After the European Commission establishes Croatia has left the excessive deficit procedure, preparations will begin to enter the monetary mechanism ERM
By exiting the excessive deficit procedure, Croatia will reach the first precondition to begin negotiations on entering the European monetary mechanism and introduce the euro, said Croatian National Bank (HNB) Governor Boris Vujčić at the Monetary Markets conference. The Governor explained that such a request might be possible at the end of this year or the beginning of the next, after the national budget for 2018 is adopted, Večernji List reported on May 6, 2017.
Vujčić believes that by the middle of the current year, the European Commission will establish that the reasons for Croatia to remain in the excessive deficit procedure do not exist anymore. Last year the budget deficit was reduced to under 1 percent, and everything points to this year’s shortfall being at a satisfactory level. A first positive assessment also came for the second important test – public debt, which saw a significant reduction last year for the first time after being increased for eight years in a row. The EC and monetary authorities demand from eurozone members to have public debt below 60 percent of the GDP. When that debt is higher, such as in Croatia where the amount was 84.2 percent of the GDP at the end of 2016, the member state is expected to reduce it each year by one-twentieth of the difference above 60 percent. For Croatia this means an annual reduction of a little over 1 percent.
Last year that ratio was surpassed and since a similar result is expected this year, Vujčić hopes that a good 2018 budget proposal will open the doors for negotiations to enter the monetary mechanism ERM 2. This is the first step to introducing the euro and entering the eurozone, in which candidate states spend a minimum of two to three years. There are five criteria which every member must meet, related to the deficit, public debt, inflation, interest rates and domestic currency exchange rate. The HNB has already announced they will prepare a fundamental document for public discussion on the advantages and disadvantages of introducing the euro, while the start of the public discussion to depend mostly on the domestic political situation.
The HNB estimates the GDP will grow by 3% this year, including the moderate negative effect which could arise from financial problems faced by the Agrokor concern, around 0.3% of the GDP.