Bulgaria’s acceptance in the euro area has been a priority of the Bulgarian
government for several years now.
In order for a European Union (EU) country to be accepted into the group of EU member states that have adopted the euro as their official currency, the latter must fulfil the so-called Maastricht criteria, adopted by the Maastricht Treaty of 7 February 1992.
The last Member State of the European Union to be accepted not only into
the euro area but also into the Schengen area on 01.01.2023 is Croatia. This means
that the euro will replace the Croatian kuna, which raises many questions not only for
the Croatian Government but also for the entire business sector and for consumers. Looking at the
changes that are taking place in Croatia will also enable Bulgarian businesses and
consumers to have predictable expectations about the forthcoming introduction
of the euro after the withdrawal of the Bulgarian lev.
Following the introduction of the euro in Croatia, significant changes have taken place, which aim
to ease the transition to the new currency, while giving ordinary consumers and businesses the
the time they need to prepare for the upcoming
financial change.
As also stated on the European Commission’s website 1:
“The main principle of Croatia’s national changeover plan is
consumer protection. Mechanisms to build a safe environment for
consumers have been extensively planned in four areas: Code of Conduct, price monitoring of
goods and services, supervision of traders and service providers and dual
display of prices”. More specifically, the changes that took place in Croatia
shortly before and immediately after the introduction of the euro are as follows:
First of all, all prices of goods and services will be quoted in both
Croatian kuna and euro, starting from 5 September 2022 (before the official
introduction of the euro) until 31 December 2023, i.e. for a period of 15 months.
Secondly, both the Croatian kuna and the euro will be legally allowed as means of payment,
but this will be possible within two weeks of the
official introduction of the euro (i.e. by 15.01.2023). n addition, during this period, if
payment is made in Croatian kuna, the change will be returned in euros to ensure
the gradual withdrawal of the Croatian kuna. After this two-week period,
only the euro will be legally settled and allowed as legal tender.
Thirdly, the possibility for Croatian citizens to exchange Croatian kuna free of charge
at the Financial Agency and post offices is foreseen until 30 June 2023,
while at commercial banks the exchange will be possible until 31 December 2023.
An interesting detail is the fact that the Croatian Central Bank (an analogue of
the Bulgarian National Bank) will exchange kuna banknotes free of charge without a time limit
and coins – until 31 December 2025.
Fourthly, in order to protect consumers and address their concerns
about unjustified price increases of goods and services, Croatia has introduced the so-called
“Business Code of Conduct”. Its aim is to ensure price stability
of goods and services by helping businesses to correctly calculate and mark up prices,
i.e. to convert prices into euros fairly and without undue
increases.
Compliance with the Code of Conduct is monitored by the State Inspectorate,
which also carries out price controls (especially on prices of commonly purchased goods and services) during the transition period.
As also stated on the European Commission’s website 2: “In the event of a breach of
the provisions of the ‘Eurolaw’ (n.b. ‘Business Code of Conduct’), the State
Inspectorate may first issue instructions to traders or economic
operators to remedy the non-compliance and the next step will be
to impose penalties.
In parallel, and if necessary, consumer associations
will publish “blacklists” of businesses that violate
the principles of the Code of Conduct.” These sanctions would be an effective means
of ensuring a fair transition to a new currency at a time of high
inflation and concern among citizens and businesses about the prospects for Croatia’s (and any other country’s)
financial
system.
Despite the claims of the state authorities in Croatia that the prices of goods and services
will not increase due to the changeover, since the beginning
of the euro introduction, there has been a visible increase in prices
in the country. It is debatable whether this is due to high inflation or to the introduction of the new currency. According to the state inspector general, Andrija Mikulic, in shops some traders have increased prices by 3% to 19% for chocolate, bakery products, beer, butter,
sour cream, toilet paper and others, while in services the price increase ranges from
10% to 80%.
It is logical to assume (as Dr Plamen Ivanov,
Senior Lecturer in Banking at the University of Winchester points out) that the high prices in Croatia are a combination
of the energy crisis across Europe, supply chain problems, and also to some
extent speculation in the early days after the adoption of the euro.
Also, unlike the Bulgarian lev, the kuna has not been pegged to the euro, which is normal to lead to slightly higher inflation immediately after the adoption of the single currency.
The question that should be asked is what countermeasures have been taken by
the government in Croatia (which could also be introduced in Bulgaria) that aim
at preventing and stopping unjustified price increases of
goods and services.
First of all, one of the measures being taken is the strengthening of controls
on business and pricing by providing fines for unfair practices
and practices that violate the pricing method when switching from Croatian kuna to euro. While retailers claim that prices have been largely unaffected by the euro changeover and blame inflation, the Croatian government has sent inspectors en masse to shops and service providers for checks. It has begun requiring large retail chains to report the prices of each product on a fortnightly basis. After two weeks of increased scrutiny, the Croatian authorities found that around 40% of companies had unjustifiably raised prices, and the fines imposed totalled EUR 234 000 over several weeks. According to Reuters, the fine for companies is €26,000 and up to €1,090 for individual traders.
to euro.
While retailers claim that prices have been largely unaffected
by the euro changeover and blame inflation, the Croatian government has sent
inspectors en masse to shops and service providers for checks. It has begun
requiring large retail chains to report the prices of each product
on a fortnightly basis.
After two weeks of increased scrutiny, the Croatian authorities found that
around 40% of companies had unjustifiably raised prices, and the fines imposed totalled EUR 234 000 over several weeks. According to Reuters, the fine for companies is €26,000 and
up to €1,090 for individual traders.
Another measure related to the imposition of fines is the introduction of the so-called
and mentioned “blacklist of price violators”, and on the website of the Croatian Ministry of Economy,
there are available reports that track the movement of products
from nine Croatian cities, around 800 outlets, and which show analytically the price of
individual products.
Thirdly, failing to curb the unreasonably high prices of
goods and services in Croatia, the state authorities in the latter have warned
the representatives of the business sector that they will cancel energy subsidies or raise
taxes unless the traders bring the prices back to the pre-euro levels.
Next, Croatian Prime Minister Andrej Plenkovic has also indicated that
in case of continued violations, the country will impose a price cap of one per cent on the most
necessary goods.
At the moment no such harsh measures have been imposed on business in Croatia, but
the possibility for their implementation remains if the latter does not stop unfair
practices related to increasing the prices of goods and services under the pretext of high
inflation or the introduction of the euro. Due to the established speculation with the prices of goods
and services by traders in Croatia and taking into account the high inflation rates at
the moment, it is difficult to predict with accuracy what the prospects are for the Republic
of Bulgaria upon the introduction of the euro.
The steps that should certainly be taken in Bulgaria when introducing
the euro are:
- 1. Introduce a transitional period in which prices (especially of consumer goods)
are to be denominated in Bulgarian levs and in euros; - 2. To allow the free exchange of levs and pennies into euros, and not
only in the Bulgarian National Bank; - 3. Introduction of a methodology for businesses to transform
the prices of their goods and services from levs to euros without significantly affecting
the price increase while taking into account
the existing inflation rate; - 4. Introduction of effective control and impact measures in case of detection
of unfair commercial practices and speculation by traders in relation to
pricing.
*2