Croatia, a member of the EU, joins the eurozone – DW – 01/01/2023

In Ivana Horvat’s bakery in Zagreb, prices have been marked both in Croatian kunas and in euros for a long time. A loaf of olive bread, for example, costs 18.48 kunas, or 2.65 euros ($2.80). Still, Horvat is skeptical about the switch to euros.

“All prices will be rounded up. A lot of people have mortgages and interest rates will go up. We don’t know what to expect after January 1,” he told DW ahead of the currency’s introduction.

Croats appear to be divided on the issue: 55% of the country’s citizens are in favor of introducing the euro, according to a European Commission survey. Almost one in two are concerned that the euro will have negative consequences, and only one in three believe the country is well prepared. Meanwhile, 81% of Croats fear that the introduction of the euro will lead to higher prices, a figure that has risen sharply in recent years after the COVID pandemic dealt a heavy blow to the Croatian economy, which relies on much of tourism.

Ivana Horvat, woman in a bakery, next to a selection of bread
Ivana Horvat fears that prices will rise in her bakeryImage: Darko Mardesic/DW

Skepticism is evident among the people who sell their products in the Zagreb market. “I am afraid of the first months of the new year. The transition period will be difficult for people,” said an elderly man, who declined to name him.

Many of the street vendors, most of them women, are of retirement age. They are all trying to earn some extra money to supplement their monthly pension of around €250. Price increases due to the new currency would affect them more.

‘They shouldn’t take away our currency’

“We are not happy with that! Everything has gone well so far, entering NATO, entering the EU. But they should not take our currency away from us! The kuna has always been our money, our grandparents paid with it,” complains one greengrocer, adding that he is afraid that everything will become much more expensive.

The kuna was created in 1994 when Croatia became independent and was pegged to the deutsche mark, and later to the euro, from the start. Confidence in the national currency was initially low after the high inflation of the 1980s in the former Yugoslavia, where the Deutsche Mark was considered a kind of reserve currency.

For cars, real estate and hotel rooms in Croatia, sales have been based on prices in euros in recent years. Companies and individuals hold assets in euros, and two-thirds of the national debt is also denominated in euros. For the Zagreb government, the path to accession seemed inevitable as soon as the country met the Maastricht criteria, which meant it had new debt, inflation and interest rates under control.

Croatia a minor economic player

It is generally considered an advantage that a government can increase competitiveness in the short term by devaluing an independent currency. However, according to Katharina Gnath, senior project manager at the Bertelsmann Foundation in Berlin, the close ties to the euro actually invalidate the euro critics’ argument.

But the Croatian government is giving up the only instrument of its fiscal policy, argues Ljubo Jurcic, emeritus professor at the University of Zagreb who also believes that “big countries benefit more from the euro than small ones” and that they are dominated by the interests of the strongest member states.

Croats share mixed feelings about the euro

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From an economic point of view, he told DW, Croatia, with its 4 million inhabitants, is a minor player. The economist said that it is crucial to look at the introduction of the euro both from the perspective of citizens and the national economy.

“Introducing the euro in Croatia is a purely political decision on the assumption that it will bring us closer to Europe, and that will be the case for ordinary citizens,” Jurcic said. But he foresees “big problems for the Croatian economy.” Croatia meets the Maastricht criteria in form, but not in substance, he said. “The actual condition for admission is that we should have roughly the same level of economic development as the EU average.” Croatia, however, is only a third of the average, he noted.

The Croatian economy is mainly based on services, Jurcic said, adding that around 20% depends on tourism. A longer-term reorientation will be needed to catch up with the rest of the EU, he said, noting that the country so far has no plans in that direction. He believes that neighboring Slovenia followed smarter policies: prosperity there is based on the production facilities of large European companies that were brought to the country shortly after independence.

The tourism industry waiting for the euro

A walk along the Croatian coast on a rainy December day only gives you a rough idea of ​​the beauty of the Opatija region with its pine forests, rocky coastline and numerous bays. Milan Sesar manages a family hotel open all year round. During the winter, its guests, mainly visitors from Austria, Germany and northern Italy, enjoy the pool and sauna. For him, the introduction of the euro is a great relief.

“We hotel owners are looking forward to the euro; our job will be much easier and we are well prepared,” Sesar said. “I understand that some people are afraid of the transition, but I think there is nothing to fear. In the end, money will always be money.”

Two Austrian guests from Salzburg intervene and say that having to change currency is a hassle. They add that, above all, they are looking forward to the end of the long lines at the borders. From January 1, border controls will also be removed because Croatia will have joined the Schengen Area, the group of European countries that have agreed to abolish passport and customs controls between themselves. If that shortens the trip from Salzburg to Opatija by an hour, the Austrian women said, they could visit more often.

Game of Thrones draws tourists to Dubrovnik

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Sesar believes that the situation can only get better. “Croatia is so beautiful that people always come here, regardless of the war, the economic crisis and COVID,” he said, adding that things will be easier. “The euro and Schengen mean a lot for Croatian tourism and it shows that we are part of Europe,” she said. “That’s a big advantage for Croatia.”

The tourism industry will undoubtedly benefit, but for the economic future, the country needs new, better-skilled, and better-paying jobs for young people to prevent them from moving to neighboring countries.

Average salaries in Croatia have increased in recent years, but at around €1,100 a month, they are still in the bottom third of EU countries. Along with the euro, Croatia needs to reorient its economy to catch up with its wealthier neighbors.

This article was originally written in German.

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