Croatia’s Hesitant First Step Towards Introducing Euro

Total Croatia News

Croatia will ratify the EU’s Fiscal Compact, but without crucial provisions which control public spending.

Although Croatia will not take over the critical fiscal provisions of Title III of the so-called Fiscal Compact, the agreement represents the first serious step towards the introduction of the euro, according to the Institute of Public Finances (IJF), reports on January 4, 2018.

“After the Parliament adopts the relevant law proposal, the first legal precondition for Croatia to approach the Eurozone and the monetary union will be made. Since the fiscal part of the compact foresees that the structural budget deficit of members with the debt of more than 60 percent of GDP must not exceed 0.5 percent of GDP, prior to joining the Eurozone (when the right of exemption ceases to exist) Croatia would have to intensify fiscal consolidation and the implementation of the announced structural reforms,” according to the latest report drafted by Anto Bajo from the IJF and Davor Galinec from the Croatian National Bank (HNB).

In late October, during the presentation of the strategy for the introduction of the euro, the government announced the signing of the Fiscal Company, which is officially known as the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.

The announcement has been welcomed by most experts, considering that the Fiscal Compact would be an invaluable instrument for a more serious consolidation of public finances and control of fiscal appetites of individual societal groups. However, at the last session of the cabinet before Christmas, the government initiated the ratification of the treaty with the exception of the critical Title III, which forces the signatories to more rationally spend taxpayers’ money and reduce debts.

Ultimately, the only thing that Croatia will be obliged to comply with is that it will participate twice a year at meetings of Eurozone leaders, at least until the introduction of the euro. This shows that the government’s readiness to start fulfilling preconditions for the introduction of the euro appears to be more focused on talking about the issue than on actually controlling public spending, which is in Croatia often used to buy off certain societal groups which could otherwise start creating problems for the government.


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