The exchange rate with which Croatia is expected to enter the Exchange Rate Mechanism (ERM II), the first stage in the country's currency switch from kuna to the euro, could be known as early as next year, central bank governor Boris Vujcic said on Friday after the first meeting of the national council for the introduction of the euro.

As part of ERM II, the national currency of a EU member state is tied to the euro, and a median exchange rate is established. It is the result of a balanced exchange rate, which means that the currency must not be either undervalued or overvalued.

“There will be no conversion cost for citizens. It will be automatic, based on the exchange rate to be established earlier,” Vujcic said, adding that the rate might be known as early as next year.

“That will be the rate with which we will enter the Exchange Rate Mechanism and which we will de facto have to maintain as long as we are in the Mechanism, which essentially means that this will be, possibly with very small oscillations, end up being the conversion rate,” Vucic added

As part of its EU membership, Croatia is obliged to adopt the euro, which requires spending at least two years as part of the ERM, and during that time the local currency is allowed to float only within a small range of 15 percent up or down from a central rate set against the euro.

Asked if this meant that the exchange rate with which Croatia would enter ERM II would be very close to the current exchange rate, Vujcic said the rate would be close to the one Croatia had over the past 25 years, which “didn’t oscillate much.”

For years Croatia’s central bank maintains the local currency kuna in an already narrow fluctuation band, set between approximately 7.4 and 7.6 to the euro, which some critics say makes the kuna over-appreciated, hampering export-oriented businesses.

The government and the central bank had developed a joint euro strategy late last year, which underwent public discussion and which the government adopted in May.

Vujcic said talks about the next steps were being held with European partners and that the first step was entering ERM II, which entails close cooperation with financial authorities the euro area and joining its banking union.

He added that the European Commission and the European Central Bank were conducting due dilligence of Croatia’s economy as a prerequisite for continuing the talks.

At the same news conference, Finance Minister Zdravko Maric said that a country gets invited to ERM II if it has a stable economy, sustainable growth rates, and no imbalances.

Although Maric refused to give any estimates on when Croatia might adopt the euro, the latest estimates previously mentioned by economists say the country might join in 2023-25, provided that it manages to reduce its public debt below 60 percent of its GDP by then.

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