Euro-denominated loans are so high that it is impossible to avoid the introduction of the euro.
By entering the European Union, Croatia has accepted the obligation to introduce the euro, and even if it did not want it, the high eurisation of the country makes it impossible to come to any other decision. The only question is whether it should be done within five years or over a longer period, said the participants of the “Euro: Yes or Not” panel discussion, reports Jutarnji List on 5 July 2017.
The discussion was held in the context of the recent exit of Croatia from the EU’s excessive budget deficit procedure. According to economist Velimir Šonje, that has created good conditions to initiate a public debate on this topic for which there is great interest, but little understanding.
Šonje presented a cost and benefit map of the introduction of the euro, in which the main advantages are the mitigation of the currency risk, lower interest rates, positive impact on financial and economic stability and the abolition of conversion cost. The arguments against are the perception that the introduction of euro would cause rising inflation due to the effect of price rounding, as well as the fact that monetary policy would not be led according to the wishes of Croatia, but of more influential members of the monetary union.
Director of the Croatian Banking Association Zdenko Adrović pointed out the issue of the cost of conversion, saying that the income that banks generated by trading currencies in 2016 amounted to 1.8 billion kunas. This is the amount that banks would lose if Croatia joined EMU. However, Adrović pointed out that, by joining the EMU, the Croatian regulations in the field of banking would have to be adapted to the EU rules that are not as complex as those in Croatia, which would reduce the cost of bank operations and compensate for part of the loss of conversion income.
Associate at the Central Bureau of Statistics Jasna Torma denied there was the danger of inflation, presenting a series of studies that show that the rise in prices after switching to the euro was just a perception of the population, which data do not confirm. Namely, the prices in the euro-based countries grew at an average rate of just 0.3 percent.
“As for the argument about the loss of monetary sovereignty, we have long lost it,” said Marijan Ivanov from the Zagreb School of Economics, adding that the convergence was much more significant in this regard, which means harmonisation of local business processes with countries according to which the ECB develops monetary policy.
In defending the arguments for Croatia’s accession to the EMU, the participants agreed that the high euroization in Croatia meant that there was virtually no choice. If Croatia decided not to enter EMU, says Ivanov, it would be necessary to de-eurise the economy, which would be impossible primarily because the public is absolutely against it, so neither the government nor the central bank could do anything about it.
Adrović quoted numbers which also demonstrated that de-eurization was impossible. The state currently has euro debts in the amount of approximately 100 billion kunas, companies around 50 billion kunas, and citizens about 40 billion kunas.
