The European Commission has confirmed that Croatia is ready to adopt the euro on 1 January 2023, bringing the number of eurozone member states to twenty.

The conclusion is set out in the 2022 Convergence Report, which assesses the progress made by Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden towards joining the eurozone. It is the seven non-euro area Member States that have made a legal commitment to adopt the euro. The report concludes that:

• Only Croatia and Sweden meet the criterion of price stability.
• All Member States meet the public finance criterion, except Romania, which is the only Member State to be subject to the excessive deficit procedure.
• Bulgaria and Croatia are two member states that meet the exchange rate criteria.
• Bulgaria, Croatia, the Czech Republic and Sweden meet the long-term interest rate criterion.

The report states that Croatia meets the four nominal convergence criteria and that its legislation is fully in line with the requirements of the Treaty and the Statute of the European System of Central Banks / ECB.

The Commission's assessment was complemented by the European Central Bank's (ECB) Convergence Report, which was published.

The introduction of the euro in Croatia in the light of the Commission's assessment and taking into account additional factors relevant to economic integration and convergence, including balance of payments development and integration of product, labor and financial markets, the Commission considers Croatia eligible for the euro. Therefore, it adopted the proposals of the Council Decision and the Council Regulation on the introduction of the euro in Croatia.

The Council will make final decisions on Croatia's introduction of the euro in the first half of July, following discussions in the Eurogroup and the European Council, and following the opinion of the European Parliament and the ECB.

Therefore, the Report marks a key and historic step on Croatia's path towards the introduction of the euro.

In all non-euro area Member States surveyed except Croatia, the Report also finds that national monetary legislation is not fully compatible with EMU legislation and the Statute of the European System of Central Banks / ECB.The Commission also examined additional factors from the Treaty that should be taken into account when assessing the sustainability of convergence. This analysis shows that the surveyed Member States are generally well economically and financially integrated into the EU. However, some of them still have macroeconomic weaknesses and / or face challenges related to their business environment and institutional framework that may pose risks to the sustainability of the convergence process.Effective implementation of the reforms and investments outlined in their national recovery and resilience plans will address key macroeconomic challenges. In the case of Hungary and Poland, the Commission is currently evaluating the plans to make sure that all the evaluation criteria are met. The European Commission's Convergence Report forms the basis for the EU Council's decision on whether a Member State qualifies for joining the euro area.The European Commission's Convergence Report is separate from the ECB's Convergence Report, but published in parallel.Convergence reports are published every two years or when there is a specific request from a Member State to assess its readiness to join the euro area - for example, Latvia in 2013.All Member States, except Denmark, have made a legal commitment to join the euro area. Denmark, which negotiated the opt-out arrangement in the Maastricht Treaty, is therefore not covered by the Report.While the COVID-19 pandemic and subsequent economic recovery in 2021 had a very significant impact on the findings of the 2022 Convergence Report, the impact of the Russian unprovoked invasion of Ukraine that began in February 2022 on the historical data used to prepare the Report was limited. The extent to which indicators of economic convergence are affected by the crisis caused by Russia's military aggression, as well as other current economic developments, is fully reflected in the economic projections for 2022 and 2023, published by the Commission on 16 May 2022 (Commission Spring 2022. Economic Spring 2022. Forecast) and used to assess the sustainability of convergence.

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Source: European Commission

Photo: Markus Spiske