Prime Minister has some ambitious plans
“I spoke with the Croatian National Bank Governor Vujčić and I think that in two years we can start the process of introducing the euro, which could be fully implemented within four years”, said the Croatian Prime Minister Tihomir Orešković in Berlin on March 1st, which surprised the experts, since it is almost impossible for Croatia to adopt the euro before 2021 or 2022 at the earliest, as it was recently explained by Governor Vujčić himself, reports Novi List .
Vujčić recently said that the trend of public debt growth has to turn around first, which is currently the biggest obstacle to the introduction of the euro, and then it will take another few years to prove that we are capable of maintaining this new trend. Only then could preparations begin for the entry into the European Exchange Rate Mechanism, which takes another two years.
Perhaps Orešković actually talked about the preparations for the introduction of the euro, which would mean that in the most optimistic scenario the euro could be introduced in 2022, but if so, he did not explain his position very well. “It is true that we have talked about the process of introducing the euro, and I assume that the Prime Minister meant that in about four years, in 2020, we could start preparing for the introduction of the euro, which by itself is a quite strong guarantee that the euro will be introduced. But, to introduce the euro in just four years, that is not possible”, said Vujčić yesterday.
The first prerequisite for the introduction of the euro is reduction of public debt to GDP ratio, which can be achieved by selective cuts and the acceleration of economic growth, which should be at least 4 percent a year, or at least equal to the interest rates which Croatia is paying, since otherwise the debt is constantly being increased.
What is interesting in Orešković’s statement is the fact that he himself stated earlier that one of his government’s objectives is to lower the public debt to 80 percent of GDP by 2020, and GDP growth of 3 percent. This is not enough for the euro to be introduced, so either the Prime Minister revised the original targets so that they are more consistent with the objectives of monetary policy, or he simply overlooked the connection between the public debt levels and the conditions for the introduction of the euro.