Croatia’s Finance Minister: Inflation in our Country had Nothing to do with the Introduction of the Euro
The Minister of Finance of Croatia - Marko Primorac talked about how his country turned out to be excellent in European integration. In just 10 years after becoming a member of the European Union, Croatia adopted the euro and entered Schengen. Bulgarian media “Nova” had an interview with him.
Bulgaria and Croatia started from the same "runway" in 2020. Both countries entered the waiting room of the Eurozone, but you managed to get ahead of us. Why?
“First of all, I want to congratulate the Bulgarian government for being dedicated and making efforts on Bulgaria's path to the euro. Yes, we were on the same track. When we talk about Croatia, however, I would like to say that perhaps one of the most important things was the political stability in the country and the commitment with which we worked towards the Eurozone. We have set ourselves 1 January 2023 as the date from which we wanted to adopt the euro, and despite all the challenges – the COVID crisis, for example, when everyone was telling us that we would miss the moment – we started working even harder. We managed to get ahead of the situation and do our best to meet the criteria.
When we talked about the introduction of the euro, everyone was scared of inflation and price pressures. From September 5 last year, we started displaying prices in both Euro and Kuna in all stores and markets. But since the first day of January, we have come across striking cases where some of the shops increased their prices. Those of wine, some foods and even services jumped. And everyone was worried that this would become a practice.
At this point we weren't sure exactly what was going on. But we passed an ordinance obliging traders to return the prices as they were on December 31.”
But people in Bulgaria, who are skeptical of the euro, point to Croatia and say: "Here, prices have risen there, traders have speculated"...
“As I told you, yes, we have faced such egregious cases. And they worried us a lot. That's why we acted quickly. On January 5, no one could say for sure whether this was a general trend or an attempt at speculation. People sent us pictures of different products and asked why. And the reasons could be any - from the fact that the products during the Christmas holidays may have been on promotion to the fact that attempts were made to artificially increase prices. That is why we appointed additional inspectors to carry out mass inspections. This, of course, angered the traders. They said, ‘You should leave the prices to the free market.’ We had to deal with that too.”
Was there an idea to blacklist unfair traders? What happened to that?
“Yes, we thought about it before we introduced the euro. But in the end, we decided that it would not be so easy to judge who would get on the list and on what basis. This could lead to lawsuits. So we decided to reverse the method. We made a platform, invited the big chains to publish their prices on it. And we created a so-called ‘white’ list to promote good practices, not point fingers at wrong ones. We expected all of them to join, but so far only three of the chains have done so. But we currently have between 7 and 10 large retail chains, so the number is not that small.
In this way, we do not punish, but stimulate. And for consumers, this option is better. That way they will know where to shop. It will also have an effect on traders who speculate. They will start lowering prices if everyone buys from the ones on the white list.
So far we have imposed fines for over 400,000 euros. And in the end, it turned out not to be a general phenomenon of price gouging, but of unfair practices. And we found a way to control it so that the process goes smoothly. The purpose of the inspections and sanctions was not to fill the state treasury, but to make sure that no one else would take advantage of the situation and raise prices to increase their profit.”
So you can assure people that inflation in Croatia has nothing to do with the introduction of the euro?
“Of course, because the data on a monthly basis from December to January also showed it. Inflation is practically non-existent. It is close to zero. Yes, there are inflationary pressures. Energy tariffs have increased, which has affected other prices as well, but this has nothing to do with the euro. The same process is taking place in countries that have not yet adopted the euro - prices are also rising there. I am sure that the prices in Bulgaria are also rising, and you have not yet introduced the euro. Inflation is currently seen everywhere in the world. What will it be like in March, April, May? No one can say for sure now. But our inflation is currently expected to be slightly above the Eurozone average.”
Do people have concerns about interest rates though?
“When it comes to reducing the effect of inflation, restrictive monetary policy is most effective. What we discussed at our last meeting at the European level, where your Finance Minister Rositsa Velkova was also present, is that the fiscal policy cannot be so effective. For it to have an effect on inflation, it means increasing taxes, reducing subsidies and benefits. And that's something no one would want to do now. And in this sense, the fiscal policy should not throw, so to speak, ‘fuel on the fire’ of inflation. And as finance ministers we must be careful, maintain fiscal stability and not overspend. This will increase demand and consumption, and hence inflation.
When we talk about tighter monetary policy, it is associated with a rise in interest rates. And this is the most effective way to deal with inflation. This is something we support.”
How did you manage to convince people that the euro is good because we are facing this problem now in Bulgaria?
“We put together working groups of more than 100 people who worked on this issue. We had a very clear communication and education campaign in the major cities of the country. We called it ‘Euro on wheels’. In this way, we introduced people to what will happen once we enter the Eurozone. We also educated children in schools to improve their financial knowledge.”
And now do you miss the Kuna?
“I can't say I miss it. Of course, everyone is more or less emotional about this, but we have the kuna as a symbol on our euro coins. And that's something that makes people happy.”
You claim that the erosion zone is a "shield" during crises. Do you really believe this?
“Of course, when we talk about the Eurozone, Schengen, the European Union as a whole. It's not just a goal that's important. It is the path to a greater purpose. We had to make many improvements, improve our administrative capacity, build many shields also in terms of fiscal policy and stable finances of the country. But also joining the Eurozone is something that can help countries with additional protection in financially turbulent times.”
Should we in Bulgaria regret postponing our membership until at least 2025?
“I don't think you should be sorry. But you have to put in a lot more effort to continue on this path. You get serious support, you can always count on the European Commission. You also have a partner in us. And we will do what we can to help you on the way to the euro to be the 21st member of the Eurozone.”
What is your advice to your colleagues in Bulgaria?
“It’s clear: you must continue on this path with a clear and stable fiscal policy. This is very important at the moment, and not only for the euro. Unwarranted spending may further fuel inflation. And decisions are difficult, especially in a situation where people need support. This should light up like a ‘red light’. Of course, political stability is also very important. I believe that a transparent process, a clear campaign and strong political support are essential factors for a successful transition to the euro.”
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