Croatia: Price Rise Despair On The Final Stretch To Eurozone

Food market Dolac, Zagreb Croatia. Photo: visitzagreb.hr

Croatian residents and companies and organisations have faced a rude shock when recently their new gas/energy bills arrived with sharp and unexpected spikes compared to the previous ones, many expressing absolute inability to pay the new energy costs with the government finding itself in the position of having to subsidise some organisations so they could survive their energy bills. It has all been put down to some generalised energy crisis in EU and the world that is sure to cause price increases in all goods and services. Prime Minister Andrej Plenkovic noted during the past month that vulnerable energy consumers, about 91,000 of them, are currently receiving vouchers of EUR 27 each to pay electricity bills. The program will be expanded to 5,700 beneficiaries of the national compensation for the elderly. Also, a voucher for gas will be introduced, and the amount doubled to EUR 54. A special one-time fee is envisaged for 721,000 pensioners with pensions lower than EUR 531, which will require a total payment of EUR 62 million. Not much help when one hears that energy bills have risen by double or triple amount from previous ones!

Prime Minister Andrej Plenkovic has also during the past month presented a plan for households, businesses, and farmers that would mitigate the rise in prices and pointed out that without the package the electricity bills would rise by 23 percent from April 1, compared to 79 percent for gas. The measures will become operational on April 1 and will be valid until March 31, 2023.  Plenkovic pointed to the wave of rising prices in Europe caused by the global energy crisis as the main reason for the adoption of the package. Still, the rise of energy costs in Croatia appears much higher than in other countries, especially the West. He did not refer to any possible correlation between prices increases and Croatia’s transitioning into the Eurozone, that is, swapping its kuna currency with the euro in 2023!

According to the government’s plan the increase of electricity costs will be limited to lower the expected price increase. Goods and Services TAX (PDV) on natural gas will be reduced from 23 percent to 5 percent and a subsidy of 1.3-euro cents per kWh will be introduced. The Ministry of Economy will reimburse power suppliers from April 1 until March 31, 2023. There will be PDV tax reduction on many food items or products. Micro, small, and medium entrepreneurs with an average annual consumption of up to 10 GWh are eligible for subsidies. The amount of aid is 2-euro cents. It will be paid through vouchers.

General price rises have been known to occur in countries of the European Union as they approached admission into the Eurozone and the introduction of euro as their official currency. Croatia is set to introduce the euro in 2023 and while the current astronomic rises in energy prices are said to be associated with world energy crisis the increases in all prices may indeed be at least partially due to possible fallout from exchange rate fluctuations between the kuna and the euro; to achieve a softer fall of purchase power so to speak once entering the euro monetary climate.

For Croatia to meet its goal to be admitted into Eurozone in January 2023, it needs a positive assessment by the European Commission in spring 2022 and a subsequent decision by the EU Council in summer 2022.

The Croatian National Bank has been optimistic that Croatia, whose economy relies largely on tourism and services, will meet the EU’s criteria to join. 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 (US$78 billion). Eurozone membership would lower interest rates, improve credit ratings and make Croatia more attractive to investors, according to central bank Governor Boris Vujcic last month.

Adopting the euro would reportedly formalise a large piece of economic activity that’s already carried out using the common currency — from apartment and car sales to short-term rentals for vacationers. It would trim foreign-exchange costs outside tourism to the tune of about 1.2 billion kuna a year, according to the central bank. Croatia would gain access to European Central Bank liquidity and potential bailout financing from the European Stability Mechanism during periods of crisis.

Inflation is the biggest uncertainty. Europe’s spike in energy costs alongside the Croatian economy’s rebound in 2021 have sent consumer prices surging. Inflation is set to come in at 3.5% in 2022, but what counts is how Croatia stacks up against a one-year average of the three euro-area states with the lowest rates. That calculation will be made once data for April are in.

Due to the recent surge in inflation, Croatia might breach the price stability criterion. However, as the price rises are also observable in the eurozone, the Croatian National Bank argued that Croatia should be considered as fulfilling the criterion, nevertheless.

