Croatia Enters ERM II, Introducing Euro in At Least Two Years at a Rate of 7.53!

The Republic of Croatia has entered the European Exchange Rate Mechanism (ERM II), which is a crucial step in the process of introducing the euro in Croatia, and the Croatian National Bank has established close cooperation with the European Central Bank, as announced on Friday by the ECB and the European Commission. 

“At the request of the Republic of Croatia, the finance ministers of the euro area countries, the President of the European Central Bank, and the finance ministers and governors of the central banks of Denmark and Croatia, following a procedure in which the European Commission participated and after consultations with the Economic and Financial Committee (EFC), made a joint decision to include the Croatian kuna in the ERM II mechanism,” the statement said.

The central parity of the Croatian kuna is set at 7.53450 kuna for one euro. 

The Croatian kuna will participate in the ERM II mechanism within the standard fluctuation range of plus/minus 15 percent around the central parity. Mandatory intervention exchange rates will be published on Monday, July 13 at the opening of the foreign exchange markets.

The agreement on the participation of the kuna in ERM II is based, among other things, on Croatia’s commitment to simultaneously join the banking union.

Furthermore, a member state wishing to introduce the euro must spend at least two years in the ERM II mechanism before introducing the common European currency, which means that Croatia can expect to enter the eurozone no earlier than 2023.

As stated in the announcement, Croatia has successfully implemented the measures it committed to in the letter of intent regarding entry into the European Exchange Rate Mechanism from July 2019, which relate to further strengthening the supervision of the banking system, enhancing the framework for implementing macroprudential policy, strengthening the framework for preventing money laundering, improving the system for collecting, processing, and publishing statistical data, improving public sector governance, and reducing the administrative and financial burden on the economy. 

“In order to achieve a high degree of sustainable economic convergence and successful participation in the euro area, the Republic of Croatia has committed to implementing additional measures in reform areas and has expressed a firm intention to introduce the euro when the convergence criteria are met. The mentioned additional measures relate to strengthening the framework for combating money laundering, reducing the administrative and financial burden on the economy by further simplifying administrative procedures and reducing parafiscal and non-tax levies, improving corporate governance in state-owned enterprises, and strengthening the national bankruptcy framework,” the statement emphasizes.

At the same time, the European Central Bank (ECB) today made a decision to establish close cooperation with the Croatian National Bank (HNB), making the Croatian central bank part of the single supervisory mechanism even before entering the euro area, which means that the ECB will take over the supervision of Croatian banks.

The decision on close cooperation will take effect 14 days after publication in the Official Journal of the European Union.

In the upcoming period, the ECB will assess and decide which Croatian banks meet the criteria for classification as significant institutions, and from October 1, 2020, it will also conduct direct supervision of significant institutions in Croatia. Additionally, from the date of entry into force of the ECB’s decision on close cooperation, the Republic of Croatia will also participate in the single resolution mechanism (SRM), the ECB’s announcement states.