Croatia plans to enter the European exchange rate mechanism II (ERM-II) before 2020, when the country takes over the presidency of the European Union, Prime Minister Andrej Plenkovic said on October 30, according to a government statement.
The ERM-2 is aimed at creating a system between euro area and non-euro area countries that guarantee exchange-rate stability between their different currencies. For joining the Eurozone, countries should participate in the ERM II for at least two years without strong deviations from the ERM II central rate.
Although Plenkovic did not specify an exact date from euro adoption, he said he expects the country to adopt the European single currency “within two government terms in office.”
“Croatia has two key political goals: to become part of the Schengen area, or to be ready for a political decision on it in 2019 and the second goal is to join the Eurozone,” Plenkovic said at the Strategy of Euro Adoption in Croatia conference.
“We don’t want to give the exact date. What I think is realistic and what we’ll be working on is that in 2020, when Croatia takes over the EU presidency, will be the year in which, according to our plan, will be part of ERM II,” Plenkovic said.
The Croatian central bank keeps the local currency within a narrow fluctuation band. It sometimes intervenes on the money market to ease the kuna’s appreciation.
In order to adopt the euro, Croatia will also have to reduce public debt. According to RBA analysts, public debt reached 81.9% of GDP at the end of June. Compared to the end of June last year, public debt increased by 0.6%. The IMF has recently said it expects the Adriatic country to reduce debt to close to 65% of GDP by 2022.