Croatia’s Central Bureau of Statistics (CBS) released last Thursday Croatian inflation data for the month of January 2022, which went unnoticed due to the horrendous Russian attack on Ukraine, although prices did continue to rise significantly. In January 2022, prices were 5.7 percent higher than in the same month back in 2021.

There are solid indicators that the key cause of rising prices across Croatia is now not only the global energy prices but also transport prices (growth in January +10.8 percent), food and non-alcoholic beverages (+9.4 percent), alcoholic beverages and tobacco (+6.2 percent), furniture, household equipment and household maintenance costs (+5.0 percent) and at restaurants and hotels (+ 4.7 percent).

Whether global energy crisis or not, most Croatians believe the introduction of the euro will have positive consequences for the country, according to a 2021 Eurobarometer poll. However, 70% believe it could and will lead to price increases. Perhaps this is where much of price increases come from during this year that leads to Eurozone for Croatia.  And, by the way, the past year has seen about 13,000 newly poor in Croatia as standard of living continues to drop for many and indications are that multitudes in Croatia will step into the Eurozone with their feet far below the poverty line. Prices growth usually do affect the poorest and Croatia is one of the poorest countries in the EU. Bumping up economic activity, apart from tourism, has been and remains the biggest stumbling block for Croatia, euro, or no euro. Work and employment culture and practices are still heavily founded on corrupt nepotism and largely irresponsible work habits inherited from communist Yugoslavia, where accountability had been the weak point undermining economic and living standard progress. Regretfully. Ina Vukic

Croatia: To Euro Or Not To Euro

Croatian Sovereignists (L), Andrej Plenkovic, Croatian Prime Minister (R)

Since Croatia set on the path of independence from communist Yugoslavia in 1990 its citizens have held only three referendums: independence referendum in May 1991, referendum to join (or not) the European Union as member state in 2012 and the referendum for the definition of marriage (between a man and a woman) in 2013.

In 2013/2014, 650,000 signatures were collected in Croatia for the initiative introduced by the Headquarters for the Defence of Vukovar Association to hold a referendum regarding the Cyrillic (Serbian) script in Vukovar. That is, a referendum seeking the exclusion of the Cyrillic script as a second official script/language on public buildings and institutions etc in Vukovar. The referendum was abandoned due to Constitutional Court’s ruling that such a referendum question could not asked as it would severely compromise the rights of minorities under the Croatian Constitution living in Croatia.

In 2018 a referendum was planned, and signatures collected in Croatia on three questions related to changes in electoral legislation and the cancellation of the Istanbul Convention, but this pre-referendum signature collection ended in agony and scandal with claims from the government agency engaged in counting the votes, APIS, that over 40,000 signatures were invalid, including double signatures. The referendum initiating and organising group “People Decide” complained and demanded an independent recount of votes, however this process did not eventuate as claims of ballot papers’ being destroyed arose besides apparent resistance from authorities to permit a recount.  

Come 2021 and the socio-economic surrounds for another referendum of key significance for Croatia emerge, with politics hotting up just as they did in 2011 and 2012 ahead of the European Union membership referendum. This new referendum would seek to clarify whether Croatia should abandon its beloved monetary currency unit Kuna and adopt the Euro.

Since 2004 Croatia had a bumpy ride to its 2013 achieved status as EU member state. This bumpy ride particularly saw parts the international community collaborating with some ex-communist Yugoslavia Croatian operatives fabricate evidence to attempt a criminalisation of Croatia’s Homeland War in defence from brutal Serb aggression. This bumpy ride included the equating of victim with the aggressor. This bumpy ride included an increased stacking of Croatia’s public service posts and positions of power with former communists and/or their descendants. Hence, an anti-EU membership mood that became visibly prevalent in by 2010 and the government, obviously fearing that the EU Membership referendum would fail if the Constitution was not changed went on to change the Constitutional law governing referendums.

That is, the section dealing with Referendums in 1990 stated that the referendum is decided upon by the majority of votes but under the condition that a majority of the total voter numbers vote in the referendum and this was changed in 2010 whereby majority of total voters were no longer required to turn up at voting but the question asked in the referendum is decided on the basis of majority vote out of the total number of people who turned up to vote. And so, we had the situation that in 2012 the majority vote out of the dismal 28% of total voters turnout decided that Croatia should become an EU member.  

