Croatia clears final hurdle to euro adoption next year | Your money

BRUSSELS (AP) — The European Union on Tuesday lifted the final hurdles to Croatia’s adoption of the euro, allowing the currency bloc’s first expansion in nearly a decade as the exchange rate fell to its lowest level the weakest level against the dollar in 20 years.

EU finance ministers approved three laws that pave the way for Croatia to become the 20th member of the euro zone on January 1. The last EU country to join the European Single Currency Area was Lithuania in 2015.

“It’s a great day for Croatia, I dare say historic,” Croatian Finance Minister Zdravko Maric told reporters in Brussels.

Adopting the euro offers economic benefits from closer financial ties with other members of the currency bloc and Monetary Authority of the European Central Bank.

More concretely, this means that the 340 million inhabitants of the current euro zone who visit Croatia will no longer need to exchange their money for Croatian kuna.

Joining the euro also has political rewards as the common currency is Europe’s most ambitious project to integrate nations, giving them a place in the core of the EU. It means a seat at the highest decision-making tables in the EU.

Croatia’s membership of the currency bloc is “an important moment for the European Union” and “confirms that the euro is an attractive, resilient and well-performing global currency”, said the Executive Vice-President of the European Commission, Valdis Dombrovskis.

However, the euro’s exchange rate very briefly touched $1 for the first time in two decades on Tuesday before rallying immediately. A worsening energy crisis in Europe related to Russia’s War in Ukraine stoked fears that the economy could collapse.

“The crucial factor for a possible adverse scenario is precisely the energy supply,” said EU Economy Commissioner Paolo Gentiloni. “This risk has not diminished in the weeks that we have behind us. It is still there and increasing.

While Croatian political elites see joining the euro as a success, citizens who are already facing double-digit inflation fear that the introduction of the single European currency will lead to further price hikes.

“They constantly tell us on the radio that the prices will be good, but I don’t believe it,” said Zagreb resident Visnja Gacic. “I have a friend in Slovenia, and when they introduced the euro, prices skyrocketed.”

In May, inflation in Croatia hit a 14-year high of 10.8%. In the euro zone, it was a record 8.6% in Junewith the ECB plans to raise interest rates for the first time in 11 years this month to combat soaring consumer prices.

Created in 1999 between 11 countries including Germany and France, the euro has seen seven previous enlargements starting with Greece in 2001.

The allure of joining the euro is reflected in the last three expansions, which brought the Baltic states between 2011 and 2015. During this period, the eurozone was struggling to contain a debt crisis that Greece had triggered and which threatened to break the monetary alliance. .

A combination of European emergency loans to five financially vulnerable member countries and a commitment from the ECB to do “whatever it takes” to save the euro has enabled the currency bloc to ride out the turmoil and come out stronger.

Joining the euro requires a country to meet a set of economic conditions. These relate to low inflation, sound public finances, a stable exchange rate and limited borrowing costs.

“It’s a wonderful club to be a part of, but it takes commitment, dedication, continuous respect for the rules, and I know we can’t expect less from Croatia,” said the president of the club. ECB, Christine Lagarde. “Together we are stronger.”

Croatia is relatively small and poor, so joining the euro will have limited international economic implications. The country has a population of around 4 million and a per capita wealth that, at 13,460 euros ($13,500) last year, was less than half the eurozone average.

Nevertheless, in the context of the Russian war in Ukraine and Kyiv’s early application to the EUthe imminent adoption of the euro by Croatia sends a potentially significant political signal.

Croatia was itself at war in the early 1990s when Yugoslavia violently broke up. The country applied for EU membership in 2003 and joined the bloc in 2013. It was the last time the EU enlarged.

“What an incredible journey it has been for Croatia,” said Gentiloni. “There is a lot to celebrate.”

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