REPORT on the proposal for a Council decision on the adoption by Croatia of the euro on 1 January 2023

21.6.2022 - (COM(2022)0282 – C9‑0195/2022 – 2022/0179(NLE)) - *

Committee on Economic and Monetary Affairs
Rapporteur: Siegfried Mureşan

Procedure : 2022/0179(NLE)
Document stages in plenary
Document selected :  
A9-0187/2022

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

on the proposal for a Council decision on the adoption by Croatia of the euro on 1 January 2023

(COM(2022)0282 – C9‑0195/2022 – 2022/0179(NLE))

(Consultation)

The European Parliament,

 having regard to the Commission proposal for a Council decision on the adoption by Croatia of the euro on 1 January 2023 (COM(2022)0282),

 having regard to Article 140(2) of the Treaty on the Functioning of the European Union, (TFEU),

 having regard to the Commission Convergence Report 2022 and the European Central Bank Convergence Report of June 2022,

 having regard to its resolution of 1 June 2006 on the enlargement of the euro zone[1],

 having regard to its resolution of 20 June 2007 on improving the method for consulting Parliament in procedures relating to the enlargement of the euro area[2],

 having regard to Rule 106 of its Rules of Procedure,

 having regard to the report of the Committee on Economic and Monetary Affairs (A9-0187/2022),

A. whereas Article 140 of the Treaty on the Functioning of the European Union (TFEU) provides for the achievement of a high degree of sustainable convergence by reference to the fulfilment by each Member State of the following criteria: the achievement of a high degree of price stability; the sustainability of the government's financial position, the Member State not being subject to an excessive deficit procedure as described in Protocol No 12 annexed to the Treaties; the observance of the normal fluctuation margins provided for by the exchange-rate mechanism; and the durability of convergence achieved by the Member State and of the Member State’s participation in the exchange-rate mechanism of the European Monetary System being reflected in the long-term interest-rate levels (the ‘Maastricht criteria’);

B. whereas Croatia has complied with the Maastricht criteria in accordance with Article 140 TFEU and Protocol No 13 on the convergence criteria annexed to the Treaties, and Croatia’s legislation has been evaluated by the Commission and the European Central Bank (ECB) as fully compatible with the requirements of the TFEU and the Statute of the European System of Central Banks and of the European Central Bank;

C. whereas the TFEU calls for an examination of other factors relevant to economic integration and convergence to be taken into account in the assessment, including balance of payments developments and integration of product, labour and financial markets; whereas the Commission considers that Croatia fulfils the conditions for the adoption of the euro also on these additional criteria;

D. whereas, based on common practice and as has been done several times in the past, for the purpose of assessing the price stability criterion, the Commission excludes from the best-performing countries those whose inflation rates could not be seen as a meaningful benchmark for other Member States, and has therefore excluded  two Member States as the best performers from the assessment;

E. whereas current circumstances, such as the increase in energy prices and the Russian illegal and unprovoked invasion of Ukraine had an impact on several indicators used in the convergence reports and would require an adequate reflection on their implementation; whereas adherence to those criteria contributes to the integration into the Economic and Monetary Union and to the Economic and Monetary Union’s long-term stability;

F.  whereas with the entry into force of the close cooperation framework on 1 October 2020, the ECB gained responsibility for directly supervising eight significant institutions and for overseeing 15 less significant institutions in Croatia;

G.  whereas Croatia committed to implement a number of measures following its entry in ERM II in July 2020 in the following four areas: anti-money laundering, business environment, public sector governance and insolvency framework;

H. whereas the Rapporteur visited Croatia to assess the readiness of the country to enter the euro area;

1. Approves the Commission proposal;

2. Endorses the adoption by Croatia of the euro on 1 January 2023;

3. Notes that Croatia fulfils all the criteria for adopting the euro as a result of ambitious, determined, credible and sustainable efforts by the Croatian Government and the Croatian people;

4. Notes that the positive assessments of the Commission and the ECB have taken place against the background of a, longer than initially expected, COVID-19 shock and the subsequent economic recovery in 2021; notes, however, that Russia's unprovoked and illegal invasion of Ukraine which began on 24 February 2022 had a limited impact on the historical data used to prepare the convergence reports; is convinced, therefore, of the full readiness of Croatia to adopt the euro as from 1 January 2023;

