Croatia hopes to enter ERM II in July

ZAGREB -- Croatian Prime Minister Andrej Plenkovic said on Thursday that it would be much easier for Croatia in the current situation if it were a member of the euro area.

Speaking at the session of the national council for introducing the euro as Croatia's official currency, Plenkovic noted that the main benefit for Croatia from the euro adoption at the moment would be the European Stability Mechanism (ESM) loans and the monetary stimulus of the European Central Bank that would be available both to the government and the private sector.

Plenkovic stressed other benefits such as the removal of currency risk and better credit rating.

Croatia's strategic goal is to adopt the euro by 2023 or 2024. The government announced on Thursday that Croatia has fulfilled the requirements under the action plan for accession to the European Exchange Rate Mechanism II (ERM II) and the banking union for the period from July 2019 to May 2020. The government hopes to enter ERM II, which is seen as a waiting room for euro adoption, in July this year.

Croatia has its own currency kuna, but 71 percent of citizens' savings are in euro. More than half of the loans are with a currency clause in euros. The prime minister noted on Thursday that 61 percent of tourist overnight stays are from countries in the eurozone, while 57 percent of Croatia's export goes to the eurozone.

In order to adopt the euro, Croatia has to satisfy the Maastricht criteria which involve sustainable public finances: a budget deficit lower than three percent of gross domestic product (GDP) and public debt below 60 percent of GDP.

In the last few years, the government did strong fiscal consolidation and managed to achieve a balanced budget. Public debt was in decline in the last five years and it was reduced to around 70 percent of GDP. Due to the COVID-19 crisis, analysts expect that public debt will jump over 80 percent of GDP.

According to the survey from 2019, published by the National Bank, 51 percent of people supported joining the eurozone, 40 percent were against, while others were undecided.