It is official: On January 1, 2023, the Euro will be Croatia’s legal tender and payments with the existing Kuna is to be phased out completely within two weeks that will follow.
The European Union has July 12, 2022, removed the final obstacles to Croatia adopting the euro, enabling the first expansion of the currency bloc in almost a decade as the exchange rate fell to its weakest level against the dollar in 20 years.
The European Union (EU) finance ministers, in the presence of Croatia’s outgoing finance minister Zdravko Maric, approved July 13, 2022, three laws that paved the way for Croatia to become the 20th member of the eurozone on January 1, 2023.
Created in 1999 among 11 countries including Germany and France, the euro has gone through seven previous enlargements starting with Greece in 2001. The appeal of euro membership is reflected by the last three expansions, which brought in Baltic states between 2011 and 2015. The last EU member country to join the European single-currency area was Lithuania in 2015.
Croatia’s acceptance into the European Union on the 1st of July 2013 evidently marked the beginning of the end of the Kuna as Croatia’s currency ever since its proud introduction amidst the ravages of Homeland War during which Croatia defended itself from brutal Serbian aggression on 30th May 1994. Entering the European Union in 2013 brought with it many changes be they for better or for worse and one of the most significant is upon Croatians with Croatia entering the Eurozone in 2023.
Many predict that the effect of this transition will make life even harder for ordinary people especially pensioners while others continue convincing the people that bringing in the euro will be better than “the invention of sliced bread”. Preparations are underway to ensure that everything is ready for the new currency. The production of coins and monetary paper notes has commenced full speed ahead during the past two weeks.
Despite the “very strong challenges” of high inflation and dented economic growth, Croatian outgoing finance minister Zdravko Maric said he is pleased to see his country switch to the euro. At this time when the Eurozone itself is facing rising levels of inflation and stagnating growth, the decision for Croatia to join the EU’s common currency may come as a surprise to quite a few. A lot of economists in Germany, however, see things differently. Especially as the next candidate after Croatia is Bulgaria, which has already applied for membership and aims to become the 21st country to introduce the common currency in 2024. Croatia is the third poorest country in the EU, Bulgaria with a gross domestic product of less than 10,000 euros per capita ranks last in economic power.
Croatia is not giving up a stable currency, but rather hopes to benefit from the more favourable debt conditions in the monetary union. The country relies more than any other EU state on tourists, who generate a fifth of gross domestic product and find holidaying much easier when they needn’t grapple with exchange rates. Meanwhile, most private and corporate bank deposits are held in euros, along with more than two-thirds of debt totalling about 520 billion kuna ($75 billion). Euro-area membership will lower interest rates, improve credit ratings, and make Croatia more attractive to investors, according to Croatian National Bank Governor Boris Vujcic.
The European Central Bank has already announced that it will use a new monetary policy instrument to ensure that interest rate differentials within the monetary union remain low during the crisis. The Germany based Kiel Institute for the World Economy worries that because of years of misguided developments in the Eurozone with ultra-loose monetary policy and lax debt rules, the monetary union is only attracting the wrong people. Brussels was desperate to give the signal that the Eurozone is growing, especially since Brexit. And it is noted that Croatia’s entry into the Eurozone represents a most significant event for the EU since Brexit. It is suggestive of concern that strong EU member states of Sweden and Denmark still do not want to introduce the euro or enter the Eurozone. The Kiel Institute has also expressed the opinion that as long as the major problems of the Eurozone monetary union have not been solved, the circle should not be widened: “As long as you haven’t stabilised your house, you shouldn’t grow.”
The Euro has been the currency of the European union since 1999 and with Croatia joining the Eurozone, changes will be visible in the upcoming period from small households to large companies. The question on everyone’s mind is will life be more costly with the Euro?
Joining the euro requires a country to meet a set of economic conditions. These relate to low inflation, sound public finances, a stable exchange rate and limited borrowing costs.
“It’s a wonderful club to be a member of, but it requires commitment, dedication, continued respect of the rules, and I know that we can expect no less from Croatia,” European Central Bank President Christine Lagarde said.
For Croatia to be able to switch to Euro many conditions had to be met. As stated in the Maastricht Treaty, there are four conditions for entering the Eurozone:
Price stability – inflation rate cannot be over the average inflation rate of 3 member states with the best price stability enlarged by 1,5 percentage points;
Sustainability of public finance – the general country deficit to GDP ratio must not be over 3% and the general country debt to GDP ratio must not be over 60%;
Currency stability – at least 2 years must be spent in ERM II (European Exchange Rate Mechanism) without significant oscillations or devaluation to central rate;
Convergence of long-term interest rates – interest on long-term government bonds may not supersede referent values of interest on bonds of the 3 member states with the best price stability enlarged by 2 percentage points.
