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Impact of the EMU in Croatia

The paper analyses the likely impact that the EMU will have on the Croatian economy in a medium term. That impact will be felt with different degree of importance over time and over various sectors. at the beginning, the most important impact will be on the domestic financial sector and on the internationally oriented part of the economy, i.e. companies that do business with foreign partners that will themselves switch quickly to the Euro. The ability to quickly adopt the Euro and enter the Euro payment system is of crucial importance for that part of the corporate sector. The household sector will be impacted as the third stage (C) of the introduction of the Euro comes closer. Given that the EMU currencies make up about 80 per cent of the savings, that the Deutche Mark is the main benchmark currency, and the exchange rate benchmark is a very important economic indicator in Croatia, that impact will be substantial. EMU will also have an important influence on the export competitiveness of the Croatian exporters will have to rapidly increase competitiveness as well if they want to keep or increase their market share in the EU market. The same logic applies to the home market since the creation of the EMU will proceed along with the further substantial trade liberalisation in Croatia as it aims to enter the WTO, and, at some later stage, the EU. The competitive challenge will also be felt in the Croatian tourism sector as it is expected that the Euro will increase the attractiveness of the EMU-area tourist destinations. On the other hand, it the Euro proves to be an impetus for higher growth in the EU market, as it is expectedwill mean higher demand (export opportunity) in the Croatian main exporting market. Thus, the EMU presents both the opportunity and the challenge for the Croatian economy. We also discuss the impact of the EMU on the optimal exchange rate policy in the EU accession process.

Croatia; EMU; excange rate policy; international trade

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