The European Commission no longer considers Croatia to be in a “macroeconomic imbalance” thanks to the reduction of public and private debt, which is a positive sign for Zagreb’s euro area accession bid.

Although Croatia’s public debt levels soared to 87.3% of GDP during the pandemic in 2020, the fast recovery in 2021 allowed for a reduction of the debt level by more than seven percentage points to 79.8% of GDP. Moreover, private debt also decreased strongly after a short-term spike in 2020 to 91% of GDP in 2021.

Presenting the economic and fiscal situation of EU countries in Brussels on Monday, the Commission declared Croatia not to be in a “macroeconomic imbalance” anymore.

The Commission’s Executive Vice-President Valdis Dombrovskis said the debt figures “continue to show a strong downwards tendency,”

“It sends an important signal ahead of the convergence report ahead of the EU’s convergence report,” he said. On the basis of the convergence report, the Commission will decide whether to propose Croatia’s accession to the euro area by January 2023.

Croatian Prime Minister Andrej Plenković also confirmed in Zagreb that the Commission’s assessment signalled the end of “macroeconomic imbalances” for Croatia and boded well for Zagreb’s eurozone accession.

“From all the contacts we’ve had, we are going towards a good convergence report for Croatia,” he said.

The prime minister said Croatia’s euro accession would “strengthen its international position and improve the investment rating,” which would also help citizens pay lower interest rates and generally help the country wrestle with crises.

If the Commission now recommends Zagreb’s accession to the euro area, it will be up to member state finance ministers to greenlight the introduction of the single currency to Croatia, which will become the eurozone’s 20th member.