ZAGREB, 12 July 2022 - After the Ecofin on Tuesday adopted final three legal acts enabling Croatia to introduce the euro as its currency on 1 January 2023, the national bank (HNB) governor said that the euro area membership would produce concrete, direct and lasting benefits for Croatia's citizens and enterprise sector.

European Union's Economic and Financial Affairs Council (Ecofin) today formally endorsed Croatia's entry into the euro area on 1 January 2023, and one of its three decisions sets the conversion rate between the euro and the Croatian kuna at 7.53450 kuna for 1 euro. The rate corresponds to the current central rate of the kuna in the exchange rate mechanism (ERM II).

The decisions followed after the European Commission assessed that Croatia had met all the convergence criteria and after the positive opinions of the European Parliament and the European Central Bank (ECB).

The HNB Governor Boris Vujčić recalls that the changeover to the euro will eliminate the foreign exchange risk and this would also make Croatia more attractive and safer in the times of crisis.

He described the euro as a symbol  of the European unity.

"I am sincerely proud of this great Croatian success," Vujčić was quoted as saying in a press release issued by the HNB.

The press release quotes Prime Minister Andrej Plenković as saying that "Croatia becomes a member of the euro area on 1 January 2023!"

Thus we have achieved a strategic goal, he underscores.

The euro adoption will make our economy more resilient and raise the living standards of our citizens in the long run," said the PM.

"Being a part of the euro area brings more security to our citizens in this crisis. We have diligently worked on this project as we firmly believe that it is in Croatia's national interest to enter the euro area."

For more, check out our politics section.

ZAGREB, 19 May 2022 - Croatian National Bank (HNB) Governor Boris Vujčić said on Thursday that the introduction of the euro in the country as sole legal tender would strengthen the resilience to crisis, bring about better terms and conditions for borrowing, boost competitiveness and improve cost-efficiency.

The highest share of exchange risk and foreign currency lending risk will be eliminated, and banks will have direct access to the euro-area and the eurosystem's monetary operations, all of which will make their performance easier, Vujčić said at the 25th expert conference on the financial market, organised in Opatija by the Croatian Banking Association (HUB).

He recalled that all the preconditions for the changeover to the euro on 1 January 2023 had been met and that the Council of the EU was expected to make a formal decision on Croatia's admission to the euro area.

Croatia expects the Council to give a nod in July.

The country will start minting euro coins in the second half of 2022.

Vujčić said that all the segments of society would be ready for the euro changeover, and that preparations were proceeding as planned.

The governor is confident that Croatia will meet all the convergence criteria, including price stability, sound public finances, sustainable exchange-rate stability, fiscal criteria and the criterion concerning long-term interest rates.

As for a one-off price rise during the changeover, consumer prices are likely to go up by 0.2 percentage points in the first year of the euro adoption.

For more, check out our politics section.

ZAGREB, 6 May (2022) - Addressing a traditional conference of regional central bank governors in the northern Adriatic town of Rovinj on Friday, Croatian National Bank (HNB) Governor Boris Vujčić said that all central banks have revised down their growth projections for this year and that inflation has not yet reached its peak.

Last month, the HNB revised its growth projections for this year, forecasting real GDP growth of 3.2%, down from its previous projection of 4.1%, on the assumption that the war in Ukraine does not last long and energy prices gradually return to normal.

The HNB estimates that inflation would average 5.4% in 2022, after reaching 2.6% in 2021.

The government recently also revised its growth forecast for 2022 from 4.4% to 3.0% and an inflation rate of 7.8%.

"At the moment consumption is still good. We haven't seen it slow down. Inflation will continue to increase and this isn't the peak yet. We are still waiting for April figures. What will happen later depends on the development of the war. However, the war has not had much of an impact on us as yet. Nevertheless, the longer it lasts the deeper the cumulative effects will be," Vujčić said in his address to the conference of regional central bank governors, organised by the Lider business weekly.

