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Majority of EU citizens favor the euro, with Romanians most enthusiastic

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Three out of four Romanians favour the Euro currency. A survey done by Flash Eurobarometer found that Romanians overwhelmingly back the euro currency, writes Cristian Gherasim, Bucharest corrrespondent.

The survey was carried out in seven of the EU member states which have not joined the Eurozone yet: Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden.

Overall, 57% of respondents are in favor of introducing the euro in their country.

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In a press release, the European Commission, the institution behind the survey, said that the vast majority of EU citizens surveyed (60%) believe that the changeover to the euro has had positive consequences for countries that already use it. 52% believe that, in general, there will be positive consequences for the introduction of the euro for their country, and 55% say that the introduction of the euro would have positive consequences for themselves as well.

Yet “the proportion of respondents who think that their country is ready to introduce the euro remains low in each of the countries surveyed. Around a third of respondents in Croatia feel their country is ready (34%), while those in Poland are least likely to think their country is ready to introduce the euro (18%)”, the survey mentions.

Romanians are leading in terms of an overall positive opinion regarding the Eurozone. Thus, the highest percentages of respondents with a positive opinion were registered in Romania (75% in favor of the currency) and Hungary (69%).

In all member states that took part in the survey, with the exception of the Czech Republic, there has been an increase in those favoring the introduction of the euro compared to 2020. The highest increases in favorability can be observed in Romania (from 63% to 75%) and Sweden (from 35% to 43%).

The survey identifies some woes amongst respondents as possible drawbacks in making the switch to euro. Over six in ten of those surveyed think that introducing the euro will increase prices and this is the majority view in all countries except Hungary. The highest proportions are observed in Czechia (77%), Croatia (71%), Bulgaria (69%) and Poland (66%).

Furthermore, seven in ten agree that they are concerned about abusive price setting during the changeover, and this is the majority opinion in all countries surveyed, ranging from 53% in Sweden to 82% in Croatia.

Even though the tone is upbeat with almost all questioned saying that they personally will manage to adapt to the replacement of the national currency by the euro, there are some who mentioned that adopting the euro will mean losing control over national economic policy. Respondents in Sweden are the most likely to agree to this possibility (67%), while surprisingly those in Hungary are the least likely to do so (24%).

The general feeling is that the great majority of those questioned not only support the euro and believe that it would benefit their respective countries but that making the switch to euro would by no means represent that their country will lose a part of its identity.

Croatia

As Croatia moves into the eurozone, corruption and banking issues remain unaddressed

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Croatia is now approaching the endgame for its entry into the Eurozone. Last month, the European Central Bank (ECB) put out a list of five Bulgarian and eight Croatian banks that it would be directly supervising starting on October 1st, including the Croatian subsidiaries of Unicredit, Erste, Intesa, Raiffeisen, Sberbank, and Addiko, writes Colin Stevens.

The announcement followed Croatia’s official admittance to the Eurozone’s exchange rate mechanism (ERM II) in July, and fulfils ECB regulatory requirements that all of Croatia’s major banks be placed under its supervision. To move forward and officially join the eurozone, Croatia will now need to take part in ERM II “for at least two years without severe tensions,” and especially without devaluing its current currency, the kuna, against the Euro.

Of course, this being 2020, severe fiscal tensions have become a fact of life for European governments.

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Trouble on multiple fronts

According to the World Bank, Croatia’s overall GDP is now expected to plummet by 8.1% this year, admittedly an improvement over the 9.3% annual drop the Bank had predicted in June. Croatia’s economy, heavily reliant as it is on tourism, has been buffeted by the ongoing pandemic. Worse still, the country’s attempt to make up for lost ground with a post-lockdown rush of summer holidaymakers has seen it blamed for jumpstarting the surge in Covid-19 cases in several other European countries.

Nor is the Covid-driven downturn the only economic issue facing prime minister Andrej Plenković, whose Croatian Democratic Union (HDZ) held onto power in the country’s July elections, and the independent finance minister Zdravko Marić, who has been in his post since before Plenković took office.

Even as Croatia receives a coveted endorsement from the other economies of the Eurozone, the country continues to be rocked by corruption scandals – the most recent being the salacious revelations of a secret club in Zagreb frequented the country’s political and business elites, including multiple ministers. While the rest of the population endured strict confinement measures, many of Croatia’s most powerful people flouted lockdown rules, exchanged bribes, and even enjoyed the company of escorts brought in from Serbia.

There is also the ongoing matter of how Croatia’s government in 2015 forced banks to retroactively convert loans from Swiss francs to euros and pay out over €1.1 billion in reimbursements to customers it had lent money too. The issue continues to roil Zagreb’s relationships with its own banking sector and with the European financial industry more broadly, with Hungary’s OTP Bank filing suit against Croatia at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) this month to recoup approximately 224 million Kuna (€29.58 million) in losses.

Croatia’s endemic corruption problem

Much like its counterparts in other parts of the former Yugoslavia, corruption has become an endemic issue in Croatia, with even the gains made after the country acceded to the EU now at risk of being lost.

Much of the blame for the country’s perceived backsliding lies at the feet of the HDZ, in no small part on account of the ongoing legal saga surrounding former premier and HDZ party boss Ivo Sanader. Whereas Sanader’s 2010 arrest was taken as a sign of the country’s commitment to uprooting corruption as it worked to join the EU, the country’s Constitutional Court nullified the sentence in 2015. Today, only one of the cases against him – for war profiteering – has officially been concluded.

