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Monday, January 16, 2023

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After the shortest period in the ERM II of all new EU Member States, Croatia is now also about to join the euro area.

Key Points:

After the shortest period in the ERM II of all new EU Member States, Croatia is now also about to join the euro area.
Croatia has implemented reforms and the necessary restructuring and done everything to continue to have sound public finances.
To what extent have these new circumstances changed the narrative in terms of the costs and benefits of introducing the euro?
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It is good to have the euro because it can operate as a shield.
I am old enough to remember when France became a member of the euro area and we exchanged the franc for the euro.
We were also worried that abandoning our currency and adopting the common currency might have grave consequences in terms of higher prices and less independence.
The initial concern that prices will be a little higher can be allayed.
I am certain that the Croatian government has taken the necessary steps, such as ensuring prices are clearly displayed in both kuna and euro.
In France, too, we were able to monitor the prices in both francs and euro for about half a year.
At the moment, ECB policy rates must be higher to curb inflation and bring it down to our target of 2%.
That process is essential because it would be even worse if we allowed inflation to become entrenched in the economy.
So, we must do it now, but this is in no way connected to Croatia introducing the euro.
What do ECB procedures say on this, what practices were employed by other new members of the euro area?
All these projections are based on an assumption of no additional shocks or worsening of the difficulties we are facing.
Obviously, the three important words “whatever it takes” apply almost equally to inflation as they did to the euro?