Having been through the process of public consultations/submissions since the beginning of this year the government of Croatia is currently bringing before the parliament its proposal for changes to the Constitutional law governing referendums. The government claims that its proposed changes will being an improvement in the vague legislative framework of the referendum institute. That the new legislation will be harmonised with the Constitution and ensure transparency and openness of its implementation. Citizens should have a more effective influence in the political decision-making process, the government claims.

The changes proposed include that Local self-government units are obliged to provide places for collecting signatures for referendum initiatives, depending on the number of inhabitants in that local self-government unit. Parliament also undertakes to call a referendum within 30 days (instead of the current 15) after the Electoral Commission determines that enough signatures have been collected.

Whether, if passed into law, limiting referendum polling places to government offices only (not city squares, schools, or parks also) is the most voter-friendly part of the referendum process is a moot point and its clarification is bound to appear if a referendum is held after the parliament passes the proposed changes to the legislation. Certainly, experience would suggest that limiting polling places to government-controlled venues will always deter many voters from turning up at the polls in fear of government control and corruption.   

Conspicuously missing from the proposed changes to law governing referendums is the fact that the proposal does not include any possibility of scrutinising or observing the counting of votes in the referendum voting processes despite the bitter experiences of the 2018 referendum attempts that were often described as corruption and manipulation of public votes.

Croatia’s Prime Minister Andrej Plenkovic has announced that his government will introduce Euro as Croatia’s official monetary currency during 2023. He has also reminded the public this month that the process of joining the EU in Croatia enjoyed the support of all participants in the political scene and made it clear that there would be no referendum on the Euro.

“It was seen in the process of EU accession negotiations and in the referendum,” said the Prime Minister, adding that 150 MPs voted in favour of joining the Union at the time and that he believed that the issue was resolved by referendum and vote in Parliament. “Croatia then legally and politically undertook to join the eurozone,” he said. Plenkovic also stated that those against introducing the Euro to Croatia had done nothing for the process of Croatia achieving membership in the EU.

Let’s keep it real, Prime Minister!

Plenkovic’s statement that those against the Euro had done nothing for Croatia’s membership in the EU appears scandalous and certainly not true because Croatia became a member of the EU as an independent state created and fought for in a bloody war by multitudes of those who do not want to give up the Kuna and embrace the Euro. The people who fought for and sacrificed their own lives and for an independent Croatia have an absolute right to fight to retain a potent symbol of their suffering for freedom from communism – the Kuna!

Hence, the Prime Minister Plenkovic is wrong in insisting that there would be no referendum regarding the Euro. Not all EU member countries are also members of the Eurozone and therefore, this evidences the option that membership in the EU does not oblige its members to also become members of the Eurozone.

As the date of the apparently imminent introduction of the new currency approaches, such a possibility is gaining more and more public attention, which, as with EU membership for example, is divided. Some are in favour of the introduction of the Euro because they believe that it will stabilise Croatia and help its further development and investments. At the same time, others strongly oppose the announcement because they fear an increase in the prices of everyday necessities and an additional drop in citizens’ standards.

Croatian Sovereighnists party, headed by Hrvoje Zekanovic MP, which is part of conservative opposition parties in the Croatian Parliament, has launched the organising of a referendum on the adoption of the Euro in Croatia and they are against the Euro and against Croatia being a part of the Eurozone. They state that their main reason for wanting to protect the Kuna, to keep it is in the fact that national currency and the management of its exchange rate is one of the key parameters of influencing the economic development of the country, so this parameter should remain in the hands of the Republic of Croatia and its citizens, for whom Croatian interests are a priority.

No date is in sight as to when the referendum process will commence but one may safely say it will be during 2022. Furthermore, it is anticipated that it will take several months for the new legislation regarding referendum changes to come out the other end as passed. Hence, the initiative for a referendum and the government’s insistence that there will be none, is surely to bring in a great deal more of political unrest and disagreements in Croatia, including bitter clashes between citizens who tend to see the adoption of the Euro as the hated last straw that will break the back of the pride rightly held for the glorious victory over the Serb and communist aggressor during the 1990’s.

