Boris Johnson, Croatia and the Euro

The Mayor of London, Boris Johnson, has written a piece in the Daily Telegraph essentially saying that Croatia would be unwise to join the Euro – the EU’s single currency. This follows his showing impeccable taste by holidaying in Croatia – giving interviews to the local press and media. Certainly, Croatian officials would do well to cultivate his interest in Croatia.

It will be interesting to see if his comments spark off a debate on joining the Euro in Croatia. Johnson has always been hostile to the Euro, and given that events have more or less proved him right, he is worth listening to on the matter.

Whilst Croatia is joining the EU, should it put off joining the Euro?  Perhaps indefinitely?

The clear answer is yes. As can be seen the Euro is in crisis, with no foreseeable resolution. Indeed, it is Greece today in serious crisis and may be Italy or Spain tomorrow. Who wishes to join such a currency? The British economy is suffering at the moment, but the whole country is thankful it is not part of the Euro, as it would no doubt be in a far worse situation if it were.

However, there is another reason more particular to Croatia to avoid the single currency. Croatia is highly dependent on its tourist industry. If the Euro were to strengthen too much, that could damage tourist revenue. This is due to the Kuna being linked to the Euro, but in a serious situation that could be uncoupled, allowing the Kuna to remain competitive.  This option would not be available if Croatia were part of the Euro – or part of some post-Euro replacement. A strong Euro/post-Euro could damage the economy. Zagreb would have no way of resolving such an issue – the big powers would be in charge.

Croatia has a good position being related to the Euro but not part of it. It retains a small flexibility this way – one that could ensure avoiding severe economic difficulty. It is an advantage Zagreb should seek to retain.

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