Thursday, July 18, 2019
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Croatia one step closer to euro and could ditch kuna by 2023 as new currency plan launched | City & Business | Finance

Finance minister Zdravko Maric said the Balkan state has expressed interest in joining the European Exchange Rate Mechanism (ERM-2) which is seen as the waiting area for European nations who intent on taking on the euro. A letter of intent to join has been sent off to European Union finance chiefs was sent off today after being signed by Mr Maric following permission from the Croatian central bank. Croatia hopes to be allowed to join ERM-2 next year. After this, it could adopt the euro three years later at the earliest, meaning Croatia could switch currencies in 2023.

Mr Maric said Croatia has made clear in the letter the commitments it aims to meet in the next 12 months before being allowed to enter the ERM-2.

The government said it will keep the stability of the financial and banking system on track, maintain positive fiscal performance and ensure stronger cooperation with the ECB.

The letter read: “Economic recovery, export growth, fall of unemployment, consistent fiscal adjustment and strong fall of foreign debt reduced vulnerability of Croatia’s economy.”

Croatia, which joined the EU in 2013, currently uses the kuna currency which currently stands at 8.25 to the pound and 7.40 versus the euro.

But the currency remains one of the weakest in the eurozone, with the average salary in April coming in at 6,434 kunas (£780) and an unemployment rate of 8.5 percent.

In recent years, amid strong inflows of euros the kuna has been almost exclusively exposed to appreciation pressure, which the central bank has occasionally tamed by buying euros from commercial banks.

The last time it intervened was in February.

A poll earlier this year showed just over half of Croats were in favour of adopting the euro.

The figures showed 52 percent would want to switch currencies, while 40 percent were against the eurozone tender.

Central bank officials have previously expressed interest in adopting the euro after claiming it would be the best tender for the country, with the eurozone hosting the most important trading partners for Croatia.

Some 80 percent of currency savings are denominated in the euro.

Croatia looks set to follow Bulgaria into the ERM-2 after the eastern European nation expressed interest to join the euro waiting area in the latter half of this year.

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