How the kuna's long euro shadow-peg paid off at euro adoption

When Croatia adopted the euro on January 1, 2023, becoming the twentieth member of the currency union, the transition went unusually smoothly for a country entering during a period of lingering pandemic disruption, high inflation, and war in neighboring Ukraine, and HNB governor Boris Vujcic has argued the reason lies in decades of preparation rather than luck. Because the kuna had shadowed the Deutschmark and then the euro in a tightly managed peg since the mid-1990s, and because Croatia had been seen as a serious euro-accession candidate for years, exchange-rate expectations were already anchored before the changeover, letting the HNB focus on countercyclical policy instead of defending the currency. Vujcic points to foreign-currency-denominated debt falling to less than 1 percent of the total after adoption, down from around 70 percent previously, as the clearest sign of how much the changeover reduced Croatia's risk premium. Mortgage and business lending rates in Croatia became comparable to, or in some segments lower than, the euro-area average, a sharp contrast with non-eurozone neighbors like Hungary that faced much higher borrowing costs over the same period. That shift shows up on Croatia's post-2023 charts as a further flattening of interest-rate and currency-risk indicators that were already unusually stable for the region.