October 30, 2017 / 8:45 AM / 21 days ago

UPDATE 2-Croatia wants to adopt euro within 7-8 years -prime minister

* Croatia wants to enter ERM-2 by 2020

* Public debt seen falling to 72 pct/GDP in the next three years

* Euro adoption to remove currency risk, reduce interest rates (Adds central bank governor)

By Igor Ilic

ZAGREB, Oct 30 (Reuters) - Croatia aims to become a euro zone member within the next seven to eight years, Prime Minister Andrej Plenkovic said on Monday.

“We don’t want to specify the exact dates, but we want Croatia to become a euro zone member within two government terms in office,” Plenkovic told an economic conference devoted to the introduction of the euro in Croatia.

The centre-right government came to power a year ago.

Plenkovic said Croatia wanted to enter the European exchange rate mechanism II (ERM-2) within the next three years, before the country takes the presidency of the European Union in 2020.

EU members that have not yet adopted the euro are expected to participate for at least two years in ERM II, a mechanism aimed to ensure currency stability before joining the euro zone.

The Croatian central bank already keeps Croatia’s kuna currency in a narrow fluctuation band, roughly at between 7.3 and 7.7 to the euro, occasionally intervening on the local foreign exchange market mostly to ease appreciation pressures.

Croatia’s major challenge before adopting the euro is expected to be the reduction of public debt which is slightly above 80 percent of gross domestic product.

“Our goal is to reduce the public debt to 72 percent of GDP by 2020 ... We are undertaking a major fiscal consolidation and this year the budget gap will be even lower than last year’s 0.9 percent of GDP,” Plenkovic said.

Central Bank Governor Boris Vujcic said Croatia was the most “euroised” EU country of those that had not yet adopted the euro.

“Some 75 percent of local deposits and 67 percent of local debt is denominated in the euro. Some 60 percent of Croatia’s trade exchange is related to the euro zone, while 70 percent of tourism receipts comes from the euro zone countries,” Vujcic told the conference.

The most important benefits of euro adoption would be the removal of currency risk and lower interest rates, he said.

Croatia took an obligation to adopt the euro when it joined the EU in 2013, but without a defined timetable.

Vujcic said any fears among the population about prices soaring when the euro is adopted could be tackled by an obligation to display prices in both kunas and euros six months before an agreed euro zone entry date. (Reporting by Igor Ilic; Editing by)

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