Croatian flag and Euro coin © Andrzej Rostek/Shutterstock

© Andrzej Rostek/Shutterstock

For the Croatian government, 2022 was the year of the objectives achieved: entry into Schengen, the single currency, and the Peljesac bridge. But if the Croatian authorities celebrate the treble, the population looks with concern at the arrival of the single currency

10/01/2023 -  Giovanni Vale Zagreb

At the Vrata Jadrana petrol station near Rijeka, a queue of impatient people quickly formed at the bar counter. Some people hold a 10 Euro note, others a 50 kuna one, while the cashier puts her hands in her hair and repeats "calm, calm!", perhaps speaking more to herself than to the customers. On 1 January 2023 Croatia introduced the single currency, the Euro, but the kuna will be accepted for the first two weeks of the new year. According to government directives, shops are required to give change only in Euros, but in practice things are a little more complicated. At the Vrata Jadrana bar, those who pay by credit card are greeted with a smile.

The year of goals achieved

"2022 was the year of goals achieved", declared Croatian Prime Minister Andrej Plenkovic at the end of last year, celebrating Croatia's entry into the Schengen area and into the Euro area. For the youngest member state of the European Union, which has been independent for just over thirty years, this is indeed a great success. Ten years after its entry into the EU, Croatia joins the restricted club of 15 countries that are members of the European Union, NATO, the Schengen area, and the Euro area at the same time. If we add to this the completion of the coveted Peljesac bridge (which since last summer has reunited the national territory, reconnecting Dubrovnik to the rest of the country), Zagreb's enthusiasm is easily understood.

But if the Croatian authorities are celebrating the Euro-Schengen-bridge treble, the population looks with concern at the arrival of the single currency, which takes place in an economic context already marked by high inflation which will exceed 10% in 2022. "I fear that there will be an even more significant increase in prices with the arrival of the Euro. Prices are already high and wages have increased slightly...", says Katarina, a 39-year-old lady employed in a cleaning company in the town of Novska, 100 km south of Zagreb.

Near the Zagreb train station, Liljana, a pensioner, shares the same lack of enthusiasm for exchanging money. "I think there won't be big increases in prices because the purchasing power of Croatians is already very low – she says – if there really are significant changes, then sales will drop. In short, traders will have to adapt to the new purchasing power purchase of Croatians, which will be even lower with the Euro".

Long-term benefits

Polls  conducted by the Central Bank of Croatia (HNB) in recent years have regularly confirmed Croatians' reticence, when not opposition, to the single currency. In 2020, for example, only 41% of citizens were in favour of the Euro, while 39% had a "negative" or "very negative" opinion of it. The main risk cited by the interviewees was precisely the increase in prices, mentioned in 42.8% of the cases. Those involved in economics actually admit that "the risk of further inflation in the short term exists", as stated by economist Vedrana Pribicevic, who teaches at the Zagreb School of Economics and Management (ZSEM). However, in the long run joining the single currency will bring more benefits than harm to the Croatian economy.

"Those who buy a car or an apartment already think in Euros and the Croatian economy faithfully follows the economic cycles of the Eurozone", explains Vedrana Pribicevic. When the Eurozone grows, so does the Croatian economy; when it's in a recession, Zagreb follows. Furthermore, the kuna and the Euro had been linked for a long time and the exchange rate was practically fixed in recent years. "Starting from 1 January 2023, all conversion costs between Euros and kunas will disappear in Croatia. We are talking about about 0.5% of Croatian GDP that up to the end of 2022 the banks earned with the conversions", continues Pribičević. Another positive effect is that Croatian pension funds will be able to invest in all financial assets of the Eurozone without currency risk. Finally, the economist also expects an increase in wages, because with the Euro Croatians will be able to compare their salaries more easily with those of other countries in the Euro area (comparisons have already begun).

New goals

After "the year of objectives achieved", to quote the words of Andrej Plenkovic, the time has now come for the Croatian government to make new resolutions. And it won't be difficult to find the new priorities, starting with an issue that should have alarmed the authorities for years: demographic decline. In recent years, while Croatia's European integration process progressed rapidly, the country's population was downsizing just as quickly. The last census carried out in 2021 revealed a dramatic result: the young republic no longer has 4.2 million inhabitants as was the case in 2011, but just 3.8 million. According to demographer Stjepan Sterc, improving the country's demographic situation should be the new strategic objective of the Croatian government.

"In the space of two censuses, Croatia has lost about 400,000 citizens, or almost 10% of the population. Part is lost due to emigration, another part due to the fact that there are more deaths in Croatia every year what births", explains Stjepan Sterc, who adds "if we make a projection from here to ten years, continuing with this trend, all the fundamental services of the State will be at risk. In short, the demographic question must become central". According to the demographer, for example, the Croatian pension system has 8 years before it becomes financially unsustainable.

So far, the measures introduced by the Croatian government have not met with great success. The latest initiative is the "I choose Croatia" programme, which provides bonuses of up to almost 30,000 Euros for Croatians who decide to return to their homeland. But almost a year after the programme was launched, only 78 people have accepted the government's offer. At this rate, at the end of the century, Croatia will have just over 2 million inhabitants. "The situation is such that we can no longer stand by and watch", says Stjepan Sterc. In short, if the demographic trend does not reverse quickly in Croatia, the treble of the Plenkovic government will be of little use.

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