The inability to effectively prosecute past wrongdoing has driven Croatia down Transparency International’s rankings, with the country how earning just 47 of 100 points in the group’s “perceived corruption” index. With civil society leaders such as Oriana Ivkovic Novokmet pointing to corruption cases that languish in the courts or never get brought at all, the decline is hardly surprising.

Instead of turning a corner, the current members of the HDZ government face allegations of their own. The Zagreb speakeasy frequented by Croatian leaders included transportation minister Oleg Butković, labour minister Josip Aladrović, and economic minister Tomislav Ćorić amongst its clientele. Andrej Plenkovic himself is currently locked in a war of words over the country’s anticorruption efforts with his chief political opponent, Croatian president Zoran Milanović. The former leader of the rival Social Democratic Party and Plenkovic’s predecessor as prime minister, Milanović was also a club patron.

Zdravko Marić between a rock and a banking crisis

Finance minister (and deputy PM) Zdravko Marić, despite operating outside the established political groupings, has been dogged by questions of potential misconduct as well. Earlier in his term, Marić faced the prospect of an investigation into his ties with food group Agrokor, Croatia’s largest private company, on conflict of interest grounds. Despite being a former employee of Argokor himself, Marić nonetheless undertook secret negotiations with his former company and its creditors (primarily the Russian state-owned bank Sberbank) that exploded into the local press in March 2017.

Weeks later, Agrokor was put under state administration on account of its crippling debt load. By 2019, the company had been wound down and its operations rebranded. Marić himself ultimately survived the Agrokor scandal, with his fellow minister Martina Dalić (who headed the economy ministry) forced out of office instead.

Agrokor, however, has not been the only business crisis undermining Plenkovic’s government. Going into Croatia’s 2015 elections, in which Zoran Milanović’s Social Democrats lost power to the HDZ, Milanović undertook a number of populist economic measures in a bid to shore up his own electoral position. They included a debt cancellation scheme for poor Croatians who owed money to the government or municipal utilities, but also sweeping legislation that converted billions of dollars in loans made by banks to Croatian customers from Swiss francs to euros, with retroactive effect. Milanović’s government forced the banks themselves to bear the costs of this sudden shift, prompting years of legal action by the affected lenders.

Of course, having lost the election, these populist moves ultimately turned into a poisoned chalice for Milanović’s successors in government. The loan conversion issue has plagued the HDZ since 2016, when the first suit against Croatia was filed by Unicredit. At the time, Marić argued in favour of an agreement with the banks to avoid the substantial costs of arbitration, especially with the country under pressure from the European Commission to change course. Four years later, the issue instead remains an albatross around the government’s neck.

Stakes for the Euro

Neither Croatia’s corruption issues nor its conflicts with the banking sector have been enough to derail the country’s Eurozone ambitions, but to successfully see this process through to its conclusion, Zagreb will need to a commit to a level of fiscal discipline and reform that it has not yet demonstrated. Needed reforms include reduced budget deficits, strengthened measures against money laundering, and improved corporate governance in state-owned companies.

If Croatia succeeds, the potential benefits include lower interest rates, higher investor confidence, and closer links to the rest of the single market. As is so often the case with European integration, though, the most important gains are the improvements made at home along the way.

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Economy

Convergence report reviews member states' progress towards joining the #Eurozone

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The European Commission has published the 2020 convergence report in which it provides its assessment of the progress non-euro area member states have made towards adopting the euro. The report covers the seven non-eurozone member states that are legally committed to adopting the euro: Bulgaria, Czechia, Croatia, Hungary, Poland, Romania and Sweden. Convergence reports have to be issued every two years, independently of potentially ongoing euro-area accessions. A press release and memo are available online.

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Economy

#ECB announces €750 billion Pandemic Emergency Purchase Programme

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Tonight (18 March), the European Central Bank’s Governing Council decided to purchase €750 billion in a new temporary asset purchase programme, called the Pandemic Emergency Purchase Programme (PEPP), reports Catherine Feore.

Given the emerging scale of the downturn facing Europe’s economy, national governments, the European Commission and economists have been working overtime trying to find a package big enough to face this challenge, while at the same time maintaining the stability of the euro 

Last week, the ECB announced a number of measures to improve liquidity, and a temporary envelope of additional net asset purchases of €120 billion for the private sector purchase programmes, but this was not convincing to markets. Up until now the bank has been constrained by an issuer limit. 

Some thought that the EU could turn to the European Stability Mechanism, but would be politically difficult and could require amendment to the ESM treaty. The European Commission has already proposed maximum flexibility under the Stability and Growth Pact, to allow countries to make full use of national spending. The Commission has approved additional state aid and is establishing a new framework for state aid. 

In the ECB press release the Governing Council of the ECB stated that it was committed to playing its role in supporting all citizens of the euro area through this extremely challenging time and would ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock, “This applies equally to families, firms, banks and governments.” 

ECB President, Christine Lagarde tweeted shortly after the decision that: "Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate."

The Governing Council stressed that it would do everything necessary within its mandate and was fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock. 

To the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks that we face. The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area. 

The ECB’s Governing Council decided: 

1) To launch a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19. 

This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP). 

For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions. 

A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP. 

The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus Covid-19 crisis phase is over, but not before the end of the year. 

2) To expand the range of eligible assets under the corporate sector purchase programme (CSPP) to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under CSPP. 

3) To ease the collateral standards by adjusting the main risk parameters of the collateral framework. In particular, we will expand the scope of Additional Credit Claims (ACC) to include claims related to the financing of the corporate sector. This will ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations. 

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