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 worked technically. The economic aftermath is contested. Price increases, declining purchasing power plus divided public opinion marked that first year with the new currency.
Key Findings
- The euro introduction worked smoothly operationally but big price increases for imported goods and services followed
- 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. Many saw the euro’s introduction 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 went without technical disruptions. Banks, shops and government agencies reported no big problems during the transition.
Price Developments
After the introduction prices of imported goods and services rose. Products dependent on imported raw materials also rose. The increases were big. They exceeded the official inflation rate of roughly 10%. Consumers reported price hikes of 40 to 50 percent on certain products.
The kuna’s peg to the euro before the formal introduction had protected the population. 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 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 shows a tension between macroeconomic benefits and microeconomic burdens. The currency strengthened Croatia’s position within the EU and simplified international trade. Independent monetary policy disappeared. Price developments right after the introduction appeared driven by opportunism among businesses.
Whether the euro proves beneficial in the long term depends on how well the Croatian government can structure the economy and guide price developments.
Sources
- Croatian Bureau of Statistics
- Croatian Institute for Public Opinion (IPO), poll July 2023
- Hrvatska narodna banka (Croatian National Bank)