Prime Minister Plenkovic keeps telling the Croatian public that the adoption of the Euro will increase the standard of living at a greater rate than any increases in prices. The opponents of the Euro in Croatia state that this is not the time to adopt the Euro in Croatia as that currency is good only for the wealthy countries, those in the EU with a much higher standard of living, that the rounding off of prices is bound to occur with the introduction of the Euro and thus be detrimental for Croatian citizens. Also, on the side against the Euro many say that the Eurozone is an unsafe conglomerate and if it falls apart the poor Croatia will be placed in the situation of having to contribute to the repair and bailing other countries, such as Greece and Italy, out of a debt crisis, as their losses in this event could surface after the Coronavirus pandemic as being astronomical. The greatest complaint against the Euro appears to be the widespread belief that by losing its national currency Kuna, Croatia will lose a great deal of its hard-earned sovereignty, paying for it with rivers of blood and devastation.

And at the end of the day a referendum regarding the Euro should be held in Croatia if because of nothing else then because only 28% of total Croatian voted at the EU referendum in 2012 and barely 67% of those voted Yes to Croatia’s EU membership. A referendum on the Euro could indeed be a great test for the Croatian citizens regarding their experiences and trust as members of the EU as opposed to national sovereignty and retention of values from the Homeland War. Ina Vukic

Warning: Eurozone Turbulence Ahead For Croatia

Croatia’s Prime Minister
Andrej Plenkovic

 

According to Prime Minister Andrej Plenkovic’s words on Monday 30 October 2017 at an economic conference devoted to the introduction of the euro in Croatia, Croatia aims to become a Eurozone member within the next seven to eight years.

So now what? Can the madness of Eurozone failure and struggle be stopped from infecting Croatia? The United Kingdom’s 2016 shock referendum vote for Brexit was a warning about the gap between angry voters and pro-immigration, pro-globalisation élites. Globalisation in the eyes of those that voted for Brexit would rather apply to spreading ones country’s interests across the globe than being a part of a melting-pot of countries tied by a union, such as the EU, in which pot some countries suffer while others, particularly the bigger ones, benefit. As Jean-Claude Juncker, the president of the European Commission, has memorably said in 2014 on Eurozone economic policy and democracy, “We all know what to do, but we don’t know how to get re-elected after we’ve done it.” That doesn’t sound like a prediction of radical reform. It’s a dangerous moment for Europe.

In 1992, the European Union made what the Nobel Prize-winning economist Joseph Stiglitz in August of 2016 called “a fatal decision”: the choice “to adopt a single currency, without providing for the institutions that would make it work.”  In “The Euro: How a Common Currency Threatens the Future of Europe” (Norton), Stiglitz lucidly and forcefully argues that this was an economic experiment of unprecedented magnitude: “No one had ever tried a monetary union on such a scale, among so many countries that were so disparate.”

When Lehman Brothers collapsed, in September, 2008, and the global financial crisis hit, all Western economies went into recession, but the Eurozone countries suffered the most and for the longest. The U.S. unemployment rate hit ten per cent for a single month in 2009 and is now below five per cent; the Eurozone unemployment rate hit ten per cent around the same time, and it was only in July 2017 that it fell just below that figure while in individual countries there it still lingers in double digits. The Eurozone’s economy is smaller than it was when the crisis hit and many world’s top economy experts, including Stiglitz, the euro is to blame for all this underperformance. But let’s say the euro can’t be blamed for everything economically grim in the Eurozone and if it’s not only the euro then one can safely argue that the economic politics attached to it certainly complete the picture of failure causes. Eurozone takes away the two main monetary tools a country can use to manage its economy. The first is to cut interest rates in order to stimulate demand and the second is to reduce the value of the currency in order to stimulate exports.

