Outgoing Croatian Finance Minister Zdravko Marić spoke to EURACTIV ahead of his last ECOFIN meeting of European finance ministers, stressing that Croatia has gone through serious fiscal consolidation to meet the convergence criteria and will continue to be a “constructive partner”.
A visibly relaxed and satisfied minister greeted EURACTIV in the premises of the Croatian representative office in Brussels on Monday (July 11). And it’s not hard to understand why.
On Tuesday, Croatia should receive the green light from EU finance ministers to join the euro in January 2023, bringing the total number of eurozone member states to twenty. As Croatia’s finance minister for the past six and a half years, Marić has probably been more involved in the euro accession process than any other Croatian politician.
Croatia’s euroized economy
“At the very beginning of our mandate in 2016, it was defined as one of our strategic goals,” said Marić. “It was a means to increase the standard of living, the level of employment, the level of wages as our ultimate goal,” he added.
More precisely, the Minister of Finance asserted that joining the euro would lead to lower foreign exchange risk, lower interest rates and financing costs, and lower inflation. In his opinion, the possible disadvantage of losing monetary sovereignty was not too pronounced, since a large part of the Croatian economy is already euroized.
“Our financial system is already so integrated into the European Central Bank (ECB) system that I would say the level of monetary freedom is quite limited,” Marić told EURACTIV, noting that the four largest commercial banks in Croatia were Italian. and Austrian and that more than half of Croatian trade is denominated in euros.
That’s why he rejected the criticism of former Croatian Prime Minister Jadranka Kosor, who said that Croatia should have taken a break on joining the euro so that the government could deal with the economic problems ahead.
Marić even asserted that membership in the Eurozone would help Croatia to react because some foreign exchange risks would be mitigated and public and private borrowing costs would be reduced.
German words of caution
Another concern about Croatia’s accession to the euro comes from Berlin, where far-right MP Norbert Kleinwächter claimed in a parliamentary debate that Croatia would become the “new Greece”.
Even politicians from the center-right CDU and the liberal FDP, who welcomed Croatia’s entry into the euro, cautioned that fiscal consolidation is needed.
However, Marić asserted that Croatia has done a good job of fiscal consolidation in recent years. “From 2017 to 2019, we even had a budget surplus,” he said. He added that Croatia has proven that it is “always a constructive partner”.
According to him, there were also some Croatian specificities that had to be taken into account. “We still feel certain repercussions of our Homeland War two and a half decades ago,” said Marić, stating that the large number of veterans explains the relatively high rate of early retirement in the country.
He referred to the Croatian war of 1991-95, which followed after it declared independence from Yugoslavia.
Political or technical criteria?
In the European Commission’s report on convergence for 2022, which laid the basis for the Commission’s decision to propose accepting Croatia’s bid for the euro, Croatia had no problem meeting most of the criteria.
However, Croatia only met the price stability criterion because the Commission calculated it in a way that did not include all countries, which raised doubts as to whether Croatia’s allegedly technical admission procedure was politically influenced in favor of Zagreb’s accession.
Asked if the process was influenced by some political goodwill of the EU institutions, Marić remained vague, but said: “I really should thank all the European institutions.” They have been helpful throughout this process, not just in terms of meeting these criteria.”
While the convergence process has forced Croatia to embark on a path of fiscal consolidation, the country, which joined the EU in 2013, will have a little more freedom in conducting its fiscal policy once inside the eurozone. On the other hand, it will be directly affected by the structural weaknesses of the Eurozone, which risks fragmentation in times of crisis.
However, Marić remained cautious about how the eurozone’s structural weaknesses could be resolved and its macroeconomic management framework reformed. As for structural weaknesses, he called for an end to the banking union. “It means we are ready and we will stand up for each other,” he said.
As for the reform of fiscal rules, it seems that the Croatian Minister of Finance also avoided taking any side of the debate. Although he emphasized the importance of sustainable public finances, he also said that “it cannot be an end in itself.”
Last week at work
Marić elegantly avoided taking a position on the most controversial issues that will be discussed among EU finance ministers at today’s meeting and the meetings that follow.
Given the dire economic outlook for Europe in the wake of the Russian invasion, his rather light-hearted manner might be surprising, but this is Maric’s last week in the position, having completed a huge task for his country.
After announcing his withdrawal from Croatian politics last week – for personal reasons, he says – Maric may not feel as burdened by the worrying economic outlook as other EU finance ministers currently.
[Edited by Zoran Radosavljevic]