Croatia’s plan to become the 20th country to join Europe’s single currency cleared an important hurdle on Wednesday after EU officials said it met the economic criteria to adopt the euro in January.
The European Central Bank said in a report that Croatia’s economy had remained sufficiently in sync with the rest of the euro zone, despite its inflation and public debt soaring because of the fallout from the pandemic and Russia’s invasion of Ukraine.
The thumbs-up from the ECB for Croatia’s economic convergence mirrors similar conclusions from the European Commission and is expected to prompt EU leaders next month to approve the Adriatic country’s plan to join the euro at the start of next year.
The decision was based on an assessment of Croatia’s convergence in areas ranging from inflation to public debt and marks a success for the country, which has aimed to adopt the euro since being admitted into the EU in 2013.
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Several other EU countries aim to join the euro, including Bulgaria and Romania, but they are further behind in the process. Croatia hopes to benefit from a more stable exchange rate and an improved credit rating after adopting the single currency.
Some central and eastern European countries, such as Poland, credit their independent monetary policy with helping them to avoid a recession after the 2008 financial crisis.
But Croatia stands to benefit more than most from euro membership. Its tourism sector makes up about a fifth of its economy and the country also plans to join the region’s Schengen border-free travel zone.
However, the ECB said Bulgaria could face a tougher challenge to achieve its goal of joining the euro in 2024. The country’s inflation rate, which averaged 5.8 per cent over the past 12 months, is above the maximum level allowed and it also fell short on legal governance and institutional quality.
Croatia would be the first new member of the euro zone since Lithuania in 2015.
– Copyright The Financial Times Limited 2022
