Dombrovskis: Introducing the euro may lead to ‘only slight’ increase in prices


"Once Croatia joins the euro zone on 1 January, prices may go up, but only slightly, and as a one-off effect," European Commission Vice-President, Valdis Dombrovskis, told Croatian reporters in Brussels, according to the state news platform Hina.

“The benefits of adopting the euro are many, while the downsides are few,” he said, adding that “a possible one-off effect on price increases” is among the downsides.

The experience of countries most recent members who joined the euro zone showed a one-off effect on price increases ranging between 0.1 and 0.3 percentage points, but in the medium term that is offset by lower currency conversion costs and lower interest rates.

Dombrovskis pointed out that efforts should be made to change the public perception that introducing the euro would lead to “substantial price increases.”

“That’s why it is good that Croatia is already addressing this issue by displaying dual prices and pursing an information campaign to ensure that companies do not use the currency changeover as an excuse for increasing prices,” he said.

“Croatia will have multiple benefits from membership in the euro zone as currency conversion costs will be eliminated, borrowing costs will be reduced, financial markets and the stability of the financial system will be strengthened, and there will be grater transparency of prices in EU countries. All this is very important for Croatia as a country with a sizable and important tourism sector, which will receive a twin boost from joining the euro zone and the Schengen Area, and the euro as the second largest currency globally will provide protection against foreign exchange shocks,” Dombrovskis said.

He said that the euro is “an anchor of stability in the present, very complicated, geopolitical and economic situation.”

“Euro zone membership is good for Croatia, but it is also good news for the euro zone and the EU as a whole,” he added.

As of 1 January, Croatia will participate in European monetary policy-making. The central bank HNB will join the Eurosystem, which comprises the European Central Bank (ECB) and the national central banks of 20 EU countries that have adopted the euro as their currency. Croatia’s finance minister will become part of the Eurogroup, a club of finance ministers of euro zone countries, and the governor of HNB will join the ECB governing council.

“High inflation rates in the euro zone and elsewhere in the world coincide with Croatia’s accession to the euro zone, but this has nothing to do with each other. The main drivers of price increases are high energy prices and disruptions to supply chains, which is the result of the Russian aggression against Ukraine. These factors are not related to the euro zone and this should be explained to the Croatian public,” Dombrovskis said.

Speaking of economic expectations for 2022 and next two years, Dombrovskis said that the Croatian economy would grow at a faster rate than the EU average.

The European Commission has forecast a 3.3 percent GDP growth for the EU27 and 3.2 percent GDP growth for the euro zone this year. Croatia’s GDP is expected to grow by 6.0 percent in 2022. In 2023, the EU27 and euro zone economies are projected to grow by 0.3 percent, and the Croatian economy by 1.0 percent, while in 2024 the EU27 is expected to grow by 1.6 percent, the euro zone by 1.5 percent, and Croatia by 1.7 percent.

“According to projections, Croatia’s economy is expected to grow faster than EU and euro zone averages, and as for inflation, there are signs that it has already peaked and is now expected to fall gradually both in the euro zone and in Croatia,” Dombrovskis said.