Croatia's central bank governor, Boris Vujcic, met in Berlin on Tuesday with German Vice-Chancellor and Federal Minister of Finance, Olaf Scholz, Chair of the Bundestag's Finance Committee, Bettina Stark-Watzinger, and other members of the committee, during a day-long working visit to Germany, the central bank said.

The topics Vujcic discussed included Croatia’s economic prospects and prospects for its adoption of the euro, its path towards joining the European Monetary Union, and the EU’s banking union.

At the Berlin headquarters of Commerzbank, one of Germany’s largest banks, Vujcic delivered a talk on Croatia’s economic growth and the country’s efforts to join the euro zone.

“Croatia is the smallest EU member country which still uses its own currency, although it is already strongly integrated with the euro zone through foreign trade,” Vujcic said.

Speaking of other specific features of Croatia’s economy that work in favour of Croatia adopting the euro, Vujcic said that the Croatian economy is already tied to the euro to a high degree, adding that 75 percent of savings in local banks, and 67 percent of all loans are tied to the euro.

“The adoption of the euro would eliminate the currency risk which is one of the main sources of potential vulnerabilities for Croatian economy. On the other hand, losing the independence in monetary policy would not create any significantly negative effects, given that the Croatian banking system is dominated by banks owned by institutions based in the euro zone, which limits monetary policy options. The exchange rate is kept stable, and cannot be used as a tool to increase competitiveness,” Vujcic said.

The central bank’s policy for years included maintaining the local currency kuna in a narrow exchange rate band against the euro, set at around 7.4-7.6 kuna to the euro. The bank occasionally intervenes in the local money market to keep the exchange rate stable, with the last such move happening in May 2018, when it bought €320.5 million to ease appreciation pressures.

He added that Croatia’s first step on the path to the euro zone would be joining the European Exchange Rate Mechanism (ERM II), adding that Croatia would put in a formal request for accession to ERM II in the near future.

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