Croatia and the euro

Eurozone participation

  19 European Union member states in the eurozone

  7 European Union member states not in ERM II, but obliged to join the eurozone once convergence criteria are met (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden)

  1 European Union member state in ERM II, with an opt-out (Denmark)

  1 European Union member state not in ERM II, with an opt-out (United Kingdom)

  4 non-European Union member states using the euro with a monetary agreement (Andorra, Monaco, San Marino and Vatican City)

  2 non-European Union member states using the euro unilaterally (Kosovo and Montenegro)

I always quote the Bob Dylan song ‘When you ain’t got nothing, you got nothing to lose’. If you don’t have independent monetary policy what are you going to lose by entering into the monetary union? —Boris Vujčić, Governor of the Croatian National Bank, makes an analogy about Croatia's long-held euro-focused monetary policy.

Croatia's currency, the kuna, has used the euro (and prior to that one of the euro's major predecessors, the Deutsche Mark) as its main reference since its creation in 1994, and a long-held policy of the Croatian National Bank has been to keep the kuna's exchange rate with the euro within a relatively stable range.

Croatia's EU membership obliges it to eventually join the eurozone, as such the country plans to join the European Monetary System, the pathway to euro adoption. Prior to Croatian entry to the EU on 1 July 2013, Boris Vujčić, governor of the Croatian National Bank, stated that he would like the kuna to be replaced by the euro as soon as possible after accession. This must be at least two years after Croatia joins the ERM2 (in addition to it meeting other criteria). The Croatian National Bank had anticipated euro adoption within two or three years of EU entry. However, the EU's response to the ongoing financial crises in eurozone states may delay Croatia's adoption of the euro. The country's own contracting economy also poses a major challenge to it meeting the convergence criteria. While keen on euro adoption, one month before Croatia's EU entry governor Vujčić admitted "...we have no date [to join the single currency] in mind at the moment". Before Croatia can join ERM II, it must reduce its budget deficit by about 1.5 billion kuna (June 2013 figures). The European Central Bank expects Croatia to be approved for ERM II membership in 2016 at the earliest, with euro adoption in 2019.

Many small businesses in Croatia had debts denominated in Euro before EU accession. Croatian people already use the euro for most savings and many informal transactions. Real estate, motor vehicle and accommodation prices are mostly quoted in euros.

Public opinion

According to a eurobarometer poll in April 2015, 53% of Croatians are in favour of introducing the euro while 40% are opposed, roughly unchanged from 2014.

Convergence Status

In its first assessment under the convergence criteria in May 2014, the country satisfied the inflation and interest rate criteria, but did not satisfy the public finances and ERM membership criteria.

Convergence criteria
Assessment month	Country	HICP inflation rate	Excessive deficit procedure		Exchange rate		Long-term interest rate	Compatibility of legislation
			Budget deficit to GDP	Debt-to-GDP ratio	ERM II member	Change in rate
2014 ECB Report	Reference values	Max. 1.7% (as of 30 Apr 2014)	None open (as of 30 Apr 2014)		Min. 2 years (as of 30 Apr 2014)	Max. ±15% (for 2013)	Max. 6.2% (as of 30 Apr 2014)	Yes (as of 30 Apr 2014)
			Max. 3.0% (Fiscal year 2013)	Max. 60% (Fiscal year 2013)
	Croatia	1.1%	Open		No	-0.8%	4.8%	Yes
			4.9%	67.1%

  Criterion fulfilled

  Criterion potentially fulfilled: If the budget deficit exceeds the 3% limit, but is "close" to this value (the European Commission has deemed 3.5% to be close by in the past), then the criteria can still potentially be fulfilled if either the deficits in the previous two years are significantly declining towards the 3% limit, or if the excessive deficit is the result of exceptional circumstances which are temporary in nature (i.e. one-off expenditures triggered by a significant economic downturn, or by the implementation of economic reforms that are expected to deliver a significant positive impact on the government's future fiscal budgets). However, even if such "special circumstances" are found to exist, additional criteria must also be met to comply with the fiscal budget criterion. Additionally, if the debt-to-GDP ratio exceeds 60% but is "sufficiently diminishing and approaching the reference value at a satisfactory pace" it can be deemed to be in compliance.

  Criterion not fulfilled

Notes

Target date for euro adoption

In April 2015, President Kolinda Grabar-Kitarović stated in a Bloomberg interview she was "confident that Croatia would introduce the euro by 2020", while Prime Minister Zoran Milanović said at the government session that "some occasional announcements when Croatia will introduce the euro shouldn't be taken seriously. We'll try to make it as soon as possible, but I distance myself from any dates and ask that you don't comment on it. When the country is ready, it will enter the euro area. The criteria are very clear."

See also

• Accession of Croatia to the European Union
• Enlargement of the eurozone