Political Economy Students' Journal

The beginning of the year was marked by the expansion of the Eurozone to the Balkans, with Croatia's adoption of the Euro. While an important step for the country’s further integration into the European Union, the adhesion came at a somewhat questionable timing. At the time of the adoption, Croatia was experiencing an inflation rate of 12,7% (Croatian Bureau of Statistics) and, although it has since decreased to 7,8%, much of the population felt like the transition to the Euro allowed businesses to hike up the prices, an opinion shared by the current HDZ government led by Plenković. Without many surprises, this caused public turmoil from the beginning, resulting in an interesting picture, with almost half of the population holding positive views towards the entrance into the Eurozone (48% according to Eurobarometer; 11% hold negative views), while at the same time, 62% believing it will increase inflation. Although these numbers might seem paradoxical at first, when one considers the political and social factors surrounding them, they are nothing but natural.

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The first thing to have in mind to understand the mentality behind Croatian society is their recent struggle for independence in the Yugoslav wars of the 90s. Albeit something of the past in the capital, Zagreb, a big portion of the country (particularly near the border with Serbia, in the region of Slavonia), is still very much scarred from it, with some cities (like Vukovar) still preserving partially destroyed buildings as a reminder, and even practicing social forms of ethnic exclusion (separating Serbs from Croats in schools). Consequently, ever since its independence, Croatia has been trying to distance itself from the past, seeing the European Union as a way towards “a new beginning” so to speak. The government and the population alike seem to be set on this objective, and much of its national identity has been formed around this. It is no surprise then that Croatia has a higher rate of trust in EU institutions than the EU average (52% vs. 47%), with such a figure being significantly higher than the trust in the national government (only 24%). 

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But what does any of this have to do with the adoption of the Euro and the perceptions regarding inflation? Well, although themes of the monetary union are usually looked at mainly through an exclusively economic lens, the truth of the matter is that it relies heavily on a social willingness in favor of the Euro to further European integration. If Croatian citizens were to hold mainly unfavorable views towards the EU, the government (already viewed negatively among Croatians) would have a hard time implementing policies directed at such aim, and much less would they be able to justify the perceived inflation to the public, thus undermining aims of deepening European unity. In essence, society plays an important role in what seems to be an economic matter. That much probably will not come as a surprise to anyone, forcing us to look a bit further into the relationship between the entrance into the Eurozone and inflation to better understand how a society can at the same time think that the entrance into the eurozone will increase inflation, and also believe that it is beneficial to them.

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Even though Croatia has only been a member of the Eurozone for 9 months, studies have already been released that point to an almost negligible effect on the relationship between the adoption of the Euro and an increase in inflation (Falaglarda, Gartner, Muzic and Pufnik, 2023). Additionally, inflation in Croatia, as stated above, decreased since the introduction of the new currency, not the contrary. Nonetheless, if asked, Croatians will share the opinion that it contributes to an increase in inflation (having the data of the Eurobarometer as a reference). Why do we see this discrepancy? Well, the answer may not be clear, but it may be related to reports from the media and the government.

It is important to keep in mind that Croatian media is fairly kept under scrutiny by the Croatian government. Dozens of times the latter has proposed laws that, in the eyes of the “Croatian Journalists’ Association”, curtail their freedom (with the most recent example regarding the controversial draft of the “media law”), and this can, to a certain extent be seen in the coverage of news around the country. News organizations such as the state-owned HRT very closely resemble the news section of the government’s official website. In this sense, what the government reports matters greatly in how the information is subsequently propagated in the country.

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In the context of inflation, the current government and President have been very careful in how they link it to the adherence to the Eurozone. Even though they want to shed a positive light on it, they still see in it an opportunity to pass on the responsibilities of inflation. This is well illustrated through their blaming of businesses for purported price hikes amid the adoption of the Euro. Instead of blaming Euro for the price hikes, they laid the responsibility on how businesses reacted to the transition. Such a strategy enabled them to further their support for the Euro, while at the same time giving a justification for the consumer's worries regarding inflation. Similarly, the media tackled the issue of inflation mainly by focusing on the “excesses” of businesses, rather than directly blaming the entrance to the Eurozone. Consequently, it should not come as a surprise that Croatians are mainly favorable towards the adherence to the Eurozone, while at the same time considering that the new currency increases inflation (they do not blame the Euro directly, but rather the business's reactions). 

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The reason why Croatia (so far) has seen public support for the Euro, despite the perceived hike in inflation, is directly connected to their cultural, political, and social realities. Coming from a war-torn nation striving for independence, they have, from the very beginning set the goal of getting closer to Europe (be it politically, economically, or culturally), which translated itself into positive opinions regarding EU institutions, and thus facilitated the process for the social adaptation of monetary transition. Main issues such as inflation, even though associated with the adoption of the Euro, were blamed on other causes (mainly business “excesses”), thus barely affecting the favorable perceptions towards the Eurozone.