He added that when inflation increases above 5.0% it starts to affect expectations and spreads among more and more groups of products. In Croatia we have witnessed an increased number of products whose price has increased by more than 5.0%, he said.

"We cannot make any real forecasts and everything depends on energy prices. However, the inflation has nothing to do with the adoption of the euro as legal tender, as other factors are affecting price trends more," he said.

The regional bank governors talked about the repercussions of the conflict between Russia and Ukraine and the resolution of Sberbank, with Vujčić saying that even though Croatia is the youngest EU member state it managed to convince Brussels of a resolution plan outlining what should be done with subsidiary banks if the "mother bank goes into liquidation."

"Sberbank turned out to be a good precedent for future cases in Europe and there will certainly be more," Vujčić noted.

North Macedonia's central bank governor Anita Angelovska Bezhoska said that Europe expects slower growth this year and next.

Bosnia and Herzegovina's Senad Softić said that his country needs to revise some parameters due to the war and inflation but that the banking sector in Bosnia and Herzegovina is stable.

Slovenia's central bank governor Boštjan Vasle said that the Slovenian economy grew faster than the European average due to its milder epidemiological restrictions during the pandemic. He said that the two main growth drivers were exports and increased consumption. "Our current forecast is not that optimistic, but consumption is still strong," he added.

Adrović: Intensive preparations to introduce euro currency

The President of the Croatian Banking Association, Zdenko Adrović, said that Croatia is intensively preparing for the introduction of the euro.

"The threatening inflation and potentially increased interest rates raise new issues for monetary policies and banks. But that is not all because all this is happening when Croatia is intensively preparing to introduce the euro as legal tender. Banks have a huge role in the entire process and that is why it is the main issue this year," Adrović said, adding that the time frame was too short.

"Croatia will become a state with the shortest deadline to introduce the euro since joining the ERM II mechanism."

The good news is that prices in the country are already tightly connected with European prices, hence entry to the euro area is a logical economic and political choice for the country that is largely eurorised anyway, Adrović said.

For more, check out our politics section.

ZAGREB, 25 March (2022) - The war in Ukraine will certainly lead to an economic slowdown in Croatia this year and push up inflation, largely due to increases in energy and cereal prices, Croatian National Bank (HNB) Governor Boris Vujčić said on Friday.

"The direct impact on our economy comes from the spillover of economic effects of the war in Ukraine. At this moment we do not have direct consequences of the war, but we can quite certainly expect that the war in Ukraine will slow our GDP growth this year and increase inflation, primarily because of increased prices of energy and cereals that are largely produced in Russia and Ukraine," Vujčić told a press conference.

He added that the scale of the impact would depend on developments in Ukraine, "which at this point are hard to predict."

Rush for euro

Asked to comment on "the rush for euro", after exchange offices have been reported by the media as saying that they sell all the euros they get, Vujčić said this was nothing of significance.

He said there had been an increased demand for euro since the second half of last year due to last year's much better tourist season and the nearing of the date of euro adoption by Croatia.

According to the central bank, there was a strong increase in foreign currency deposits with commercial banks in January, picking up from 2.2 to 6.6 per cent at an annual level.

"This trend shows a strong net inflow of foreign currency into the banking system," Vujčić said.

For more, check out our business section.

ZAGREB, 17 Jan 2022 - Croatian National Bank (HNB) Governor Boris Vujčić said on Sunday he was not thinking of resigning and called on the financial regulator HANFA to look into the veracity of media reports of financial wrongdoing at the central bank.

"We certainly didn't do anything wrong," Vujčić told RTL television in a comment on the article by the Index news website saying that 40 HNB staff had been involved in insider trading in securities.

Vujčić urged HANFA to look into the allegations, stressing that the HNB wanted the matter clarified as soon as possible. He said that the regulator had access to all the data, both at the HNB and the Central Depositary Agency.

He said it was not the HNB staff that had caused damage to the central bank but the media fuss that was made without any evidence.

