 – but aims to join the Schengen area in a couple of years.

Croatia has a natural vocation to become a member of the Eurozone, but the country has to make many more efforts to achieve that goal’‘ Juncker said, agreeing with Grabar-Kitarovic that ”the earliest date would be 2020”.

Croatia knows that it is necessary to regain control of the public finances and that its deficit is too high”. However, Zagreb could join the Schengen area in a couple of years. ”I hope that in two years inspections will have been completed and that we will have met all the technical criteria to enter the Schengen area”, Grabar-Kitarovic said, also emphasizing the importance of freedom of movement for the Croats. ”We do not want our citizens to leave Croatia, but they should be able to work and establish their own company wherever they want, just like any other EU citizen” the Croatian president said.

 

 

As expected, Croatia’s Prime Minister Zoran Milanovic brushed off a prediction from the opposition-backed president, Kolinda GRabar-Kitarovic, that the country will adopt the euro by 2020 as too optimistic, sharpening a political divide before general elections. Zoran Milanovic, of course, would not know the significance of forward planning, such as nominating a year by which to achieve the positive economic results, then focusing on achieving the plan, if it hit him in the face.

 

 

President Kolinda Grabar-Kitarovic also said in Brussels that Euro adoption in the next five years would help tie the country close to the European Union, its main trading partner and source of tourism revenue. Premier Zoran Milanovic said Croatia would join “when we are ready”! Of course, it cannot be otherwise! But it’s up to his government to ensure readiness as soon as possible because that also means that Croatian economy would pick up to a stable level. He would have done much better had he actually nominated a year by which Croatia would be ready! This way, his failings in governing and leadership are all the more pronounced.

 

 

This Euro petty quarrel seems to have intensified the evident Prime Minister-driven tenseness in relations between the President Grabar-Kitarovic, who scored an opposition-backed victory in a January vote, and Prime Minister Milanovic, who has presided over a recession his entire term (since late 2011) and whose popularity is sinking fast and deep before new elections expected late this year/beginning of 2016.
In talking about the real prospects of reaching the criteria for Eurozone entry, President Grabar-Kitarovic said last week that her experience outside the country gives her an advantage over other domestic politicians on how to return the country to growth and attract investors to diversify the economy. She said the key to preparing the economy for future challenges, including the Euro, lies in more cooperation between employers and employees, and in investors willing to set up businesses in the country’s interior, away from the tourism-dominated Adriatic coast.

 

 

She has called on the Prime Minister to resign for failing to fix the economy. One doubts Milanovic will resign, however one firmly hopes he and his incompetent red lot will not make it across the winning line at the coming general elections.

 

 

So, what would be some advantages for Croatia of membership in the Eurozone:
• Will help elimination of volatile monetary exchange rates, thereby improving business confidence and exports, which would lead to economic growth in Croatia;
• Travellers, tourists between Eurozone member countries no longer have to change money (because currency is common) and save on transactions, which leads to tourism industry boost and greater consumer satisfaction for Croatia;
• European Central Bank strives to keep the interest rates and inflation as low as possible, which would lead to more investments in Croatia;
• Since all member countries have same currency prices are transparent between the countries, which makes it easier for companies and consumers to buy cheaper goods and supplies, which is linked to sustainability and good health of business.

 

 

On the disadvantageous side of being a member of the Eurozone one may see the loss of autonomy over monetary policy as a major drawback. The member countries lose the discretion of using devaluation as a means to boost exports or to borrow more to boost job creation or use fiscal measures such as tax cuts that they deem to be appropriate for their respective country. But so many countries experiencing recession and reaching the verges of bankruptcy have had such autonomy over their monetary policy and yet have made no steps forward, on the contrary, have made the economic woes insurmountably worse.

 

 

So, as far as Croatia is concerned, being a member of the Eurozone can only improve its chances of developing and retaining a vibrant economy. It’s already tied to the Euro, anyway.

 

 

Joining the Eurozone is as much a political question as it is economic. The political benefit plays out as being a part of an inner core and being a part of the Eurozone for Croatia will only cement further its political distance from the Balkan region, in which Croatia never felt comfortable and from which it differed in many ways of life. So, next time I come across a survey about whether it’s good or bad for Croatia to join the Eurozone, I will simply skip it, throw it in the bin. Of course it’s good! Look at the alternative: leave the EU and get pushed into the Balkan region, back to unrest, treachery and hell.

