site.btaEuro Changeover Has Not Undermined Croatians' Purchasing Power: BTA Interview

Croatians' purchasing power declined last year as wage growth was weaker than inflation, but this is not related to the introduction of the euro in Croatia, the chief economist of the Croatian Employers Association Hrvoje Stojic said in an interview with BTA.

On January 1 this year, Croatia, whose population is around four million, became the 20th member of the eurozone and the 27th country in the Schengen area, the first time an EU member state became a member of both unions on the same day.

Purchasing power in real terms fell last year as wage growth was slower than inflation. This is a trend that has been observed in most EU member states and in the US. This is not related to the introduction of the euro, but is rather an unpleasant coincidence - inflation is high everywhere because of rising energy and commodity prices, and many manufacturers are belatedly adjusting the prices of their products, but still at the expense of their profit margins, Stojic said.

He noted that many small businesses have delayed raising their prices even though the conditions were there to do so, but have now raised prices to protect their profitability.

Asked whether now is the right time for Croatia to join the euro area, given the high inflation, Stojic replied that any deepening of ties with the EU, including through the euro area, was a good step. He noted that because of joining the single European currency union, Croatia had to consolidate its public finances significantly. Thus, fiscal policy has become more responsible and Croatia has reduced the perception of risk on financial markets, Stojic said.

The perceived appreciation immediately after the introduction of the single European currency on January 1, after traders rounded prices in euros, prompted the government to take measures to protect consumers. Prime Minister Andrej Plenkovic called on traders to return prices to the levels of December 31, otherwise fines would be imposed if prices are raised unjustifiably, and electricity subsidies could be cancelled or there could be tax changes.  Commenting on what measures the government could take to protect consumers from price hikes, Stojic said the worst measure would be to freeze prices and that greater transparency must be achieved.

For example, he said, the state could have monitored the prices of the most important items on a web page a few months before the euro was introduced and all people could have seen how prices changed over time, a practice that could have continued for several months after the euro was introduced. According to him, transparency is really the best way to "discipline" the market. In his words, if there are now prices that have been raised unjustifiably, it is because transparency and competition are missing.