"Inflation should be taken very seriously because of the criteria for introducing the euro, as well as living standards," Finance Minister, Zdravko Maric, told Croatian state radio on Wednesday.

Asked if inflation would threaten Croatia’s attempt to join the euro zone, Maric said that next year’s budget deficit-to-GDP would be under 3 percent, the maximum allowed for the introduction of euro. “The public debt-to-GDP ratio is also going down,” he added.

All European Union member countries except Denmark are required to adopt the euro at some point but in order to do that a country must meet a number of the so-called Maastricht criteria, which include a maximum debt-to-GDP ratio of 60 percent. At the end of 2020, Croatia’s debt-to-GDP ratio was 89.1 percent, the highest it has been since 2014.

Maric said that inflation – yet another indicator included in the Maastricht criteria – had “become an issue” in recent months, and explained that it must not deviate 1.5 percent more or less compared to whichever three euro zone countries have the lowest inflation rates. Croatia recorded a 3.1 percent inflation rate in August this year – the single highest monthly increase in more than eight years.

“Croatia’s average inflation rate is somewhat below the EU average. However, Greece, Cyprus and Portugal still have very low inflation, which affects the formula for calculating the Maastricht criterion… But even with those three countries combined, Croatia is still within the criteria for introducing the euro,” Maric said.

Maric added that the current price hikes are mainly fueled by rising energy prices – oil in particular – and that this was then reflected in prices of food and construction material.

Speaking of fears of price hikes after the the euro replaces Croatia’s currency kuna, Maric said that at least six months before a formal announcement is made that Croatia is about to join the euro zone, all prices would have to be displayed to shoppers in both kuna and euro for at least a year or even longer.

Although there has been no date set for Croatia to join the euro zone by Brussels, Prime Minister, Andrej Plenkovic, said several times that he hoped this might happen by January 2023.

Although the general VAT rate of 25 percent – among the highest in the EU – is not likely to go down following Croatia’s adoption of the euro, Maric did not rule out that VAT rate for food products might be reduced.

Maric said that Croatia would receive €25 billion from the EU budget over the next seven years, including €6.3 billion for its so-called National Recovery and Resilience Plan (NRRP) – a special funding package the EU designed to help EU economies bounce back from the damage done by the Covid pandemic.

Maric said that 13 percent of that funding – approximately €819 million – should “arrive in a matter of days.” He also said he was surprised by the success of this year’s summer tourist season as the total value of receipts issued in tourism – i.e. tourism revenues – in September alone was 24 percent up from September 2019.