The euro in Croatia: blessing or curse?
Summary
On 1 January 2023, Croatia replaced the kuna with the euro and joined the eurozone. The transition proceeded technically without major issues, but the economic aftermath is contested. Price increases, declining purchasing power and divided public opinion characterise the first year with the new currency.
Key Findings
- The euro introduction proceeded operationally smoothly, but was followed by significant price increases for imported goods and services
- The purchasing power of the Croatian population declined compared to the kuna period
- The Croatian government responded with subsidy schemes and tax reductions
- A majority of the population (56%) believes the euro has had a positive economic effect, but 42% experiences a more expensive standard of living
Context
Croatia joined the European Union in 2013. The introduction of the euro was widely seen as the culmination of membership — a sign of full integration. The expectation was that the common currency would promote trade, attract foreign investment and strengthen tourism.
In practice, the exchange from kuna to euro proceeded without technical disruptions. Banks, shops and government agencies reported no significant problems during the transition.
Price Developments
After the introduction, prices of imported goods and services rose, as well as products dependent on imported raw materials. The increases were significant and exceeded the official inflation rate of approximately 10%. In practice, consumers reported price increases of 40 to 50 percent on certain products.
The pegging of the kuna to the euro before the formal introduction had protected the population for some time, but after the transition, prices followed the European market without the buffer of an independent monetary policy.
Impact on Purchasing Power
The price increases eroded purchasing power. Households found that for the same income they could afford fewer goods and services than during the kuna period. This applied particularly to food, energy and transport.
Government Measures
The Croatian government took several measures to mitigate the consequences:
- Regulation of fuel prices
- Setting maximum prices for more than 40 basic foodstuffs
- Subsidies to businesses
- Tax reductions to stimulate purchasing power
The effectiveness of these measures is contested. Critics argue that the interventions only temporarily mask structural problems.
Public Opinion
A poll by the Croatian Institute for Public Opinion (IPO) from July 2023 shows a divided picture:
| Statement | Percentage |
|---|---|
| Positive effect on the economy | 56% |
| Negative effect on the economy | 30% |
| Life has become more expensive | 42% |
| Life has become cheaper | 28% |
| Strengthened EU position | 65% |
| Increased economic stability | 41% |
| More attractive to tourists | 54% |
| Higher cost of living | 41% |
| Government should do more to protect | 55% |
Analysis
The euro introduction illustrates a classic tension: macroeconomic benefits versus microeconomic burdens. The currency strengthened Croatia’s position within the EU and simplified international trade. At the same time, the possibility of independent monetary policy disappeared, and the price developments immediately after the introduction appeared partly driven by opportunism among businesses.
Whether the euro proves beneficial in the long term depends on the extent to which the Croatian government can structure the economy and continue to guide price developments.
Sources
- Croatian Bureau of Statistics
- Croatian Institute for Public Opinion (IPO), poll July 2023
- Hrvatska narodna banka (Croatian National Bank)