Eurozone: A Hobson’s Choice For Croatia

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)