5.  Underlines that, notwithstanding the difficult socio-economic situation generated by the health crisis and the most recent increase in energy prices, Croatia’s adoption of the euro and the fulfilment of the necessary criteria represent a strong political signal of the viability and attractiveness of the single currency of the Union; welcomes therefore the sustained efforts undertaken by the Croatian Government in this regard; believes that Croatia’s adoption of the euro will contribute to the resilience and unity of the Union and enhance its positive image in the region, particularly since this is the first significant EU integration process after Brexit;

6. Highlights, that adoption of the euro will strengthen Croatia’s economy and benefit its people and companies, as it will make the country´s economy more resilient, attract more foreign investment, increase the confidence of international investors and cut down currency exchanges, that will have a relevant effect in the country´s vital tourism sector;

7. Welcomes Croatian government’s work on strengthening Croatia’s institutional capacity, the efforts to improve the business environment, and the effective and efficient implementation of structural reforms that contribute to sustainable and inclusive economic growth; welcomes in particular the efforts to strengthen the institutional independence of the Hrvatska narodna banka; calls on Croatian authorities to continue strengthen the institutional framework to ensure regulatory quality;

8. Calls for the swift and effective implementation of reforms and investments of Croatia´s Recovery and Resilience Plan which will boost growth and strengthen its economic, social and territorial cohesion;

9. Highlights that the convergence in banking supervision contributes to safeguarding financial stability by ensuring the application of uniform supervisory standards; highlights furthermore, that Croatia joining the Single Supervisory Mechanism via close cooperation with the ECB ensured a smooth way to join the Banking Union;

10. Calls on the Croatian authorities to continue their good information and communication campaign on the adoption of the euro;

11. Calls on the Croatian authorities to maintain the present course of practical preparations to ensure a smooth changeover process;

12.  Notes that according to the Commission Convergence Report 2022 the price level in Croatia has already achieved a higher level of price convergence with the euro area than other Member States when they joined the euro area; expects therefore sustained efforts from the Croatian government to ensure that further price convergence is achieved in a sustainable manner and that the introduction of the euro does not lead to artificial price increases;

13. Calls on the Croatian Government to continue its actions in order to deliver on the commitment to implement a new anti-money laundering action plan by 2023;

14. Asks the Council to consult Parliament again if it intends to substantially amend the text approved by Parliament;

15. Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;

16. Instructs its President to forward its position to the Council, the Commission, the European Central Bank, the Eurogroup and the governments of the Member States.


EXPLANATORY STATEMENT

Croatia joining the euro area represents a strong political signal of the viability and attractiveness of the single currency of the Union. Twenty years after the introduction of the first banknotes, the euro is a symbol of European strength and unity. Thanks to its great commitment in its efforts to meet the conditions for adopting the euro, Croatia is now ready to join the euro area on 1st January 2023, less than a decade after joining the EU. The euro area as a whole will then welcome its twentieth member.

 

Croatia is currently a “Member State with a derogation”, thus not a member of the euro area. Therefore, since its accession to the EU, Croatia has been subject to a bi-annual convergence assessment by the Commission and the ECB.

 

Both the Commission and the ECB convergence reports were released on 1 June 2022. The reports include an examination of the compatibility between Croatia's national legislation, notably the statutes of its national central bank, with Articles 130 and 131 of the Treaty and the Statute of the ESCB and of the ECB. The reports also examine whether a high degree of sustainable convergence has been achieved, by reference to the fulfilment of the convergence criteria, and take account of several other factors required under the final sub-paragraph of Article 140(1) of the Treaty.

 

Based on its own convergence report and that of the ECB, the Commission proposed that Croatia adopts the euro from 1 January 2023. The European Parliament is consulted on the legislative proposal for a Council decision on the adoption by Croatia of the euro on 1 January 2023.

