EU member Croatia joins the eurozone – DW – 01/01/2023

In Ivana Horvat’s bakery in Zagreb, prices have long been marked both in Croatian kuna and in euros. A loaf of olive bread, for instance, costs 18.48 kuna, or €2.65 ($2.80). All the same, Horvat is skeptical about the changeover to euros.

“All prices will be rounded up. Many people have mortgages and interest rates will go up. We don’t know what to expect starting on January 1,” she told DW ahead of the currency’s introduction.

Croatians appear to be split on the issue — 55% of the country’s citizens are in favor of introducing the euro, according to a European Commission survey. Almost one out of two are concerned the euro will have negative consequences, and only one out of three believe the country is well-prepared. Meanwhile, 81% of Croats fear the introduction of the euro will lead to higher prices, a figure that has risen dramatically in recent years after the COVID pandemic dealt a severe blow to the Croatian economy, which is heavily dependent on tourism.

Ivana Horvat is worried that prices will rise in her bakeryImage: Darko Mardesic/DW

Skepticism is evident among the people who sell their goods at the market in Zagreb. “I am afraid of the first months in the new year. The transition period will be hard for people,” said an elderly man, who declined to give his name.

Many of the street traders, most of them women, are of retirement age. They’re all trying to make some extra cash to supplement their monthly pensions of around €250. Price hikes due to the new currency would hit them hardest.

‘They shouldn’t take away our currency’

“We are not happy about it! Everything has been fine so far, joining NATO, the EU. But they should not take away our currency! The kuna has always been our money, our grandfathers paid with it,” grumbles a greengrocer, adding she is afraid that everything will become much more expensive.

The kuna was created in 1994 when Croatia became independent, and it was linked to the deutschmark — and later the euro — from the start. Confidence in the domestic currency was initially low after high inflation in the 1980s in the former Yugoslavia, where the deutschmark was regarded as a kind of reserve currency.

For cars, real estate and hotel rooms in Croatia, sales have been based on euro prices in recent years. Companies and private individuals hold assets in euros, and two-thirds of the national debt is also denominated in euros. For the government in Zagreb, the path to accession seemed inevitable as soon as the country met the Maastricht criteria, which meant it had new debt, inflation and interest rates under control.

Croatia a minor economic player

Usually, it’s seen as an advantage if a government can increase competitiveness in the short term by devaluing an independent currency. Yet according to Katharina Gnath, a senior project manager at the Bertelsmann Foundation in Berlin, the existing close ties to the euro actually invalidate the euro critics’ argument.

But the Croatian government is giving up the only instrument of its fiscal policy, argues Ljubo Jurcic, a professor emeritus at the University of Zagreb who also believes that “large countries benefit more from the euro than small ones” and that they are dominated by the interests of the stronger member states.

Croatians share mixed feelings on the euro

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From an economic point of view, he told DW, Croatia with its 4 million inhabitants is a minor player. The economist said it’s crucial to look at the introduction of the euro from both the perspective of the citizens and the national economy.

“Introducing the euro in Croatia is a purely political decision on the assumption that it will bring us closer to Europe, and it will be that way for ordinary citizens,” said Jurcic. But he foresees “big problems for the Croatian economy.” Croatia meets the Maastricht criteria in form, but not in substance, he said. “The real condition for admission is that we should have about the same level of economic development as the EU average.” Croatia, however, is only at one-third of the average, he pointed out.

The Croatian economy is built primarily on services, said Jurcic, adding that about 20% of that is dependent on tourism. A longer-term reorientation will be necessary to catch up with the rest of the EU, he said, pointing out that the country so far has no plans in that direction. He believes neighboring Slovenia followed smarter policies — there, prosperity is based on production facilities for large European companies that were brought into the country shortly after independence.

Tourism industry looking forward to euro

A drive along the Croatian coast on a rainy December day gives only a rough idea of ​​the beauty of the Opatija region with its pine forests, rocky coastline and many bays. Milan Cesar runs a family-owned hotel open all year round. During the winter, his guests — mainly visitors from Austria, Germany and neighboring northern Italy — enjoy the pool and sauna. For him, the introduction of the euro is a great relief.

“We hotel owners look forward to the euro — our work will be much easier and we are well-prepared,” said Sesar. “I understand that some people are afraid of the transition, but I think there is nothing to fear. In the end, money will always be money.”

Two Austrian guests from Salzburg chime in, saying that having to exchange currency is a nuisance. They add that most of all, they are looking forward to an end to the long lines at the borders. As of January 1, border controls will also be dropped because Croatia will have joined the Schengen Area, the group of European countries that have agreed to abolish passport and customs controls among themselves. If that shortens the trip from Salzburg to Opatija by an hour, the Austrian women said, they might visit more often.

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Cesar believes the situation can only get better. “Croatia is so beautiful that people always come here, no matter the war, economic crisis and COVID,” he said, adding things will just get easier. “The euro and Schengen mean a lot for Croatian tourism and it shows that we are part of Europe,” he said. “That is a big plus for Croatia.”

Undoubtedly, the tourism industry stands to benefit, but for the economic future, the country needs new, higher-skilled and better-paid jobs for young people to stop them from moving to neighboring countries.

Average salaries in Croatia have risen in recent years, but at about €1,100 per month, they still rank in the bottom third of EU countries. Along with the euro, Croatia needs to reorient its economy to catch up with its wealthier neighbors.

This article was originally written in German.

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