US economist Joseph Stiglitz, who won the Nobel Memorial Prize in Economic Sciences in 2001, said on Saturday that he believed that Croatia should not introduce the euro as its official currency, since this move would reduce the country's flexibility in responses to economic crises.
Stiglitz, who is one of the participants in the ongoing European Forum Alpbach in that Austrian city, was answering questions during a news a conference in Saturday afternoon, and when asked whether Croatia should adopt the euro, he answered in the negative.
“Absolutely, no,” said this former chief economist of the World Bank.
Stiglitz said that the euro, as the sole legal tender, deprived a country of two important instruments which the researcher deems to be essential in adjusting a national economy to shocks. One of those instruments is the possibility of adjusting the exchange arrangements, that is its capacity of using monetary policies and consequently changing interest rates, he explained.
Stiglitz insists that for instance, the monetary policy that suits the countries such as Germany or the Netherlands does not necessarily suit Spain or Croatia.
Therefore you must have flexibility, said this economist why explaining his warning to Croatia against to introducing the euro as its sole legal tender.
Croatia fulfils all of the economic convergence criteria
In July, Croatia and Bulgaria entered the Exchange Rate Mechanism II (ERM II), the key step to enter into the euro area. Until then Croatia had met all criteria to join the euro area except for membership in ERM II.
The European Commission said on that occasion that it would continue to encourage and support the efforts of the Bulgarian and Croatian authorities to complete the process of joining the euro area.
“The euro is a tangible symbol of European unity, prosperity and solidarity. This decision recognises the important economic reforms already undertaken by Bulgaria and Croatia while confirming the continued attractiveness of Europe’s single currency. We will continue to stand with both countries as they take their next and final steps towards joining the euro area,” said EC President Ursula von der Leyen then.
The euro area currently has 19 members. All EU countries, except Denmark, have the obligation to introduce the euro. Denmark participates in ERM II.
In order to join the euro area, it is necessary to meet the convergence criteria, also known as the Maastricht criteria. They are price stability, sound public finances, exchange rate stability and durability of convergence. Also examined is the compatibility of national legislation with the European Monetary Union (EMU) rules.
Croatia fulfils all of the economic convergence criteria, and it has legislation fully compatible with EMU rules.
By joining the ERM II, Croatia has pledged to make additional moves to mitigate the risks on its journey to the euro area and create conditions for a more efficient allocation of capital to productive firms instead of rent-seekers, shows a recent European Central Bank analysis which underlines that the entry into ERM II will prompt institutional reforms in Croatia.
In July, Prime Minister Andrej Plenkovic said that the admission to the ERM II meant a lot for the country’s financial stability and strengthened its reputation, and also pointed out a high euroisation in Croatia.
For instance, 71% of household savings have been kept in the euro in the last eight years. Also more a than a half of loans are pegged to the euro. Foreign visitors coming from the euro area’s member-states generate as many as three-fifths of overnight stays in Croatia, and 57% of the value of the commodity exports are to those countries.
