EU says Croatia ready to adopt euro currency in 2023

Former Eastern Bloc nation set to become 20th member of eurozone next year

Croatia, which joined the EU in 2013, is set to join the eurozone in January 2023 with the introduction of the euro as the country's official currency. EPA.

The European Commission said on Wednesday that Croatia had met all the criteria to join the eurozone, paving the way for the country to become the single currency's 20th member on January 1.

Croatia's switch from the kuna to the euro will come less than a decade after the former Yugoslav republic joined the EU, setting a new milestone in the bloc's further integration.

“Less than a decade after joining the EU, Croatia is now ready to join the euro area,” commission President Ursula von der Leyen said. “This will make Croatia’s economy stronger, bringing benefits to its citizens, businesses and society at large.”

Other EU governments are expected to take a final decision on the country’s bid in the first half of July, the commission said. They must still consult the European Parliament and the European Central Bank.

Ratification would make Croatia the first newcomer since Lithuania in 2015, and would bring it lower interest rates and better credit ratings. Other eastern EU members — including Bulgaria and Romania — are seeking to follow suit.

The currency switch “will bring benefits for citizens, businesses and state and make economy more resilient to shocks”, Croatian central bank Governor Boris Vujcic said.

European Commissioner Ursula von der Leyen says the move will make Croatia's economy stronger. Bloomberg

The commission and the ECB confirmed in separate reports on Wednesday that Croatia fulfilled the requirement for price stability, with inflation remaining sufficiently in line with other euro members over a one-year period. However, the ECB said policymakers must remain watchful.

“Looking ahead, there are concerns about whether inflation convergence is sustainable over the longer term,” the ECB said. With price levels and GDP per capita still lower in Croatia than in the rest of the currency bloc, “the catching-up process must be supported by appropriate policies” to prevent the build-up of excessive price pressures.

Croatia’s central bank has pursued a stable kuna exchange rate against the euro for decades, and has been locked in a tight trading band since the country joined the waiting room to adopt the single currency, dubbed ERM-2, with Bulgaria in 2020.

With limited room for manoeuvre on monetary policy, the ECB urged Croatia to enact other measures to catch up economically with the rest of the euro area.