European integration completed: euro adoption was quick, but no self runner
Within a very short time, Croatia has managed to join the euro area. Our experts from the Raiffeisen Research team draw a conclusion on the introduction of the euro and the background to the rapid integration.
Nearly half a year has passed since Croatia became the 20th member of the euro area (EA), and thus, with its entry into Schengen, this nicely rounded off the tenth anniversary of its EU membership (2013). From the very beginning and like Slovenia (that entered EU in 2004, euro area entry 2007), Croatia was determined to introduce the euro as soon as possible, due to the historically inherited high level of euroization of the entire economy, in particular, due to the high dependence on tourism, and trade/financial exposure to countries with which it shares the European single currency today. However, due to a complex mix of local and external factors Croatia did not manage to introduce the euro as swiftly as neighboring Slovenia.
It is worth noting that the strategic goal of euro adoption went hand in hand with Croatia's entry into the EU, which is almost ten years ago. As the examples of the Central European EU members Czechia, Hungary, and Poland demonstrate, this obligation alone — Demark is the only EU member with an opt-out clause — is not a guarantor of swift euro adoption: CE-3 is still far from entering the currency bloc, while each of them has been an EU member for almost a decade longer than Croatia. In no CE-3 country, we currently see euro entry ambitions (not to speak about a shared political vision or a granular planning). Against this backdrop, it is all the more impressive that Croatia spent only 2.5 years in the euro area "waiting room" ERM II. Moreover, especially in light of the multiple crises of the last three years, it is not an exaggeration to state that the final stage of euro introduction in Croatia was quick and smooth (only Greece spent less time in ERM II). However, the path toward the euro was everything but easy.
“Croatia has made significant progress in terms of real convergence towards the euro area in recent years. Its GDP per capita, which was around 55% of the euro area average in 2012, reached slightly over 70% in 2022. However, sustainable and lasting growth requires increased productivity and competitiveness. To accelerate real convergence, Croatia needs to implement structural reforms, particularly in the public sector. Strengthening institutional capacity and the rule of law will also play a crucial role in driving economic growth. By joining the euro area, Croatia has gained the opportunity to represent the interests of a small country within a prestigious society, and it has strengthened its geopolitical position.”
Dorota Strauch, CEE Lead & Head of Research RBI Poland
Zrinka Živković-Matijević, Head of Research, RB Croatia
“From the very beginning, Croatia was clearly determined to introduce the euro as soon as possible, largely due to the historically inherited high level of euroization of the entire economy, high dependence on tourism, and exposure precisely to the countries with which it shares its own currency today. However, the path towards the Euro area was everything but easy. Now it is a great opportunity because Croatia is in a "prestigious society" that can also represent the interests of a small country which, by joining the euro area, nevertheless strengthened its geopolitical position.”
“The local banking market is a perfect reflection of the fresh momentum in the economy. Among the six major regional banking markets (PL, CZ, HU, SK, RO, HR), Croatia was number 4 market beginning 2000s. A lackluster growth performance in the 2010s combined with macroeconomic uncertainties led to a relative loss of importance. Hence, the Croatian banking market slipped to the regional rank 6. Since its low in 2019/2020 (4.9% share in CEE exposures Western banks compared to 8%+ early 2000ies), Croatia's share in regional exposures of Western banks has been recovering and is back at 5.6% (year-end 2022). This relative outperformance equals an exposure growth of 30% (since June 2020), compared to a regional banking sector growth of 10-15%. We credit the positive development to the clear euro entry perspective. Especially since the risk/return ratio in CE/SEE banking is currently shifting back in favor of "Euro markets" such as Slovakia and Croatia due to sweeping changes on EUR rates markets.”
Gunter Deuber, Chief Economist, Raiffeisen Research, RBI
Expand to new markets
Get more exclusive market insights like this one and partner up with us for your CEE journey! Request our exclusive white paper now and discover group-wide solutions.
Related News
Be the first
Subscribe to Raiffeisen Insights. Get an email with
the latest trends in the world of economics and business.