Jubilant Croatia also wants to win big, in the eurozone

Jubilant Croatia also wants to win big, in the eurozone

By Michael Winfrey, Jasmina Kuzmanovic and Gordana Filipovic

Croatia is brimming with confidence, and its leaders think it’s time for the EU’s newest member to join the eurozone.

A cabinet meeting in Zagreb, this week, kicked off with every minister proudly wearing the national team’s jersey, in celebration of the 2-1 World Cup victory over England. 

Croatian fans celebrate in Zagreb, Croatia, at the end of the semifinal match between Croatia and England on Wednesday. Pic: AP
Croatian fans celebrate in Zagreb, Croatia, at the end of the semifinal match between Croatia and England on Wednesday. Pic: AP

Having joined the elite group of nations that have made it to the final, Croatia’s parliament backed a pro-euro central bank governor, Boris Vujcic, for a new, six-year mandate.

Many of the EU’s poorer countries see the euro as a way to anchor their place in an increasingly divided alliance. 

While some of the ex-communist nations — Poland, the Czech Republic, and Hungary — have no firm plans to switch to the euro, others are eager to join. Bulgaria and Romania are in various stages of preparation.

“Entering the eurozone should be good for Croatia,” said Zeljko Lovrincevic, professor at the Economic Institute in Zagreb. “But the process may be difficult,” he said. 

Mr Vujcic’s re-election is bound to help prime minister, Andrej Plenkovic, who vowed to enter the euro’s antechamber, known as ERM-2, by 2020. 

The big question is whether a currency area that has just tidied up after the Greek debt crisis is willing to take in another Balkan member. 

Despite being technically ready, fellow ex-communist peer, Bulgaria, slowed down its plans to apply for the ERM-2, after getting the cold shoulder from the ECB and the European Commission.

“Entry into the eurozone is the natural next step and we believe that Croatia will soon become a good candidate for the ERM-2,” Mr Vujcic said, just hours after his confirmation in parliament. 

“We are confident that euro adoption will have a significant, positive impact on the Croatian economy,” he said. 

While being richer than Bulgaria, Croatia doesn’t tick all the economic boxes for ERM-2 entry. 

Even as its currency, the kuna, is kept in a tightly controlled currency band against the euro and though the government ended last year with a budget surplus, it misses the so-called Maastricht requirements on inflation and debt, which was 78% of economic output in 2017, above the required ceiling of below or heading toward 60%.

EU officials have also become more cautious about expanding the eurozone, following money-laundering scandals in places like Latvia and Estonia. 

Although Croatia hasn’t had a major blow-up in its mostly foreign-owned banking industry, its biggest company, Agrokor, unravelled last year, shaking lenders and causing a deputy prime minister to resign.

Bloomberg

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