 

The criteria for Croatia to adopt the euro are laid out in Article 140(1) of the TFEU. Article 140(2) TFEU states that the Council, on the basis of the reports from the Commission and the ECB and after consulting the European Parliament shall, acting by a qualified majority on a proposal from the Commission, decide which Member States with a derogation fulfil the necessary conditions on the basis of the criteria set out in Article 140(1) TFEU, and abrogate the derogations of the Member States concerned.

 

On the Convergence Criteria under Article 140(1) of the TFEU, the Rapporteur observes:

 

1. Compatibility of national legislation with Articles 130 and 131 and with the Statutes of the ECB

 

In Croatia, national legislation, including the Statute of the National Central Bank, is compatible with Articles 130 and 131 of the Treaty and with the Statute of the ESCB and of the ECB. In particular, the amendment to the Law on Croatia’s central bank prohibits the Croatian Government from seeking to influence the members of its decision-making bodies.

 

2. Achievement of a high level of price stability

 

The average inflation rate in Croatia in the year ending in April 2022 stood at 4,7 per cent, which is below the reference value, and it is likely to remain below the reference value in the months ahead. A reference value calculated as the simple arithmetic average of the inflation rates of the three best-performing Member States in terms of price stability, plus 1,5 percentage points, was used in the reports of the Commission and the ECB. In the one-year period ending in April 2022, the inflation reference value was calculated to be 4,9 per cent, with France, Finland and Greece as the three best-performing Member States in terms of price stability. Commission excluded from the best-performing countries whose inflation rates could not be seen as a meaningful benchmark for other Member States. Such outliers were in the past identified in 2004, 2010, 2013, 2014 and 2016. In its assessment, Commission this time excluded Malta and Portugal from the best performers. For the calculation of the reference value, they were replaced by Finland and Greece, the Member States with the next-lowest average inflation rates.

 

3. Sustainability of the government financial position

 

Croatia is not the subject of a Council decision on the existence of an excessive deficit (abrogation of the excessive deficit procedure in 2016).

 

4. Compliance with the normal fluctuation margins of the EMS’s Exchange Rate Mechanism II for at least the past 2 years

 

Croatia has been a member of ERM II since 10 July 2020. During the two years preceding the assessment, the kuna exchange rate (HRK) has not been subject to severe tensions and Croatia has not devalued the HRK bilateral central rate against the euro on its own initiative.

 

5. Durability of Convergence, as reflected in long-term interest-rate levels

 

In the year ending April 2022, the long-term interest rate in Croatia was, on average, 0,8 per cent, which is well below the reference value. To assess the fulfilment of the interest-rate criterion, a reference value calculated as the simple arithmetic average of the nominal long-term interest rates of the three best performing Member States in terms of price stability, plus two percentage points, was considered in the reports of the Commission and the ECB. The reference value is based on the long-term (ten-year benchmark government bonds) interest rates in France (0,3 per cent), Finland (0,2 per cent) and Greece (1,4 per cent) and in the one-year period ending in April 2022 it was 2,6 per cent.

 

6. Economic integration and convergence (Art. 140(1), second subparagraph)

 

TFEU Article 140(1) second subparagraph calls for an examination of other factors relevant to economic integration and convergence to be taken into account in the assessment. The assessment of the

additional factors – including balance of payments developments, as well as product, labour and financial market integration – gives an important indication of a Member State's ability to integrate into the euro area without difficulties.

 

With regard to macroeconomic imbalances, the Commission selected Croatia for an in-depth review in its Alert Mechanism Report 2022, which highlighted that imbalances relating to high levels of external, private and government debt in the context of low potential growth continued to subside in 2021.

 

As regards developments of the balance of payments, Croatia’s current account balance was deeply affected by the COVID-19 pandemic in 2020, but it recovered swiftly during 2021. The current account is expected to record a milder surplus of 1.5% of GDP in 2022. Eventually, as regards market integration, the Croatian economy is well integrated with the euro area through trade, financial and investment linkages.

 

7.  Note regarding consultation of the European Parliament

 

The tight schedule for the Parliament's procedure allows for neither translations to be produced on the Draft Report (resulting in an EN only procedure) nor an in-depth scrutiny of the Convergence Report.  Anticipating these challenges, the ECON Committee started their work early in the context of the Euro Area Accession Countries Working Group, inviting for in camera meetings Croatia’s Deputy Prime Minister and Minister for Finance Zdravko Marić in May 2020 and October 2021.

