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  • Writer's pictureBORIĆ & PARTNER

Croatia's Accession to the European Stability Mechanism: Benefits and Impacts

Croatia's accession to the European Stability Mechanism (ESM) as its 20th member on 22 March 2023 is a significant achievement for the country. This event marks the completion of Croatia's integration into the Eurozone, and it is expected to bring several benefits to the country's economy.

Croatia is the 20th member of the ESM, bolstering its financial safety net and strengthening its integration into the Eurozone

The ESM was established in 2012 to support Eurozone countries facing financial difficulties by providing them with financial assistance in the form of loans. The ESM is a permanent crisis resolution mechanism with a financial firepower of €500 billion. As an ESM member, Croatia will be eligible to receive financial assistance from the ESM if it faces any financial difficulties in the future.

One of the most significant advantages of joining the Eurozone is the privilege of becoming an ESM member. This will provide Croatia with an additional layer of financial protection and security, which will strengthen the country's resilience to future financial crises. It will also increase investor confidence in Croatia's economy and reduce the country's borrowing costs.

How Joining the ESM Strengthens Croatia's Financial Stability and Integration into the Eurozone

Croatia's subscription to €3.7 billion of the ESM capital stock, with an initial contribution of €422.29 million to the ESM's paid-in capital, will provide backing for the bonds and bills issued by the ESM. This will help to support the ESM's financial stability and contribute to the overall stability of the Eurozone.

As a country with a GDP per capita below 75% of the EU average, Croatia benefits from a temporary correction that lowers its paid-in capital contribution by €233 million until 2035. This temporary correction will help to reduce the financial burden on Croatia and make it easier for the country to fulfill its financial obligations as an ESM member.

In addition to the financial benefits, Croatia's membership in the ESM will also give the country a voice in the highest decision-making body of the ESM, the Board of Governors. Croatia's finance minister will join the finance ministers of all Eurozone countries in this body, and the country will also be represented in the Board of Directors, which oversees the ESM's day-to-day business.

In conclusion, Croatia's accession to the ESM is a significant step towards the country's economic stability and financial security. It will help to strengthen Croatia's resilience to future financial crises, increase investor confidence, and reduce borrowing costs. Furthermore, it will give Croatia a voice in the highest decision-making body of the ESM and help to support the financial stability of the Eurozone as a whole.

As Croatia's accession to the ESM has important implications for businesses and investors operating in the country, BORIĆ & PARTNER is dedicated to keeping its clients informed about the financial landscape

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