Croatia’s acceptance into the European Union on the 1st of July marked the beginning of the end of the Kuna as Croatia’s currency ever since its introduction on 30th May 1994. Entering the European Union brought with it many changes be they for better or for worse and one of the most significant is upon us with Croatia entering the Eurozone in 2023. Preparations are underway to make sure that everything is ready for the new currency.
The Euro has been the currency of the European union since 1992 and with Croatia joining the Eurozone, changes will be visible in the upcoming period from small households to large companies. The question on everyone’s mind is will life be more costly with the Euro?
For Croatia to be able to switch to Euro many conditions had to be met. As stated in the Maastricht Treaty, there are four conditions for entering the Eurozone:
- Price stability – inflation rate cannot be over the average inflation rate of 3 member states with the best price stability enlarged by 1,5 percentage points
- Sustainability of public finance – the general country deficit to GDP ratio must not be over 3% and the general country debt to GDP ratio must not be over 60%
- Currency stability – at least 2 years must be spent in ERM II (European Exchange Rate Mechanism) without significant oscillations or devaluation to central rate
- Convergence of long-term interest rates – interest on long-term government bonds may not supersede referent values of interest on bonds of the 3 member states with the best price stability enlarged by 2 percentage points
Croatia’s government adopted a national plan to replace the Croatian Kuna with the Euro in December 2020. The main goal of the plan is to ensure a seamless transition to Euro. One of the key factors in achieving this, lies in the hands of the IT sector that will need to adapt all systems to the new currency. Also, the new currency must be physically distributed among the private, corporate, and public sector. Even though everything will be paid in Euros from the 1st of January 2023 there will be a transition period in which people my pay with Kunas but must receive Euros back. Non-cash transactions will be exclusively in Euros. Banks will exchange up to 100 bills or 100 coins of Kunas to Euros in one transaction free of additional fees which will also ease the way to fully integrating the Euro in the economy.
To better prepare for Euro all prices will be listed dually in Kunas and Euros from the 5th of September 2022, as the first Monday in September, and will be displayed as such until December 31st, 2023. Aside from the price being listed in both currencies, the fixed exchange rate will also be displayed.
This will ensure people getting used to the change of prices before the Euro is implemented. Salaries will also be displayed in dual currency and converted to Euros according to the fixed exchange rate so there shouldn’t be a negative financial impact to people’s lives in general. Getting used to the new prices will however take a while to get used to even if the prices do not rise. The government will also try to regulate sellers so that prices do not rise significantly though surely everyone will feel the differences due to the currency change.
Whether the introduction of the Euro will bring us more benefits or more difficulties remains to be seen in the New Year but as with any change it is up to all of us to make the whole process unfold as easily as possible and move forward into the future with the hope of it being a better one for us and for future generations to come. For additional information or assistance, please contact Ms. Lara Supek, Senior Accountant, at our Eurofast office in Croatia, at email@example.com
Eurofast is a regional business advisory organization employing local advisors in over 21 cities in South East Europe & the Middle East (SEEME). The Organization is uniquely positioned as a one-stop-shop for investors and companies looking for professional services in Tax & Transfer Pricing – Payroll & Employment – Accounting & Compliance – Advisory & Corporate.