 

Moreover, to complement the convergence assessments of the Commission and ECB, the ECON Committee has requested an independent study on the "Euro area accession: assessment of the convergence path and COVID-19 implications, with a special focus on Croatia and Bulgaria”.

 

The Rapporteur has organised confidential consultations with the Commission and the ECB. Finally, the Rapporteur had high-level meetings in Zagreb in order to gain a direct insight on-site.

 

Based on above, your Rapporteur recommends that the derogation be lifted and Croatia adopts the euro on 1 January 2023.


PROCEDURE – COMMITTEE RESPONSIBLE

Title

Adoption by Croatia of the euro on 1 January 2023

References

COM(2022)0282 – C9-0195/2022 – 2022/0179(NLE)

Date of consultation / request for consent

3.6.2022

 

 

 

Committee responsible

 Date announced in plenary

ECON

 

 

 

 

Rapporteurs

 Date appointed

Siegfried Mureşan

7.4.2022

 

 

 

Discussed in committee

14.6.2022

 

 

 

Date adopted

20.6.2022

 

 

 

Result of final vote

+:

–:

0:

43

2

1

Members present for the final vote

Rasmus Andresen, Anna-Michelle Asimakopoulou, Gunnar Beck, Gilles Boyer, Jonás Fernández, Raffaele Fitto, Luis Garicano, Michiel Hoogeveen, Danuta Maria Hübner, Stasys Jakeliūnas, Billy Kelleher, Ondřej Kovařík, Aurore Lalucq, Philippe Lamberts, Aušra Maldeikienė, Pedro Marques, Csaba Molnár, Siegfried Mureşan, Lídia Pereira, Dragoş Pîslaru, Evelyn Regner, Dorien Rookmaker, Paul Tang, Irene Tinagli, Ernest Urtasun

Substitutes present for the final vote

Marc Angel, Damien Carême, Christophe Hansen, Eugen Jurzyca, Georgios Kyrtsos, Chris MacManus, Margarida Marques, René Repasi, Bogdan Rzońca, Sven Simon

Substitutes under Rule 209(7) present for the final vote

Pablo Arias Echeverría, Saskia Bricmont, Rosa D’Amato, Jan Huitema, Radan Kanev, Fabienne Keller, Maria-Manuel Leitão-Marques, Colm Markey, Ivan Štefanec, Lucia Vuolo, Javier Zarzalejos

Date tabled

21.6.2022

 


FINAL VOTE BY ROLL CALL IN COMMITTEE RESPONSIBLE

43

+

ECR

Raffaele Fitto, Eugen Jurzyca, Bogdan Rzońca

PPE

Pablo Arias Echeverría, Anna-Michelle Asimakopoulou, Christophe Hansen, Danuta Maria Hübner, Radan Kanev, Aušra Maldeikienė, Colm Markey, Siegfried Mureşan, Lídia Pereira, Sven Simon, Ivan Štefanec, Lucia Vuolo, Javier Zarzalejos

RENEW

Gilles Boyer, Luis Garicano, Jan Huitema, Billy Kelleher, Fabienne Keller, Ondřej Kovařík, Georgios Kyrtsos, Dragoş Pîslaru

S&D

Marc Angel, Jonás Fernández, Aurore Lalucq, Maria-Manuel Leitão-Marques, Margarida Marques, Pedro Marques, Csaba Molnár, Evelyn Regner, René Repasi, Paul Tang, Irene Tinagli

THE LEFT

Chris MacManus

VERTS/ALE

Rasmus Andresen, Saskia Bricmont, Damien Carême, Rosa D'Amato, Stasys Jakeliūnas, Philippe Lamberts, Ernest Urtasun

 

2

-

ECR

Michiel Hoogeveen

ID

Gunnar Beck

 

1

0

ECR

Dorien Rookmaker

 

Key to symbols:

+ : in favour

- : against

0 : abstention

 

 

Last updated: 22 June 2022
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