Name: Croatia To Replace Their Own Currency With The Euro By 2023
Uploaded: 2019-11-19
Duration: 13 min 53 s
Description: The newest EU member is on the road to its inevitable membership in the Euro Club.

[ MUSIC ] It's my central banking day, or my two days of central banking, but this is going to be fun, because at some point Boris 2013 is when we first met. We were just joking about this that when Croatia entered the EU was the first time I ever met you and I asked, What do you wanna get out of it and he said the Euro Yeah, well >> it's 2019 you still don't have it. And we were just about entering the process. Now, what took so long? Well, it's a good time now to get in. If you remember 2013 was pretty much almost a peak of the crisis in the eurozone. We were just starting to recovery after the Recession basically during the GFC and now, Euro zone is in much better shape. We're in a very good shape after five years or very strong growth. So it's the time. It's the time but the process has changed a little bit since Bulgaria explain to some of us in the audience about how the process of Entering the convergence with the Euro works because it used to be simple and then we had a few issues and then the ECB changed some of the rules to safeguard. Yes. So tell us the process you're gonna go through now. Yeah. the difference in the process is that now Joining the exchange mechanism individual country has to spend two years before joining the Eurozone. You have to join at the same time the single supervisor mechanism and the single resolution mechanism. These are the two institutions which did not exist before. And that's why no country Join them at the same time as joining the Before, actually the last country that joined the Was Slovakia in mid 2000s. No other country has joined up until now, and we planning of joining in next year. At the same time we will then join the single supervisor mechanism which basically means the Supervision of all banks, within the euro zone and the countries in DRM which is conducted by the ECB, and the single resolution mechanism, which is there to resolve problematic banks of systemic importance in any country of the Euro zone. So basically a lot of hoops to Now jump through For the countries who have to any way join the Euro, you're keen. Some of your other counterparts in Central and Eastern Europe have to sign up for it. Not that keen. They're not doing anything to rush towards the euro. Why is it so important for you other than the GOP politics of it? We think it's very, very useful for the economy in a sense that Croatia is at the moment the smallest country of the EU that has not joined the Eurozone. We also the most Euros the economy that has not yet joined the Eurozone, which means That there are lots of savings in creation banks which are anyway in euros and there is a fair share of the credit which is linked to euro. So joining the eurozone eliminates foreign exchange risk for everyone, which reduce the risk premium interest rates go down. Then we can also make our bank regulation a bit more [ UNKNOWN ] I would say. Because now being out, we have to have a little bit of more buffers which will further bring the interest rates down. It creates lots of certainty for the investors I was just talking over the lunch with some investor into Croatia. I was saying, look, you can with 100 million euros, you invest it in Croatia you have to change it into the local currency. The local currency goes down 10 %, you lost 10 million euros without doing anything, you know, once you're in the eurozone, that risk is gone. Also the risk for the trade is good for the tourism. Tourism is big in Croatia, as you know, most of the tourists come from the eurozone, they will have the same currency. All that adds up to a nice benefit for the economy. But there's some dangerous there because you mentioned leniency and regulation. And that brings up an issue where one of the private sector companies called Agrico / gl two years ago, had a bit of an issue. 15 % of the country's GDP and then was bailed out by Russian banks. Hm. That also then raises the specter that if there's leniency in regulation and there are ways and means around the system, how do you as a supervisor as a central bank and then the ECB, which does not have the mandate to go into the private sectors, just about the banks? How do you balance The safety net that you need to keep the economy stable. Well, our role as the ECB is to look after the banks, not the private companies, non- financial corporate. How do you keep the banks clean and safe? So what we were doing, we were keeping the banks' exposure towards that company limited. So we were telling them you cannot lend more than 25 % of your capital to the aggregate exposure to this company. And by doing that, once the company went bankrupt, they were safe. No bank Increased HSA failed because of the failure of the biggest, it's the biggest regional company. those that, ended up being most exposed were Russian banks, Sparebank and the VTB and, among them, lots of international banks. So most of the risk was actually out of Croatia. And the haircut happened, mostly out of Croatia. So this is what we do we keep the domestic banks safe, and the now the foreign banks I would guess unhappy owners of the company through the debt equity swap. But you can understand why there is concern if the Russian banks had you done that bailout, where But there's potential if there is leniency that there might be another entry into Croatian banks. Does that worry you at all or do you think that's taught them some sort of a lesson considering the head got you just mentioned? I think that it doesn't worry me. I think it was just the bad economic decision. Bet banking where you get exposed to somebody who goes bankrupt and then you have to take a haircut of 50 % or more. This is just a bet, economic decision. Well, I wanna ask if anyone has a question of, because it's a very interesting economy in the way it is structured, and Of course it's going to be following Bulgaria into the euro. So if you have a question do raise your hand as usual we'll get the pedal and the mike