In Europe, the first thing that happened after the crisis was that all the bubbles popped. The “peripheral” countries suffered dramatic economic contractions, compounded by bank implosions, and had to appeal for financial assistance to avert complete collapse. To make things even darker, a complex mixture of international politics, economics, and law meant that the body that stepped in to help the crisis economies was a triple-headed entity, the Troika, made up of the European Commission, the European Central Bank, and the International Monetary Fund.

The Troika had strong views about how the afflicted economies should be fixed. They rolled into town demanding austerity, meaning severe cuts to government spending, and structural reform, meaning changes to the way a country’s economy works. They doled out money on the condition that these policies were implemented, and accompanied the package with fancy charts showing how the economy was going to recover after the austerity medicine took effect. It is, if you have a twisted sense of humour, just possible to see the funny side of these bailout-and-austerity packages, especially the ones concerning Greece. The numbers are grim, and the human realities are worse—joblessness, hopelessness, forced emigration, spikes in the suicide rate.

The pendulum swings no differently in Croatia. It has not all this time been a member of the Eurozone, but has since 2013 as member state of EU been affected by the Troika medicine, or should we say – infection.

And now we have Croatia revving to jump into the Eurozone disaster zone! One wonders how much of the revving fuel is contained in a wild notion of romanticising about the saving power of Eurozone amidst current threats of bankrupting Croatia that are unfolding in dealing with “Agrokor” disaster and corruption has been poured into the political plights to save Croatia’s government from falling – yet again!

“We don’t want to specify the exact dates, but we want Croatia to become a euro zone member within two government terms in office,” Plenkovic said during the conference on 30 October 2017, continuing: “We have two key aims – one is to join the Schengen area, or rather be ready for the political decision in 2019, and the other is to join the Eurozone.”

EU members that have not yet adopted the euro are expected to spend at least two years in the Exchange Rate Mechanism (ERM) II, a mechanism aimed to ensure currency stability before joining the eurozone.

Plenkovic’s centre-right HDZ government came to power in 2016, three years after Croatia joined the EU. Croatia is still one of the poorest member states and its economy contracted steadily from 2008 to 2015, with a mild rebound in the last two years. The Croatian central bank already keeps the kuna currency in a narrowly managed float, with minor fluctuations during the year, and steps in to prevent sharp changes by intervening on the local exchange market.

The toughest challenge for Croatia to join the Eurozone will be bringing the public debt level to below 60% of GDP. It is slightly above 80% of GDP now. “Our goal is to reduce the public debt to 72% of GDP by 2020 … We are undertaking a major fiscal consolidation and this year the budget gap will be even lower than last year’s 0.9% of GDP,” Plenkovic said.

Central Bank Governor Boris Vujcic said Croatia was the most “euroised” EU country of those that had not yet adopted the euro (Czech Republic, Poland, Hungary, Croatia, Romania and Bulgaria).

“Some 75% of local deposits and 67% of local debt is denominated in the euro. Some 60% of Croatia’s trade exchange is related to the euro zone, while 70% of tourism receipts comes from the euro zone countries,” Vujcic told the conference.

It is, however, crystal clear that over time the EU  has no longer been pursuing the route of a free trade area but it became increasingly politicised, and the idea was to set up a centralised power structure in Brussels to transfer national sovereignty rights on to the supranational decision making structure. Now the EU policy is about interventionism, they try to interfere in all sorts of economic and social fields to push through all kinds of political concepts and that’s a very dangerous idea. This being so, one cannot quietly and compliantly accept Prime Miniser Andrej Plenkovic’s statement from 30 October 2017 in which he said: “We said yes to the Eurozone when we joined the EU. The reason we’re not there yet is that we still have to meet all the criteria and not because we need the political decision.” This only gives muscle to the EU political battle for survival while living standards in Croatia keep plummeting and working-age people keep emigrating in droves. What a mess! It’s a mess that can possibly be sorted to benefit Croatia, rather than the EU, by people political power. If Croatia’s government keeps referring to the EU referendum of 2012 as something Croatian people committed themselves to then the reality and people-legitimacy of that referendum needs to be re-examined. It was, after all, a referendum at which barely 29% of Croatian voters turned out for voting! Ina Vukic

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