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Comment by Octokiddie | Hacker News Reader

> Experts say the adoption of the euro will help protect Croatia’s economy at a time when inflation has been soaring globally since Russia’s invasion of Ukraine in February led to heightened fuel and food prices.

Wikipedia notes that the kuna has been pegged to the euro for some time:

> The modern kuna was introduced on May 30, 1994, starting a period of transition from the Croatian dinar, introduced in 1991, which ended on December 31, 1994.[10] One kuna was equivalent to 1,000 dinars at a fixed exchange rate. The kuna was pegged to the German mark from the start. With the replacement of the mark by the euro, the kuna's peg effectively switched to the euro.

So I doubt there will be much effect on the rate of inflation after the switch.

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I am from the area (not Croatian tho). Even if you look just at the map of the country you will realize that Croatia is basically mostly Mediterranean. As such tourism is very important for the region.

Having the same currency as your tourists (mostly people from the north, to a lesser extent people from the east and northeast) helps a lot.

Schengen helps also, but even before people could just drive there without noticing the border.

Schengen and Euro definitely put Croatia on my list of destinations. It’s much more comfortable to travel without having to bother with exchange rates.

No passport control at the airport is also a nice bonus. I can’t describe that feeling when I travel to another country without going through border checks, it’s so liberating.

> Schengen helps also, but even before people could just drive there without noticing the border.

Not during the summer. There were usually big queues at border crossings during every summer weekend. This should alleviate that a bit - the pressure will just move elsewhere in the road network, but will hopefully be easier to manage.

I drove in and out of Croatia six times last summer always coming/going from Slovenia.

Long queues and passport checks every time.

So if what you say is true and you can drive without noticing the border there must be some bias.

Possibly depending on which country of the Schengen zone you're entering Croatia from.

It will help the locals tremendously because their income will now be in the same currency as most of their debts. This trick has been used by banks all over the eurozone: charge the debt to the locals in euros but they can only earn income in the local currency. So if the local currency slides against the euro - as they invariably do - a larger and larger fraction of the income goes to servicing the debt. Even Poland still suffers from this today.

Unless the peg breaks, the currency doesn't "slide."

The peg usually is in the period just before the switch to the euro, if the period is longer then invariably the peg breaks and the local currency will slide, sometimes quite a bit in a very short period.

The DKK has been pegged to the euro since '99. The rate has changed by 0.03 over the last 15 years.

Yes. But Denmark could have easily joined in all those years, they chose not to and that's their right. But for countries struggling to keep parity with the Euro today being in the Euro would have immediate advantage (Poland, Bulgaria, Romania, and to a lesser extent Hungary and Czechia). Denmark negotiated an exception and the fact that in 22 years it hasn't made any difference in terms of valuation means that they simply missed out on some international commerce.

All that is besides the point. The issue was if a peg can be indefinitely - and it can.

> But for countries struggling to keep parity with the Euro today being in the Euro would have immediate advantage (... Czechia)

ČNB actually intentionally weakened CZK in 2013 and for several years after. And in the long term CZK appreciates against EUR rather than the opposite.

"struggling to keep parity" is just not true.

> The peg usually is in the period just before the switch to the euro

> if the period is longer then invariably

That totally incorrect for most currencies in the countries which joined the EU in 2004 or later. The Croatian Kuna was never free floating and pegged to the Euro/DM since it was introduced 1994.

IIRC, in the case of Poland people had mortgages pegged to the Swiss Franc. A central bank can only peg to one currency.

Depended on the bank. Quite a few in Euros, some in other currencies, even USD. But if you wanted your mortgage in Zloty then suddenly the interest was twice as high.

Hmmm so banks offered a choice to be a forex speculator, and some took the lower interest rate bait. The risk is dramatic forex moves which make it near impossible to make payments.

It makes sense that a currency that is more likely to lose value within the term of the loan would lead to a higher interest rate, no?

i read an opinion that inflation might actually grow because some will put up their prices during the switch.

I don’t have a reference offhand, but surely this analysis has been done when the euro coins and notes were introduced in 2002.

the opinion i read was from a croatian minister warning retailers about this phenomenon especially in a high inflation environment where products will increase in prices no matter what.

The inflation in the last couple of months has been very high. The price of groceries (and pretty much everything else) has been increased at least by 35% and climbing with no end in sight. A lot of basic stuff doubled in price. It is maddness, but the government is saying that economy is great which is a fat lie.

Inflation is a sign of a good economy - it means people can afford price increases ie they are employed. (But it really annoys everyone because wages don’t grow as quickly as prices.)

A recession (“bad economy”) tends to stop inflation because people stop spending.

Not 35% inflation. That's never a good sign.

> Inflation is a sign of a good economy

Tell that to Argentina...

My Google search says Croatia CPI inflation is 13% YoY. Which is something but not 35%.

And you can’t take Argentina or Japan as examples for anything. (Basically, Argentina just doesn’t work no matter what and Japan works no matter what.)

They should probably give up on having a country and move back to Spain.

I didn't say that the inflation is 35%, I just took the spot prices of groceries I usually buy and those are that much higher compared to months previous.

There is no beating around the bush, the economic situation is far from good. Walking outside, seeing normal, retired people dumpster diving collecting empty bottles makes me depressed because I can easily see myself doing the same when my time comes.

> There is no beating around the bush, the economic situation is far from good. Walking outside, seeing normal, retired people dumpster diving collecting empty bottles makes me depressed because I can easily see myself doing the same when my time comes.

This is the part that most people who want to take a single sector that benefits them and project it on to the rest of the economy need to understand; as someone who has spend time in HR before it was in the EU, when it was on the HRK/non-schengen and then as it was announced (rather late in '22) that it would be entering a year ahead of schedule it's hard to wrap my head around this false reality they've been painting. I've both worked and lived there (as a US citizen) for a total of 3.5 years and just how normalized things like that are, and variations of these kind of things, is what I took away with the most as the date got closer.

Lots of things look like the rest of the EU, and thanks to Chinese hot money flowing into E. European markets lots of it has a very thin veneer of looking as you said 'normal.' But if you stay outside the tourist season you will get a very clear look of how things really are and it's stark if you are not of the upper-middle class who own properties and has multi-generational privilege--as someone mentioned, the massive drain is just beginning with 10% of the population leaving in 10 years,some of my close friends being some of them. The cost of surviving in a tourist based economy has always been difficult, COVID really hurt many regions hard and never really recovered, which led to more consolidation to already wealthy and often foreign property owners etc...

My last year was under the digital nomad visa program there, not bordering hopping as I had before, and I even had to get an OIB number etc... as I became a resident, and the truth is the government is still culpable of a lot of the post war 'Baltic mindset' thinking that still holds lots of things back--even for their own population. I don't see many things getting better in that regard to be honest, because even when it is in their own interest they are either too ossified to adapt (the public sector is filled with older age lifers) to a newer EU standard or seem to just ignore it until the problem goes away.

I love Croatians and their culture but now really only enjoy myself in Dalmatia anymore after spending lots of time around the country, and while I wish them well in this as it can help the youth have better career prospects I cannot see how it will not lead to more of the same and it will likely end up like Slovenia (massive brain drain due to the high COL relative the wages) and ultimately end up like Portugal.

Recession will come. Wages have not increased. People will not have enough money to buy the same stuff they bought before.

For those who collect a percentage skim on all transctions, their economy is great. Higher prices bring more tax revenue for the skimmers.

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