In the EU accession treaty Croatia undertook the obligation to adopt the euro as its official currency and the strategic goal is to meet the criteria by the end of the next government's term, Prime Minister Andrej Plenkovic said on Tuesday.

The economic benefits of the euro are many, the currency risk in the economy will be eliminated, the cost of borrowing will drop for all domestic sectors, and citizens and businesses will have lower financing costs than they would if Croatia stayed outside the euro area, he said at the Croatian Financial Institutions Day conference, organised by the Chamber of Commerce (HGK).

Conversion costs will be eliminated and the joint currency will contribute to international trade and competitiveness, Plenkovic added.

The euro is the second largest and strongest global currency used by more than 340 million people in the euro area, he said, adding that of all the EU member states outside the area, Croatia had the smallest population yet was the most euroised.

Croatia has the highest deposit euroisation of all EU member states outside the euro area, Croats express value, calculate and save in euros, as a result of which household savings in euros have never been below 66% of all savings, revolving around 76% over the past nine and a half years, Plenkovic said.

Forty-six percent of household loans are in the domestic currency with a currency clause and businesses are also significantly tied to the euro, 58% of commodity exports are exports to the euro area and 56% of all nights are generated by tourists from the euro area, and 50% of bank loans are in a foreign currency or in the domestic currency with a currency clause, he added.

The plan is for Croatia to enter the European Exchange Rate Mechanism II upon confirmation of compliance with all conditions in the second half of 2020, Plenkovic said. Croatia will spend between two and a half and three years in ERM II and entry into the euro area is expected in January 2023 at the earliest or in January 2024.

HGK president Luka Burilovic said the positive effects of the euro include a lower price of capital, easier awarding of a better credit rating, the elimination of the currency clause risk, and higher competitiveness of exporters.

“We can hope that Croatia will have a stronger position in attracting foreign direct investment,” he said. The euro is not a magic wand or a universal cure for economic problems but should be utilised as a generator for the realisation of strategic goals, he added.