Vujčić said that he always adhered to the law in his work. In 2001, when he joined the HNB leadership, he had sold his shares in two banks to avoid a potential conflict of interest, he added.

He said that the HNB had adopted a code of ethics in 2016, which requires all staff to report to their superiors if they trade in banks' securities.

"If anyone is found to have traded in insider information from the HNB, they will immediately lose their job and that will not be the end of problems for that person. At this point we do not have any indications that something like that happened," the central bank governor said.

Vujčić said he was not thinking of resigning. He noted that in his opinion this whole affair was aimed at undermining the process of adopting the euro, adding that this attempt would not succeed.

"These unsubstantiated accusations in the public sphere and partly in the political sphere are certainly undermining the credibility of the institution," he said.

Vujčić said he would not be attending the presentation of the Euro Act on Monday.  Asked how was it that he was not invited, he said the question should be addressed to the prime minister.

For more, check out our dedicated politics section.

ZAGREB, 3 Jan 2022 - The membership of the euro area will provide Croatia with better protection in periods of economic crisis, the National Bank (HNB) Governor, Boris Vujčić, told the national broadcaster's (HRT) evening news program on Sunday.

The euro changeover is expected in one year's time, and Governor Vujčić said that a lot of logistical preparations lay ahead.

"We hope that we will enter the euro area in a year's time, and 2022 is the year of preparations," said Vujčić.

The final decision on the date will be known this summer, however, we are making preparations to be ready for the euro changeover on 1 January 2023, he said adding that the central bank, commercial lenders, and the enterprise sector are now due to make preparations for the introduction of the euro.

Dual display of prices

As of this summer, all should be ready to express prices both in the national currency and the euro, said the governor.

He also noted that the country should be ready to provide the market with the euro banknotes and coins upon the transition to that currency.

Asked about the pros and cons of the admission to the euro area, Vujčić said that Croatia would be provided with better protection in the cases of crisis.

The euro adoption will remove the currency exchange risks, and in this segment, Croatia will have the biggest advantages, since its economy is more euroized than any other euro area candidate so far, he explained.

A majority of time savings deposits are tied to the euro, he said adding that for instance, 10% depreciation of the kuna in terms of its exchange rate versus the euro would increase the debt of all the sectors by HRK 50 billion. This is a huge risk that can cause a recession, and our entry into the euro area will remove that risk, he said.

He added that there are currently 36 billion kunas in cash in circulation, and in the next 12 months the money should be either deposited with banks or spent.

The Croatian kuna joined ERM (Exchange Rate Mechanism) II on 10 July 2020 and observes a central rate of 7.53450 to the euro with a standard fluctuation band of ±15%.

Any aspirant for the euro area membership must participate in the mechanism without severe tensions and without devaluing its central rate against the euro for at least two years before it can qualify to adopt the euro. Being part of the Exchange Rate Mechanism is intended to help non-euro-area countries prepare themselves for becoming part of the euro area. It is an important milestone towards adopting the euro.

For more, check out our politics section.

ZAGREB, 28 Oct 2021 - A two-day conference on economic trends in central, eastern, and southeastern Europe, the consequences of the corona crisis, climate change, and inflation, which was organized by the European Bank Coordination "Vienna" Initiative and the Croatian National Bank (HNB), started in Split on Thursday.

The European Bank Coordination “Vienna” Initiative is a framework for safeguarding the financial stability of emerging Europe. The Initiative was launched at the height of the first wave of the global financial crisis in January 2009.

Opening this annual conference, the HNB Governor and Chairman of the Vienna Initiative Steering Committee, Boris Vujčić, said that the availability of bank lending was currently much better than in 2019, before the start of the COVID-19 pandemic.

Of course, during the lockdown of economies there was no need for taking funds, as economic activity was suspended, but the price of the money today is more favorable, the governor said in his opening speech.

