A country is preparing to abandon its currency and adopt the euro in a context of high inflation

With inflation in increase in Europe and unfavorable geopolitical winds shaking the bloc, Croatia hopes its changeover to the euro will bring a semblance of protection for the Balkan nation in a world of uncertainty.

On January 1, Croatia will deposit its Kuna currency, becoming the 20th member of the euro zone.

According to Agence France-Presse, Croatia, which joined the European Union about a decade ago, experienced an annual inflation rate of around 13% in September, compared to 10% in September.area of the euro.

In the period before the transition to the single European currency, the authorities did not stop talking about the benefits of adopting the euro for the country of 3.9 million people.

“The euro brings flexibility … Zagreb, if necessary, will be in able to obtain better loan conditions in difficult economic times, “said Anna Sabic of the Croatian National Bank.

Since July, the European Central Bank has embarked on monetary tightening as it seeks to curb the acceleration of inflation caused by the increases in energy and food prices caused by the Russian war. in Ukraine.

Analysts believe that Eastern European countries in the European Union with currencies outside the euro zone, such as Poland and Hungary, were even more vulnerable to rising inflation.

“It is actually the ideal time to switch to the euro,” said Goran Saravanja, chief economist at the Croatian Chamber of Commerce.

“When great uncertainty dominates the global economy, it is always better for a small and open economy like Croatia to be part of a larger union like the eurozone,” he added.

Furthermore, Croatia’s main trading partners are in the euro area, while the tourism sector, which accounts for 20% of the country’s GDP, is stimulated by a large number of European visitors.

The Croats have also adopted in much of the euro, since 80% of their bank deposits are in euros and their most valuable assets such as cars and apartments have a price in euro, indicating their distrust of the local currency that dates back to the former Yugoslavia, which was in the grip of high inflation before its disintegration.

During the Yugoslav era and after Croatia’s independence in 1991, real estate was valued in German marks until the advent of the euro two decades ago.

Hopes and fears

“Life will be easier,” said Roman, an economist from Zagreb, “let’s calculate everything anyway in EUR”.

For his part, Milan Bator, pharmacist in pension, has rejected the concerns of those who fear that some traders will take advantage of the changeover to the euro to drive up prices.

“It’s other reasons, like wars and material shortages, that are driving prices up. We can’t blame the euro for everything,” Batur said.

But some are still worried that they will suffer a financial blow from the move.

“The timing may not have been perfect, perhaps we could have delayed it a bit given the situation in the world,” said Zdravka Antonic, a florist at the Zagreb market.

“People are already worried about how everything will turn out and the euro only adds to the uncertainty,” he added.

Since the beginning of September, flower bouquets, like other goods and services, have prices in both currencies, with a conversion rate set by Brussels at 7.53 kuna per euro, and this system will remain in force throughout 2023.

“A country that has its own currency is more independent. But when we joined the European Union, we also accepted the euro,” said fruit seller Anna Bricic.

Right-wing and conservative opposition groups protested the adoption of the new currency, claiming that the kuna represented an important symbol of national identity, noting that the euro only benefits larger countries like Germany and France.

But last year’s attempt to organize a national referendum to challenge the adoption of the euro failed.

Some Croatians fear that once the euro is adopted, the stark reality of how poor they are compared to many citizens of the EU’s neighbors will emerge even more.

According to the latest Eurostat census published in 2018, the average monthly salary in Croatia was only 1,179 euros, compared to over 2,300 euros in the European Union.

About 300,000 Croatian pensioners receive a monthly pension of just 260 euros.

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