The European Commission and the European Central Bank announced on Wednesday that Croatia will adopt a single currency from 2023 after meeting some set criteria.
“Today, the Croatian authorities have made a decisive effort to meet the criteria for entry into the euro area, a historic milestone in Croatia’s European journey,” Paolo Gentiloni said in a statement. Shows. “
“Croatia is within the limits of the convergence criteria,” the ECB wrote in its own report, “Croatia’s positive assessment considering the possibility of euro adoption on January 1, 2023.” ..
Croatia will be the 20th EU member state to adopt a single currency. The decision will be formalized by the EU capital on July 12, after EU leaders expressed political support at the June summit and the European Parliament approved it in early July.
Join the club
The European Commission and the ECB are jointly tasked with assessing the readiness of EU countries to join the euro area in the light of several legal and economic standards. The assessment also considers integration with each country’s euro area.
Each country’s 12-month average inflation rate is below the average inflation rate of the three best-performing EU companies, with an additional 1.5 percent point margin required. In that assessment, the Commission used Finland, France and Greece and gave a reference value of 4.9 percent. Countries that are 1.5 percentage points below the 12-month EU average inflation rate are considered outliers and are excluded from this benchmark. Malta and Portugal, which are 2.2% and 1.7% lower than the EU average of 4.4%, respectively, were excluded.
In addition, each country must have a margin of 2 percentage points in addition to long-term interest rates below the same best performance, giving a benchmark of 2.6 percent. They also need to observe the European Exchange Rate Mechanism II of the block for two years, showing relative exchange rate stability and avoiding so-called excessive deficit procedures.
Finally, countries need to legally guarantee central bank independence and outlaw financial lending.
Prolonged worries
The European Commission still has some concerns about the country’s business environment and corruption, but EU officials said “Croatia has taken and implemented a commitment to improve the business environment.”
Despite the green light, the ECB called for continued efforts by Zagreb to prepare to become a member of the club. In particular, citing concerns about the long-term sustainability of the country’s inflation convergence, “the convergence process must be supported by appropriate policies to prevent excessive price pressure and the accumulation of macroeconomic imbalances. Must be. “
Croatia must implement the fiscal reforms required under the EU’s reconstruction plan, calling for “stability-oriented economic policies and extensive structural reforms” to put the debt-to-GDP ratio on a long-term downtrend. Must, the ECB wrote.
“We are quite happy with Croatia’s financial position, not only because the deficit is below 3%, but also because we are quite relieved about the long-term development of debt,” said a senior EU official.
The rest of the class
Other eurozone applicants did not meet the required criteria. Bulgaria had an average inflation rate of 5.9%, which was below price stability requirements and Romania did not meet anything.
The ECB report also evaluated the progress of six other EU countries that have not yet adopted a single currency. Bulgaria, the Czech Republic, Hungary, Poland, Romania and Sweden have concluded that there has been limited progress since the last convergence report in 2020.
“This is mainly due to the difficult economic situation,” the ECB concluded. Russia’s war on Ukraine has boosted growth and inflation in all member states, but “it is too early to draw a firm conclusion on how the convergence path will be affected.”
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