Croatia: Inflation should be taken very seriously, says Minister Marić

Croatia: Inflation should be taken very seriously, says Minister Marić

Inflation should be taken very seriously because of the criteria for introducing the euro as well as living standards, Finance Minister Zdravko Marić said on Croatian Radio on Wednesday.

Asked if inflation would threaten Croatia’s entry into the eurozone, he said next year’s budget deficit would again be within 3%, which would mean that the cost of COVID-19 of over HRK 35 billion would be almost totally a one-off.

The public debt-to-GDP ratio is again decreasing this year already, he added.

He said that inflation, one of the criteria for introducing the euro, had become a topic in recent months and that it must be a maximum of 1.5% more or less than in the three member states with the lowest inflation.

Croatia’s average inflation is somewhat below the EU average but Greece, Cyprus and Portugal still have very low inflation, which affects the formula for calculating the Maastricht criterion, he added.

But even with those three countries combined, he said, Croatia is still within the criteria for introducing the euro.

He said inflation was, first and foremost, affected by energy prices, oil in particular, and that this was reflected in food and construction material prices.

Speaking of fears of price rises after the introduction of the euro, Marić said that at least six months before it was announced that Croatia was entering the area, prices would have to be displayed in both kuna and euro for a year, perhaps longer.

Although the general VAT rate is not expected to be cut upon accession to the euro area, he did not rule out the possibility of cutting VAT on food.

Marić reiterated that Croatia would receive €25 billion from the EU budget in the next seven years, including €6.3 billion for its National Recovery and Resilience Plan, of which a 13% advance “is arriving in a matter of days.”

Marić said he was surprised by the success of the tourism season, notably in July and August, but this month also as the amount of fiscalised receipts in tourism this month so far was up 24% from September 2019.

He announced a 2021 budget revision, alongside preparations for the 2022 budget, for mid-October.