 

 

Unlike the government, the President of Croatia evidently has clear goals for Croatia as far as Eurozone is concerned and one can conclude from this and from what she says that she will endeavour to lift up “the game” in improving the economy, facilitate needed negotiations and partnerships in order to achieve the best results for Croatia. President Grabar-Kitarovic appears focused on stimulating domestic growth in Croatia, on assessing the consequences of reliance upon Global factors and the room for reducing any detrimental effects these have on domestic growth and economic recovery. While some will say that Croatia has no chance in turning the economic burdens (growing public debt, severe export/import imbalance, high unemployment) around, such pessimists and speculators have been proven wrong before. One may well be an optimist and say that through intensive work, reforms and efforts, the negative trends can be turned around and Croatian economy can grow even to 3 or 4% by 2020 and achieve the standards required for Eurozone. Croatia has had enough of Prime Minister Milanovic’s complacency and laziness in the matters of Eurozone standards regardless of whether Croatia becomes a member or not. After all, these standards define a good standard of living which all citizens deserve. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Comments

  1. Steve K says:

    From facebook: Whats the point if everyone’s leaving Croatia for employment over the borders… In 3 years we have lost 159,590 people. . The Government must implement a program that will fill those lost for working in the EU… Does it import or invite people like myself to settle in Croatia with Tax breaks to start families and business… if it did I would be the first to go trust me…Does not make sense to plan EU issues if one is unable to plan its own issues with its own people from leaving. .. Sad times are ahead for us….

    Like

    • Perhaps there will be some real positive changes now with the new president even if her role is limited but still steering is possible at least, Steve. It’s possible to turn things around – Latvia had similar issues but with some serious approaches it made it, even those that left many returned…You are right – more concrete measures to enable that which is needed

      Like

  2. David B says:

    From Facebook: Croatians are a strong and competent people. With decent leadership in the public sector there is no reason why Croatia cannot be the most prosperous nation in the region. Must get rid of that “incompetent red lot” as you say it so well.

    Like

  3. Complex issues here, Dear Ina,
    and problems that will not be resolved easily or without compromises and sacrifices.

    Big Hugs

    john

    Like

  4. Wilkinson says:

    I agree with you, Ina, many more advantages to being in eurozone than disadvantages.

    The eurozone is an advantage for EU members because it contributes to low inflation, stable growth and long-term investments. The euro provides new opportunities and the larger market of 19 states makes the program more efficient and competitive. In the last few years, some of the eurozone countries have experienced crisis. The global financial crisis started in 2008 and spread to become a debt crisis in Europe. Though new countries joining the eurozone were given time to adapt, they were not always ready and the transition was sometimes difficult, while other countries were taking risks and borrowing excessively. These problems reinforce the need for fiscal discipline. Greece, for example, had long-term fiscal imbalances and upon joining the eurozone public debt increased even more and became a tool to generate income.

    Croatia will need to learn a big lesson there and curb the borrowing as it’s already ringing alarm bells.

    Adopting the euro is the final stage of joining the common market system. States have free will and they may choose whether or not to adopt the single currency. The eurozone creates a larger economy; markets are larger, more liquid and homogeneous. The risks associated with exchange rates disappear and costs are reduced. Furthermore, the introduction of the euro as a single currency has increased competition in the production of goods and services in the economy, which has had a positive impact. Being united by one currency brings economic stability and political harmony. This stability helps member countries build toward a stable future and Croatia needs to hop on it sooner than later.

    Like

  5. Without hope there is nothing.

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  6. I can’t say whether it’s a good thing or a bad thing to join the Eurozone. Obviously it’s more whether Croatia want to or not. If they want to then the Prime Minister should be working closely with the President to ensure the best methods of doing so. Sitting back and saying there’s no chance is not very constructive. I can only hope this PM goes and a more moderate, forward looking person is appointed with the good of the Croatian people in mind. Britain isn’t part of the Eurozone and is doing quite nicely without it, despite having had to supply funds to help out ailing economies within the Eurozone. I think for once our Government knew it couldn’t override the will of the people as it so often does.Personally I’m quite anti EU and would like to see us come out but it’s a democracy and the people must vote. The Politicians must honour that vote however much they’d prefer to stay there for their own business or personal reasons.I have 2 years to wait and see by which time we may be in a financial gutter again. I wish Croatia good luck in achieving it’s choice/ xxx Huge Hugs xxx

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    • Yes David, for UK it’s not an issue as it is exempted from having to join the eurozone and still stay in EU. For Croatia, if it doesn’t want eurozone it must go on referendum and vote to get out of EU. UK is preparing such a referendum and it’ll be interesting to see how it pans out. Eurozone or not, Croatian government must pick-up its act on getting the economy going in positive direction that makes indents on bettering living standards. Cheers 🙂

      Like

  7. Sweden and Poland, as well as Romania and Bulgaria, remain outside. Greece got in, I understand, without conforming to the requirements. Greece’s five year recession might not have been so deep with the ability to devalue.

