As Poslovni Dnevnik/Marija Brnic writes, the introduction of the euro was mostly called for by Croatian exporters, and they’ve been calling for it since the country joined the EU back in July 2013. For years now, Croatian exporters have endlessly appealed to the Croatian National Bank (CNB) for a change in the exchange rate policy and a weakening of the kuna in order to enable them to be more competitive on international markets, and they also called for the introduction of the euro, which has now finally occurred, and which would simplify their jobs and all of their financial planning, not to mention lead to the overall improvement of borrowing conditions from banks.
One of the most passionate of all was Darinko Bago, the long-time president of the board of Koncar and until recently the president of the Croatian exporters association, who is now very satisfied that Croatian Eurozone accession has finally happened.
Timely government reactions
Bago, while having hoped Eurozone accession would have happened earlier, believes that even though we’re ”late to the party” as it were, it’s better now than never.
“Over the last 20 years, the EU has lost more than 36 percent of its market position, the second problem is the drop in the birth rate, and thus its own demand, which is the generator of growth, and the third is the bloc lagging behind, because today, the European Union does not have, for example, a chip factory, and it’s still energy dependent. Russian aggression against Ukraine only increased inflation, because the problems started when China unilaterally abolished subsidies and the transport of goods became more expensive, which created a problem with the import of products of lower value and larger quantities into the EU, and then the coronavirus pandemic and the war in Ukraine only increased the vulnerability of the EU. Of course, all of this also affects Croatia, because two-thirds of Croatian imports and exports take place with the EU,” Bago pointed out.
“The European Commission (EC) is spreading clouds of money around some countries and this is happening in a non-transparent manner, how the money is used isn’t really being monitored, nor are any of the effects it produces,” concluded Bago. However, even under such conditions, Croatian entry into the Eurozone and Schengen opens up a far better perspective for Croatian exporters, and the decisive factor for the effects on exports and the overall economy will be that the Croatian Government reacts promptly to EU processes and reacts in the right way.
“For us, 2022 was the year of further European integration, and now comes the year of real struggle to maintain the economy,” says Bago.
Hrvoje Stojic, chief economist of the Croatian Association of Employers, recalls that Croatian exporters and their products have already benefited from European integration. Since joining the EU in 2013, it has more than doubled to date. Entry into the Eurozone combined with Schengen accession, along with existing membership in NATO, will additionally structurally include Croatian exporters in global value chains, and as such open new opportunities for significant export growth.
“The disappearance of the currency risks, the strong drop in exchange fees, the improvement of financing conditions thanks to the improvement of the perception of risk, also give greater predictability when conducting business. Stronger institutional and market pressures have a positive effect on the competitiveness of private companies and their tendency to invest in order to maintain or strengthen competitiveness. Viewed at the level of a comparable credit rating, membership in the Eurozone enables Croatia to have a 1.5 to 2 percentage point lower cost of financing compared to those who aren’t Eurozone member states,” Stojic points out.
Greater room for wage growth
Stojic also expects that these positive influences will open up more space for wage growth based on productivity growth, and in the event of a new systematic financial crisis, Croatia will be able to count on the intervention mechanisms of the ECB through access to the European Stability Mechanism, which reduces the risk of potentially expensive banking and balance of payments crises and ultimately serious risks to the country and the domestic economy.
Joining the currency union and the loss of the independent monetary policy of the CNB means the opening of the possibility of enjoying an active monetary policy, which until now, due to exchange rate restrictions, was simply not possible. In addition to that, financial integration with the institutions and the financial market of the Eurozone will be further deepened, making it likely that the costs of not only credit, but also non-credit instruments of financing and export insurance will be somewhat lower.
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