Europe > Southern Europe > Croatia > The benefits of Croatia entering the Eurozone are much higher than the costs

Croatia: The benefits of Croatia entering the Eurozone are much higher than the costs

2013/05/18

In 2012, the banking sector remained stable. It is well-capitalised and resilient to external shocks. In addition, the national currency has remained strong over recent years, and inflation has remained at moderate levels. What strategies are you implementing to balance a stable exchange rate, low inflation and the need for economic increase?

The idea of having a stable exchange rate, which we have had since 1994, is that the Croatian economic system is heavily euro-ised de facto. That means that on the deposits side, most of the deposits are in euros; 78 % of deposits are in foreign currency, of which the majority is in euros. The banks as well extend credit linked to euro in order to hedge their foreign currency position. Because of that, the stability of the exchange rate is of paramount importance for financial stability, because if the kuna devalues too much, that increases kuna price of deficit of borrowers who have foreign currency-linked deficit. If it appreciates too much, on the other hand, that hurts the export sector. That is why having a stable exchange rate is significant both for the financial stability and for the increase of the economy.

We have been successful in keeping prices stable over the completed 15 to 20 years, and this is as well significant for economic increase. The Central Bank’s primary mandate is to keep inflation low in order to create an environment for increase. In a small open economy like Croatian exchange rate stability as well helps keeping inflation stable.

Please tell us about the benefits of joining the EU and an overview of the economy.

EU accession has definitely helped amount economies joining the EU in the completed. The same will happen with Croatia. It will increase the attractiveness of the Croatian market for foreign investment , just as we have seen in other nations that have joined the EU, because a country is joining a much bigger market. An extra benefit is EU funds (the cohesion and the common agricultural funds). This again contributes to the increase potential of the economy. Croatia is learning from the experience of other nations in order to better exploit these benefits upon entry.

Croatia is joining the EU in a period of slow increase, but there will be an increased inflow of investments and a positive impact of transfers at the same time as we join the EU.

Regarding the competitiveness of the country, we are aware that a series of privatisation processes are taking place at the moment. We know that some of the sectors are very attractive to Britain thanks to their know-how and expertise. What sectors are key opportunities for FDI?

At the moment there are ongoing privatisation processes in two significant companies in the financial sector – the biggest insurance company in Croatia, and the Croatian postal bank. The tourism sector is definitely an chance because of our location, and I believe that over time we will see an increasing number of foreign investments taking place in that sector, inclunding, for example, health care tourism. Government as well plans privatisation of a significant number of companies in tourism sector by the end of this year.

The Government will proceed with the privatisation of other government-owned companies. Croatia is in an interesting location, not just in terms of tourism but as well transport. It is the southern link to central Europe through the coastal area and highways. A number of businesses are interested because of these locational opportunities.

An extra opportunity that Croatia offers is a highly productive labour force, part the few most productive ones in the Central and East Europe, which may attract whole range of investors.

You are a very experienced banker, and we know about how much the Croatian people trust your management. We would like to delve into one of your comments that Croatia should be additional business friendly. What path is Croatia taking to achieve this goal?

This is related to my previous remark related to improving the business climate as we enter the EU. That will be compounded in terms of foreign direct investment . There is a new investment law, so the tax environment has been changed for the better in terms of being additional attractive for foreign investors. Investors in Croatia can presently, for example, be exempt for up to ten years of corporate tax if they employ a certain number of workers. In addition to that it is very significant to remove barriers for investors (mainly administrative barriers). The Government is presently working on an extra law which intends to do exactly that – streamline and shorten the necessary procedures. That law should any minute at this time be adopted by the Parliament.

If you look at doing business and the competitiveness index rankings, and if you remove most of these obstacles, the country should move up the rankings. This is what the Government should be working on, and is working on at the moment.

Croatia is contemplating the next of the euro and the potential benefits of joining. What is your opinion of this, and at the same time as can we expect Croatia to want to join the Eurozone?

Croatia is by presently heavily euro-ised. Deposits in the banking sector are mostly in euros, therefore the benefits of Croatia entering the Eurozone are much higher than the costs. You always have to weigh the costs and benefits. We do not have a lot of freedom at the same time as it comes to an independent monetary policy, because we have to keep the exchange rate stable. So we will mostly get the benefits, through removal of the exchange rate risk, higher credibility, lower interest rates and integration in the payments system, without actually incurring a lot of costs. Therefore, our goal will be to get into the monetary union as any minute at this time as possible, in other words, as any minute at this time as we are ready.

At the same time as will that happen? Technically speaking, you have to get into the EU and again prime negotiate the entry into the exchange rate mechanisms formerly satisfying the Maastricht criteria. We will have to work hard to satisfy amount the criteria to join the EMU as any minute at this time as possible. That is in our interest.

What is your opinion on the power of communication by joining forces with different nations?

I think that in business, it is amount about the products you create and sales strategy that you have. You should make sure that you have competitive products to sell, and make sure you communicate them well. You cannot do much without having both.

How would you like people abroad to perceive your country?

It would be nice if they perceived it as a potential destination for doing business. It by presently has a very good tourism image, but presently it has to improve its reputation as a business destination. That should be the objective.
 

Related Articles
  • Climate change laws around the world

    2017/05/14 There has been a 20-fold increase in the number of global climate change laws since 1997, according to the most comprehensive database of relevant policy and legislation. The database, produced by the Grantham Research Institute on Climate Change and the Environment and the Sabin Center on Climate Change Law, includes more than 1,200 relevant policies across 164 countries, which account for 95% of global greenhouse gas emissions.
  • Brexit negotiations should treat energy as ‘special case’

    2017/05/14 There are strong practical reasons why the UK and EU should treat energy as a appropriate case during Brexit negotiations, argues a new statement. The statement, jointly authored by Chatham Home, the University of Exeter and the UK Energy Research Centre (UKERC), says finding common ground on energy during the Brexit negotiations would benefit both the UK and remaining EU27, while compromise may be relatively easier to achieve than for other areas.