Asked whether he feared inflation, Vujčić said that he could now, perhaps, be more afraid of inflation than other citizens, however, inflation was not currently an important issue.

He elaborated that this year's 2.3% inflation rate should not be a rate that caused concern.

It will grow into a bigger problem if such a rate remains present for a long period, he explained.

The governor also admitted that a part of bankruptcy proceedings that had not happened during the pandemic could ensue later and that state grants for job-keeping measures helped to achieve employment even higher than before the corona crisis.

He said that Croatia would get an exact date for the euro changeover next summer.

HNB survey shows that 61% of Croats are for switching to the euro

As for a referendum initiative by a few right-wing parliamentary and non-parliamentary parties against the adoption of the euro in Croatia, Vujčić said that not one country that introduced the euro had experienced a decline in living standards.

He went on to say that opinion polls conducted by the central bank show that 61% of Croatians support the euro, 19% are against it, and the remaining respondents are also in favor of the euro on certain conditions. 

The HNB reports on its website that the participants in the Split conference include Vice-President of the European Bank for Reconstruction and Development, Mark Bowman, the European Investment Bank Vice-President, Lyiana Pavlova, World Bank Vice-President for Europe and Central Asia, Anna Bjerde, who will join virtually, as well as central bank Governors of Estonia, North Macedonia, Montenegro, Slovenia, and Ukraine.

Representatives of the International Monetary Fund, the European Central Bank, the European Commission, and the European Investment Fund will also be participating in the conference together with commercial banks and other financial sector stakeholders.

As the region recovered, the Initiative’s focus shifted to addressing the remaining and new challenges in the financial industry, including the resolution of non-performing loans, the development of local capital markets in emerging Europe, funding innovation, and green transition.

For more, check out our politics section.

ZAGREB, 27 Oct 2021 - Croatian National Bank (HNB) Governor Boris Vujčić said on Wednesday that next year Croatia would know the exact date for its changeover to the euro, adding that a strong campaign will be conducted in 2022 to inform the public of all the details.

Addressing a conference on what switching to the euro would mean for SMEs, which was organized by the 24 Sata daily, Vujčić underscored that Croatia has set a date for the introduction of the euro currency, but next year only will we know the exact date of the euro changeover.

If that is to be 1 January 2023, we have only 14 months for preparations, he said.

A law will be passed precisely regulating the changeover from the kuna to the euro, and the main principle will be to protect consumers so they are not brought into a worse position than they were prior to the conversion.

"The experience in all the countries that have entered the euro area indicate that wages increased more than prices while the standard of living increased and that is why the support for the euro in those countries is very high," he underscored. In other transition countries where the euro was introduced, the support is about 80% which Vujčić believes is proof that the fear of declining living standards is unreasonable.

Dual display of prices

The governor said that in the countries that adopted the euro the practice of dual display of prices was useful.

The dual display will also cover wages and not only prices, he also explained.

The logistics of exchanging the currencies have been worked on for a year and a half already, he said.

Payments will continue in both currencies for the next two weeks after the euro is introduced, explained Vujčić.

Finance Minister Zdrako Marić also underscored that based on current forecasts, the earliest the euro could be introduced is 1 January 2023.

He explained that prices in both currencies will be shown on articles five months prior to introducing the euro and for 1 year after its introduction. Marić believes that legislation related to the euro should be adopted in the spring of next year.

The president of the Croatian Chamber of Crafts and Trades (HOK), Dragutin Ranogajec, expects problems to occur during the 14 day period of payments in both currencies with regard to accounting and fiscalisation.

For more, check out our politics section.

ZAGREB, 18 Oct 2021 – Croatian National Bank (HNB) Governor Boris Vujčić said on Sunday that Croatian citizens should not fear a sudden rise in loan installments as a result of the rise in the inflation rate.

Speaking in an interview with the HRT public broadcaster on Sunday evening, Vujčić said there was no room for panic that interest rates would rise abruptly, and with the loan payments, for citizens who have long-term loans with variable interest rates.