to you. In the meantime I wanted to ask you one more question about we've heard about north south in the Eurozone and how that really plays out in terms of policy and the economy and monetary policy specifically. We also have the additional issue of now being east and west. You'll get a vote once you join, but the data points are always going to be skewed towards western Europe and larger economies like France and Germany. How do you see monetary policy playing out once you join the euro? for an economy like Croatia. I think that at the moment if you look at, there are two questions here. One is how the monetary policy of the ECB fits Croatia. At the moment, it fits it very well, actually. If you look at the synchronisation of the Croatia business cycle with the core Eurozone, we are more synchronized with the core Eurozone than the peripheral countries. Of Europe. So the monitory policy should fit as well in that sense. If you talk about the decision making within the board, government board of the ECB, then every country has one vote as you know and the decision should be made on the basis of the data for the whole [ UNKNOWN ] not on the basis of your national View. Now if you look at the difference between the countries, and if you look at, for example, where Croatia right now is, I would say that it looks probably a little bit more like a core Then like periphery in terms of the. For example banking system where the capital adequacy ratio is 23 and a half percent leverage ratio is 12 and half percent. So very high very well capitalized the banking system and the public debt which is coming down by 3 % points per year. In that sense, Croatia is not a country that is getting into the eurozone to get help, but is getting in in very good health and is getting in, in in with lots of momentum because we not only this year growing 3 % but we expect To continue to outgrow the eurozone average by three times next year, and the year after. That's the interesting part about the story of Central and Eastern Europe. This pace of growth is phenomenal and a lot of it comes down to tech and innovation. If anyone has a question, do let me know because I have a whole bunch before we have to start wrapping up the interview because I wanted to come back down to A question about technology and cryptocurrencies and the fact that tech is one of the fastest growing sectors, and another incentive for you to join the Euro. How does it all play out once, in the process going to and after? And how does tat benefit the growth of the technology sector in Croatia? Well, IT is the fastest growing Sector now in Croatia, and it can only be held further by by joining the Eurozone. It has been helped most I would say though, by entering into the into the EU, what we've seen after we got into the EU, the rates of growth of exports Went up to double digits for three years in a row over 10 %. And this was clearly the effect of joining the European Union because nothing else has happened exchange which has not happened price competitive is not really that much This is what i tell my British colleagues i mean, this is just the opposite what is going to happen to your SMEs particularly once you get out . The Euro effect will provide additional benefits for them. But i think for the IT sector at the moment, the two key things are the availability of the of the skillful Labor force, IT engineers and we do have very good schools for IT engineers. And the second thing is the three techs treatment. They are sensitive to the text treatments. Well, you mentioned British colleagues. That's an interesting conversation to have. What What are you discussing when it comes to Brexit? Because at some point we know where the Bank of England stands on the issue. When you have discussions with them and you talk about it, what do you say? What do you hear back as well? Well, we discussed exactly this issue of experience of getting gain or getting gout. What you see is that those that are benefiting most once you get in SMEs, large companies have much less problems with the border than a SMEs. For many SMEs. This is basically do business outside of your country or don't do the business outside of your country, even if the even if the tariffs are Zero. The border formalities makes it very difficult today. Everything you have to do you do deliver in time. So if you have to deliver something in Munich at 5pm tomorrow, you'll have to be there at 5pm. Tomorrow. If you're late, you lose business. And for SMEs this is a big problem if you have a border. And you have a whitepaper of the industry in Britain. You know, which also tells that there'll be a lot of casualties if that happens. Now, Bank of England and us, we agree I will say on that, it is up to the others. So do you think at some point for the clarity of anyone here who is either an investor in creation or about to think about investing in creation the next couple of years? What is your advice to them wait for 2020 till it starts the process starts Or wait till 2023 24 which is when your prime minister's indicated that that will happen when is this the process likely to finish? I think for the foreign investors The key thing here is the exchange rates stability and it is there. It has been there for now. 25 years So I'm absolutely sure that it will stay there for the next three or four years before we get into the Euro zone. And next year basically if we get into DRM, even the exchange rate will know because it will be the exchange rate at which we will join the DRM so the exchange rate uncertainty Will be one way or the other removed. And given that our foreign exchange reserves are now almost 40 % of GDP, one of the highest worldwide, not only in Europe, I don't think we'll run any risk that in the next three or four years the exchange rate risk might materialize. So no reason to wait for that reason. On that note, [ UNKNOWN ] thank you so very, very much for giving us your time and being so categorically honest. [ BLANK_AUDIO ]

Croatia To Replace Their Own Currency With The Euro By 2023

Leadership

The newest EU member is on the road to its inevitable membership in the Euro Club.