Euro zone adds new member, Croatia to switch to euro from next year

European Central Bank President Christine Lagarde, European Commissioner for Economic Affairs Gentiloni and Croatian Finance Minister Maric recently signed an agreement in Brussels, Belgium, stipulating that Croatia will switch to the euro on January 1, 2023, and the country will become the 20th member of the Eurozone. Maric said the day was an "important and historic moment" for Croatia.

After officially becoming a member of the European Union in July 2013, Croatia expressed its willingness to join the euro zone. In the past 10 years, Croatia has made great efforts to maintain stable prices, exchange rates and long-term interest rates, as well as to control the total government debt, in order to meet Eurozone standards. In early June this year, the European Commission said in its "2022 Convergence Report" that among the countries assessed, Croatia was the only candidate country that met all the criteria at the same time, and the conditions for the country to adopt the euro were ripe.

The Croatian authorities are prepared for a possible rise in domestic prices caused by the adoption of the euro. By studying the experience of countries such as Malta, Slovenia and Slovakia, the Central Bank of Croatia found that within a year after the adoption of the euro, commodity prices in various countries generally rose by 0.2 to 0.4 percentage points, mainly due to "rounding" when exchanging currencies. According to the agreement, the Croatian national currency kuna will be converted into euros at an exchange rate of 7.5345:1. In order to achieve a smooth transition before the currency exchange, starting from September this year, stores in Croatia will mark commodity prices in kuna and euros at the same time.

Overall, joining the euro zone will bring benefits to the Croatian economy. Market analysts believe that tourism is one of the pillars of the Croatian economy, and the switch to the euro will bring more convenience to international tourists. Not only that, Croatia will get a more stable exchange rate and a higher credit rating. As pointed out by Croatian Central Bank Governor Vujicic, currency risks will disappear to the greatest extent possible, and for investors, Croatia will be more attractive and safer in times of economic crisis. Vujicic believes that joining the euro zone will bring "concrete, immediate and lasting benefits" to the country's citizens and entrepreneurs.

The expansion of the euro area at this time wants to show "solidarity" and "strength". Affected by factors such as the Russian-Ukrainian conflict, the European economy is in dire straits. For a period of time, the volatility of the European debt market has intensified, and the inflation rate in the euro zone has continued to rise. On July 12, there was even a rare phenomenon that the euro fell to the same level as the dollar, reflecting the market's high concern about the uncertainty of the European economic outlook. European Commission Executive Vice-President Dombrovskis believes that in such challenging times, Croatia's move to join the euro zone proves that the euro remains an "attractive, resilient and successful global currency" and a national strength in Europe and a symbol of unity.

Since the official circulation of the euro in 2002, it has become the legal tender of 19 countries. Bulgaria was granted access to the European Exchange Rate Mechanism, or the Eurozone waiting room, at the same time as Croatia in July 2020. However, the European Commission believes that due to the high inflation rate and the legal system is not in line with the EU, Bulgaria has not fully met the required conditions, and it may take time to join the euro zone.