site.btaCroats Part with the Kuna

"Are you paying in euro or in kuna?" This question has often been heard in shops, cafes and markets in Zagreb in recent days. As of today, however, it will no longer be relevant: the kuna is now history. Bread, coffee, anything will only be paid for in euros in Croatia after a two-week period in which Croats could pay in both currencies, ended January 15.

For Croatia, January 1, 2023 is a historic date as their country became the 20th member of the euro area and the 27th Schengen country. It is the first time an EU member state has joined the euro zone and Europe's border-free travel area on the same day.

Croatia has been a member of the EU since 2013, adopted a plan to changeover to the euro in 2017 and, together with Bulgaria, entered the euro zone waiting room - the European Exchange Rate Mechanism (ERM II) - in 2020, spending there the minimum of two years that are required.

From the beginning of January to mid-month, payments in Croatia were made in both kuna and euro. Anyh change was paid in euro for an easier withdrawal of the kuna. 

Beginning September 5, prices were indicated in both currencies, and it will stay this way until the end of the year. 

The exchange rate was fixed at 7,53450 Croatian kuna to the euro. Until 31 December 2023, Croats will be able to exchange kuna notes and coins for euro notes and coins at post offices, banks and the Finance Agency. No more than 100 kuna notes and 100 kuna coins per transaction can be exchanged free of charge. After this period, the Croatian central bank will exchange kuna banknotes free of charge without time limit and coins until the end of 2025.

A sad moment

For some Croats, abandoning the kuna is a sad moment but even they see the euro as a positive thing. 

“It is our national currency, I have known it since I was born here in Zagreb, and so it is a bit sad, but I still think we are better off with the euro. We are in the EU and it was only a matter of time before we switched to the euro,” a young man told BTA.

A middle-aged woman from Zagreb said that many people use the euro and she prefers to be among them as it will be easier for Croats, especially considering how important tourism is for the country.

Tourism accounts for around 20% of the Croatian economy. More than half of the country's exports are destined for euro area countries and almost 60% of its imports come from these countries. In addition, around half of bank deposits and loans are now denominated in euro.

According to a Eurobarometer poll last year, 55% of Croatians support their country joining the euro zone and 80% fear price spikes.

Has the changeover caused prices to surge?

Asked about that, an older woman in Zagreb’s Dolac market is positive that quite a lot of shops rounded up their price tags. A man in a café in the Croatian capital told BTA there has been quite a lot of "fishing in murky waters": an expression that would often be heard lately.

Croatian journalist Lidija Kiseljak believes that at a time when inflation is high and prices are constantly changing, it is difficult to know whether rising costs or the euro changeover is to blame.

It is clear, however, that inflation has been used as a good excuse for raising prices after the introduction of the euro, she adds.

In her personal experience, the price for a man's haircut was 65 kuna until recently and now the same place charges 10 euro (75 kuna). Coffe used to cost 12 kuna and now it is 2 euro (15 kuna). 

According to the latest data from the Croatian State Inspectorate which watches out for unlawful price increases, hairdressing and body care services have seen unjustified price hikes of some 20% since December 31. Some service providers have upped their rates by as much as 50%.

In supermarkets have upped their prices for monitored foods by 13%. Bread and bakery products have seen increases of up to 30% in some cases.

In Croatia, which has a population of four million, the average monthly salary is around EUR 1,000, and according to the latest Eurostat figures, November inflation reached an annual level of 13%.

Lidija Kiseljak notes that Croats like to compare themselves with Slovenians and with the introduction of the euro it is easier to match prices. 

Wages are higher in Slovenia, but prices of many products in the same retail chains are lower than in Croatia. One of the reasons for that is VAT, which, at 25%, is higher in Croatia. However, some food products have a VAT of 5 percent, Kiselják says, adding that Croatian retailers obviously have high profit margins.

The government's reaction

Already last week, Prime Minister Andrej Plenkovic and Economy Minister Davor Filipovic warned that prices should return to the pre-euro level and that if this did not happen, the State would intervene in cases where there were unjustified price hikes.

Meeting with the CEOs of retail chains, Filipovic stressed that the State has tools it will use against inflated prices such as capping the prices of about 100 products, increasing inspections, suspending electricity subsidies, even introducing new taxes, as well as drawing up blacklists of offenders of the rules for the euro changeover. 

Last Friday, Plenkovic commented that as a result of the stepped up checks, some traders had returned prices to the December 31 level and reiterated the tools that the government intends to use to contain price spikes. He said monetary penalties would be imposed on traders who had unjustifiably upped their prices.

The fine for legal entities is worth up to EUR 26,544 and the highest fine for an individual is EUR 1,990.84.

The State Inspectorate carried out a total of 696 inspections between January 7 and 11, and found 178 cases of unjustified price hike from the pre-euro level.

A Business Code of Conduct has also been introduced to ensure a transparent and reliable exchange of the kuna with the euro.

Citizens can also report irregularities to the authorities, adds Lidija Kiseljak.