He noted that the interest rates had been at record low levels since 2015 and that throughout that time the HNB was warning that at one point they would get back to normal and start increasing.

He said that this approach and the HNB's recommendation to the banks to offer fixed interest rates to citizens had led to the share of the variable interest rate in loans decreasing from 90 to the present 38 percent. He added that the majority of citizens have a fixed interest rate for the first five to ten years of loan repayment, after which the interest rate becomes variable.

"This means that in normal scenarios no one will feel any significant rise in interest rates in the short term," Vujčić said.

Should the inflation rate remain high for a longer period of time, interest rates might grow at a greater speed, he said, illustrating this with an example: "If your loan matures in 20 years or more, then a one percentage point rise in the interest rate might increase your loan installment by approximately 9.5 percent, provided you have no protection such as a fixed interest rate."

Vujčić said it was not possible to make a general recommendation to citizens with long-term loans and variable interest rates to apply for a switch to loans with fixed interest rates. He, however, recalled that in 2017 the HNB had recommended to the banks to make this possible for those who make such a request.

The HNB governor said he did not expect the rise in energy prices to have the same inflationary impact it had this year.

"Energy contributed to half of the total rise in prices, which is absolutely the greatest contribution to inflation. Looking at the markets, next year energy prices are expected to stabilize or even start falling slightly," he said.

He, however, warned there was still considerable uncertainty because if prices continued to rise, that would definitely put additional pressure on inflation.

"However, we cannot expect, in any reasonable scenario, the rise that we had this year when prices rebounded from the very low levels in the pandemic year 2020 to normal levels. I do not expect anything similar to the inflationary pressure we saw this year, but energy prices are definitely important for the overall inflation trend," Vujčić said.

The HNB expects inflation to pick up to 2.3 percent this year before slowing to 2.1 percent in 2022.

For more about politics in Croatia, follow TCN's dedicated page.

ZAGREB, 17 Oct, 2021 - Prime Minister and HDZ party leader Andrej Plenković said on Sunday that intraparty elections at which the leaders of the HDZ's city and county branches will be elected, were democratic and transparent.

"Anyone who wanted to run as a candidate could do so, and the process has been transparent and democratic. I do not see any relevant objections or anything that is not in line with democratic standards," said Plenković, who cast his vote in regular intraparty elections.

He expressed hope that local HDZ branches, which are to elect their presidents and vice-presidents today, would contribute to their local communities as well as the HDZ's national policy.

HNB governor should explain his statement about loan installment increase

Plenković was also asked to comment on Croatian National Bank (HNB) Governor Boris Vujčić's warning in an interview with the Novi List daily that loan installments of debtors with long-term loans approved with a variable interest rate could increase from 10% to as much as 20%. Vujčić did, however, note that that scenario was not very likely.

"I have not read the interview, he should explain what he meant. As far as I understand, that is not a very likely scenario. If he has an opinion on the matter, he should make a statement," Plenković said.

In a comment on the International Day to Eradicate Poverty, which is observed today, Plenković said that the government's national development strategy stated that maximum effort should be invested to reduce the number of Croatians who were at risk of poverty or were poor.

"The 20% rate is still very high, as an EU country we must reduce it, not only through social policy but through a policy that enables wage growth and a general atmosphere of equal opportunities," he said, adding that his government would continue working towards that goal in the next three years.

Plenković believes that the progress made in the past five years in the fight against poverty is visible, albeit not as great as one would want it to be.

He wondered what the percentage of people at risk of poverty would be if the government had not intervened with job-keeping measures during the coronavirus crisis.

Asked about the investigation into police violence against migrants on the border with Bosnia and Herzegovina, Plenković reiterated that the case was contrary to the government and Ministry of the Interior's policy, that it was an isolated incident and that the government would do its best to prevent any similar incidents.

For more on politics, follow TCN's dedicated page.

For more about Croatia, CLICK HERE.