Croatia’s government adopted a national plan to replace the Croatian Kuna with the Euro in December 2020. The main goal of the plan is to ensure a seamless transition to Euro. One of the key factors in achieving this, lies in the hands of the IT sector that will need to adapt all systems to the new currency. Also, the new currency must be physically distributed among the private, corporate, and public sector. Even though everything will be paid in Euros from the 1st of January 2023 there will be a transition period of two weeks in which people may pay with Kunas but must receive Euros back. Non-cash transactions will be exclusively in Euros. Banks will exchange up to 100 bills or 100 coins of Kunas to Euros in one transaction free of additional fees which will also ease the way to fully integrating the Euro in the economy.
To better prepare for Euro all prices will be listed dually in Kunas and Euros from the 5th of September 2022, as the first Monday in September, and will be displayed as such until December 31st, 2023. Aside from the price being listed in both currencies, the fixed exchange rate will also be displayed.
This will ensure people getting used to the change of prices before the Euro is implemented. Salaries will also be displayed in dual currency and converted to Euros according to the fixed exchange rate so there shouldn’t be a negative financial impact to people’s lives in general. Getting used to the new prices will however take a while to get used to even if the prices do not rise. The government will also try to regulate sellers so that prices do not rise significantly though surely everyone will feel the differences due to the currency change.
Whether the introduction of the Euro will bring Croatia more benefits or more difficulties remains to be seen in the New Year but as with any change it is up to all of Croatians to make the whole process unfold as easily as possible and move forward into the future with the hope of it being a better one for Croatians and for future generations to come. Hopes as they go are intangible and real living brings them to life either in the positive or negative sense from everyone’s perspective. Almost half of the right-wing parliamentary opposition in Croatia consider the introduction of the euro at this time as unadvisable and damaging to the already lowered living standards that are under enormous downward pressure with increasing inflation, energy crisis and war in Ukraine. Ina Vukic
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Very nice information . How Kuna is going to be replaced with Euro in Croatia is an interesting story . I think , despite inflationary trends in Euro , Croatia , by adopting the new currency from 1st January 2023 will be a prosperous country soon . Hardship for sometime may be faced by the common people in Croatia , but in the long run its future appears to be bright . Thanks for sharing !
That would be a great outcome, Arbind 🙂
Thanks !
Thanks !
You lose your currency you lose your sovereignty, we will now officially be slaves to the EU. We should be more like Hungary, Czech Republic, Poland, and Sweden and use our own currency rather than the Euro.
My thoughts also Stevie
Ina, I honestly don’t understand the rush for us to do this? Why do we have to be followers when it comes to this? I know people over there will say we’re a small country or that who are we from the diaspora to tell them how to live but, at the same time, if you want to join the EU and be a member fine and even though I was against it it’s ok but to give up your currency, that’s makes no sense at all to me..here’s what’s interesting there is talk the Italians want to go back to the Lira, there is talk the Germans are contemplating going back to the Mark, and while nothing has come of it, there seems to be some talk of doing this. So why is it that we have to jump to the Euro so quickly? What benefits will we get from it? It really makes zero sense at all.
Indeed it makes no good sense but I take it as a political move that spells a way out and eventual repeated success at elections for current government. I say this knowing that EU grants do make a visible difference in work being done while it creates total dependency on it.This is easier than trying to build own industry and self dependence, the current government has no skills to create they just follow….a bind I personally would not choose for Croatia
The UK kept its pound so it’s in good company.
The EU has more than enough control, why should Croatia feed it more?
UK was NEVER going to give up its Pound and good on them!
ah sì, non lo sapevo! così di pelle vi dico che avreste fatto meglio a tenervi le vostre Kune
Thanks Almerighi, I too think it would have been better to retain the kuna but we watch and see.
I have my own doubts about the EU Ina, as you know the UK left it and yet we still have a HUGE outstanding divorce bill pending paying…
The EU want countries to contribute, but what exactly are the countries getting back in return?? I know I am not politically minded or all knowing on such subjects…
I speak from VAT tax on goods, and the Unelected EU heads of officials who put themselves in positions of power to rule and make laws for others nations….
I do not think the EU has a long lasting shelf life left… I feel from my own personal feelings that the EU, NATO etc is going to take some hard knocks …
I wish Croatia well,, but feel its not going to help the Croatian people…. But that is just my own opinion Ina.. <3
Wishing you a peaceful Sunday my friend <3
Your opinion very similar to mine, Sue. I think nothing can succeed to a long life that forces people to forget who they are by birthright. And that is what is happening in EU and I also do not trust most of the people who are in power there, most are of lesser substance and unclear skills but definitely have guts to push others around into same pen…not something I personally would want to live. Hugs
Exactly, they have and are systematically taking traditions away as they promote their cancel cultures where even male and female identity is now questionable. 🙄
Sending hugs right back Ina.
…Croatia should have of joined ONLY the NATO alliance, not the EU nor adopt the Euro! The closest that the Croats got to this “unity” was during the Austro-Hungarian Empire (occupation?) and we all know how that turned out! Say NO to the Euro, YES to the …………….KUNA….!