ADVANTAGES AND DISADVANTAGES OF A MONETARY UNION: CROATIA AND THE
EU
Croatia joined the EU in 2013 and increased economic integration further in 2023 by joining
the Schengen area and entering the Eurozone.
Entered the Eurozone in January 1, 2023, and stopped using the Croatian kuna (HRK). Prior
to the entry, there had been a fixed exchange rate of 1 EUR = 7.53450 HRK, stable since
2020.
Advantages
● Increase in exports and access to a larger market.
○ Service sector amounts for 75% of the entire GDP.
○ There was a boost in tourism and manufacturing, which is its most important
export sector.
○ 70% of exports have been traded in Europe, which means they benefit from
price transparency.
○ The elimination of conversion costs for EU travellers further boosted tourism.
● Elimination of exchange rate risk
○ Trade with Eurozone countries accounted for over 50% of Croatia’s exports in
2022.
○ Croatian businesses no longer face transaction costs or exchange rate
uncertainty when trading in euros.
○ This encourages greater trade, investment and tourism.
■ Tourism is 20% of GDP, and most tourists come from Eurozone
countries.
■ No need to convert euros, boosting consumer confidence and
convenience.
● Trade creation
○ Promoting trade in the manufacturing sector and modernisation of production
methods.
Macroeconomic situation:
● Reduction in unemployment from 17.25% in 2013 to 6% in 2023.
● Stable growth → 2-3% annual GDP growth since 2015.
Lower interest rates and inflation discipline:
● Croatia’s sovereign bond yields fell after joining the euro, from 3.5% in 2022 (had
been that way for a decade) to around 3.1% in early 2023 according to the ECB.
○ This means the government could finance its budget and public investment at
a lower cost.
○ it enabled more spending on infrastructure, health, education and debt
repayment without increasing taxes.
● Eurozone membership booster investor confidence, which allowed greater access to
financial capital and made it cheaper for the government and businesses to borrow.
EU
Croatia joined the EU in 2013 and increased economic integration further in 2023 by joining
the Schengen area and entering the Eurozone.
Entered the Eurozone in January 1, 2023, and stopped using the Croatian kuna (HRK). Prior
to the entry, there had been a fixed exchange rate of 1 EUR = 7.53450 HRK, stable since
2020.
Advantages
● Increase in exports and access to a larger market.
○ Service sector amounts for 75% of the entire GDP.
○ There was a boost in tourism and manufacturing, which is its most important
export sector.
○ 70% of exports have been traded in Europe, which means they benefit from
price transparency.
○ The elimination of conversion costs for EU travellers further boosted tourism.
● Elimination of exchange rate risk
○ Trade with Eurozone countries accounted for over 50% of Croatia’s exports in
2022.
○ Croatian businesses no longer face transaction costs or exchange rate
uncertainty when trading in euros.
○ This encourages greater trade, investment and tourism.
■ Tourism is 20% of GDP, and most tourists come from Eurozone
countries.
■ No need to convert euros, boosting consumer confidence and
convenience.
● Trade creation
○ Promoting trade in the manufacturing sector and modernisation of production
methods.
Macroeconomic situation:
● Reduction in unemployment from 17.25% in 2013 to 6% in 2023.
● Stable growth → 2-3% annual GDP growth since 2015.
Lower interest rates and inflation discipline:
● Croatia’s sovereign bond yields fell after joining the euro, from 3.5% in 2022 (had
been that way for a decade) to around 3.1% in early 2023 according to the ECB.
○ This means the government could finance its budget and public investment at
a lower cost.
○ it enabled more spending on infrastructure, health, education and debt
repayment without increasing taxes.
● Eurozone membership booster investor confidence, which allowed greater access to
financial capital and made it cheaper for the government and businesses to borrow.
