"Pronounced scepticism among EU members about the Union's future enlargement could hamper the talks and make them last longer than expected. Despite that, Croatia stands a good chance of becoming an EU member in 2010," the analysts say.
Admission to the EU is followed by the fulfilment of the Maastricht criteria for admission to the European Monetary Union, i.e. the introduction of the euro, and the bank's analysts believe that Croatia has already made solid progress regarding some of the criteria. The main problem that the country will face is achieving the maximum budgetary deficit of three percent of GDP, the analysts say.
Croatia's budgetary deficit in 2004 reached almost five percent of GDP and it is not likely to improve this year either considering a slow down in growth. The public debt has been constantly growing although at a moderate pace and it is expected to exceed 60 percent of GDP, the analysts say.
Croatia's economy is still characterised by a relatively low inflation rate, which is close to the acceptable 2.3 percent, and criteria regarding the long-term interest rate are likely to meet too. In addition, the kuna is very stable in relation to the euro, reads the report.
"We therefore believe that Croatia will try to join the European Exchange Rate Mechanism (ERM 2) as soon as possible, probably until mid-2010, after which it could join the Eurozone two years later at the earliest, if it manages to introduce the necessary reforms regarding budgetary deficit," the analysts say.