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    • Yes, Clare, there are several countries in EU who eventually must enter eurozone if the want to remain members of EU but are holding back, p[referring to keep their own currency etc in order to “manipulate”it for the sake of economy etc perhaps even to reach the criteria needed for eurozone but are not in a hurry 🙂 Oh dear, no wonder Greece is going the way it’s going! The way I understand it is one must behave economically in a certain way in order to remain in order to prosper from being member of eurozone – obviously Greeks think differently 🙂

      Like

  8. Stipo Blazevic says:

    “The Right is right” Lefties are lost. Down with the red scourge.

    Like

  9. ..read the article …in Dalje.com (13 May 2015)
    …PROJECT LAUNCHED TO EXPELL VOJVODINA CROATIANS IN 1991
    …you see, these silly “Serbian” creeps such as Dr.(?) Pupovac can protest about the plight of the so-called Croatian Serbs (actually not real serbs but a mix of vlasi, cigani and some croat blood), but he won’t mention the plight of the other “minorities”!

    Like

    • I am well aware of how Vojvodina Croats are denied their rights and mistreated in Serbia, Tempus Fugit. It’s shameful, sad and awful and as far as Pupovac is concerned I simply cannot understand why he is allowed to stand in parliament in Croatia and appear in public with garbage and hatred he sows.

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  10. Ante Saric says:

    Greece, Spain, Ireland and Portugal are all in the Eurozone. They all have the Euro. Now they are all bankrupt.
    So you are dead wrong about the Eurozone and the need for Croatia to join. Croatia can trade all it wants with the EU right now. It does not need the Euro which, by the way, is being trashed by the ECB.
    Croatia can devalue its currency right now and become competitive overnight. It won’t because Croatia’s central bank is run by economic illiterates.
    Like true communists they want to manage a fixed exchange rate. I have a good idea. Let it float. Let the market decide and not a bunch of communist apparatchiks.
    I have an even better idea. Back the Kuna with gold. Together with labor market deregulation watch Croatia become a economic superpower overnight. Of course this won’t happen.
    KGK has made an impressive start but her economic prescriptions for the country are nonsensical. The above hapless countries prove that.

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    • While the Eurozone is in crisis I have no doubt it will recover, Ante. Croatia will need to join it or leave the EU sooner or later, that is the rule as it stands now. If Croatia achieves what Kolinda Grabar-Kitarovic is talking about then it will not be what Greece, Spain, Ireland and Portugal have been doing – I see a different route ending in domestic growth, strengthening the hold of small to medium business/ industry in the economy cake etc. Bankruptcy inevitably comes with inability to pay loans and there is no talk of more borrowing but rather using a larger market, EU, to prop up industry development/growth

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  11. Michael S says:

    From Facebook: It is obvious at some point we have to go into the eurozone. The two biggest issues that have me concerned though is that we need to repopulate Croatia to have some kind of balance where we bring Croats home to offset those who leave and the currency exchange effect that it will have on the elderly. The kuna has been pretty steady for many years for the most part and there should be a slow transformation to the euro so that the financial impact is not so hard on those less fortunate. The real problem is that Croatia is not using all of it’s natural resources for monetary gain such as it’s natural gas, gold mines and forestry.Tourism alone can not bail Croatia out of any crises alone.The other problem Croatia has is it does not spread out the monies evenly to help develop economic development because it spends all of the money on the coast while ignoring the rest of the country.To gain economic development you need to have a balanced country of good infrastructure and people. I we want to slow the flow of people leaving then we must create circumstances that will allow for people to stay and work other wise you will not have any companies move to interior Croatia where there is virtually no population.

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    • Croatia is a small country, Michael, but I agree that if it used it resources and spread industry across it could reach the standards very high. I tend to compare Croatia with Lithuania in these issues of reaching Eurozone criteria or standards. Unlike Croatians, Lithuanians didn’t lag behind or lived in despair before constant threats to its vital interests from Russia/communist regime even if half of its young people had left some 15 years ago in search of a better life…Their politicians didn’t spend decades looking after their political butt, instead they kept a sharp eye on the country’s interests and worked hard to achieve these… Most of its young have returned to Lithuania now, it’s the youngest Eurozone member from the Baltic, their economy has moved forward; they took up the EU challenge in the right way. Croatia can achieve this too, a firm leader can do wonders

      Like

  12. Joint the EU is a natural step that will only help future progress, another problem I can see is the language as a few Km is changing may time. That is the bigger barrier for all EU. When living in Italy when travel east was Croatian language and close by Austrian all in 120 km. The different language’s of EU are certainly reducing harmony and exchange. Solution only God had one!!!

    Like

    • Interesting aspect of EU living, Luigi, with all different languages. I guess it’s like living in a country as a migrant who can’t speak the language … so much need to be translated …that aspect certainly reduces the effect of harmony or likelihood of full harmony…thank you for pointing that out

      Liked by 1 person

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