August 17, 2022

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The introduction of the euro is already having a significant impact on Croatia

The Moody’s The classification of Croatian sovereign debt obligations was upgraded to “Baa2” from the previous level of “Ba1”. The outlook for the new standard is stable. MTI reported that the credit rating agency highlighted doubts that the introduction of the euro would have significant positive effects on Croatia’s credit profile.

Among these consequences, by joining the euro area, the share of Croatian public debt will decrease from the current rate of more than 70 percent to almost zero, as the share of Croatian sovereign foreign currency debt is almost entirely denominated in euro. This would have a very positive effect on Moody’s assessment of the budget strength of the Croatian government, as the disappearance of the foreign currency debt ratio would, by definition, eliminate the risk of a sudden and significant increase in the value of the local currency. Croatian public debt to gross domestic product (GDP) ratio in local currency Euro exchange rate In case of demonetisation.

Moody’s Analysis Introduction of Euro a Croatian This reduces the banking sector’s currency risks and has a positive effect on the credit rating agency’s assessment of the Croatian government’s liquidity and external impact risks. As a member of the Eurozone, Croatia can count on possible support programs from the European Central Bank (ECB), including central bank asset purchases, in the event of a future crisis.

Additionally, Croatia’s entry into the European Stability Mechanism (ESM) strengthens the Croatian government’s financing capacity in the event of a crisis.

Everyone improved their opinion of Croatia

Croatia’s sovereign credit rating was upgraded this week by all three global credit rating agencies, following Croatia’s finalization into the eurozone.

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S&P Global Ratings announced on Thursday that it upgraded the rating of long- and short-term Croatian government debt obligations to “BBB plus/A2” from “BBB minus/A-3”.

At the same time, S&P Global Ratings raised Croatia’s transfer and convertibility (T&C) rating from “BBB plus” to “AAA” at best. The new T&C assessment, according to the firm, indicates that Croatia’s currency risks will disappear following its accession to the Eurozone.

On Wednesday, Fitch Ratings upgraded the classification of Croatia’s long-term sovereign foreign currency debt by one notch from the previous “BBB” to “BBB plus”, justifying the fact that Croatia could join the euro zone in 2023. Conclusion of ECOFIN.

Central to Fitch’s reasoning was the fact that Croatia would gain reserve currency status by adopting the euro.

The credit rating agency also emphasized that Croatia’s entry into the eurozone would reduce transaction costs and limit exchange rate risks that burden the financial balance of households and the corporate sector.