Adopting and introducing the euro – how did Croatia do it? (interview)

Eurozone entry is a hot topic in Bulgaria. On August 7, the National Assembly voted and adopted the law on the introduction of the euro in the Republic of Bulgaria, which regulates the practical issues of our country’s accession to the euro area.

The official website for the introduction of the euro in Bulgaria points out that for some larger businesses, the preparation will require a huge amount of resources, which will be at the employers’ expense. The institutions advise businesses to budget for the necessary resources and start planning and implementing the necessary changes as soon as possible, which is expected to take between 6 and 8 months.

To help Bulgarian companies in the process of preparing for euro adoption , we invited experts from the Croatian IT consulting company KOIOS to tell our blog readers in an exclusive interview about Croatia’s experience – the process, best practices and lessons learned from their accession to the Eurozone. Officially, as of 01.01.2023, Croatia is already in the Eurozone, which makes the country’s recent experience extremely valuable for Bulgarian businesses, especially given the uncertain political and economic situation in our country.

Read what the KOIOS experts, who were actively involved in Croatia’s transition to the euro, told us and how Bulgarian companies can use their experience to prepare in time for the upcoming changes.

Read more: ERP systems and EURO – how do you prepare them?

– How early did businesses in Croatia start preparing for the switch to the euro?

There were several key dates in the Euro adoption process in Croatia:

• July 2020 was the date when Croatia’s local currency (Kuna) was included in Europe Exchange rate mechanism (ERM ||).
• In December 2020, National replacement plan for Croatian Kuna with Euro was brought.
• Third was March 2022 when Law proposal for euro adoption was referred to parliamentary reading.
• In June 2022 a fixed exchange rate for current local currency was defined.
• 12.07.2022 was the date when Croatia fulfilled all the necessary conditions for Euro adoption.
• Euro adoption date was 01.01.2023.
• 05. September 2022 was the date when the double pricing should start, so most business concentrated first on things visible to the clients and necessary to fulfill.

For most business, preparations depended on the available resources for this process, and started in January 2022 and lasted the whole 2022.

– What was the preparation process like?

From IT site, preparation process was divided in several different steps.

First step was to analyze all the systems and divide the things in scope:

1. Changes that can be done in advance (systems cleaning);
2. All necessary changes through different systems;
3. Changes that must be done till some date before euro adoption date;
4. Changes that must be implemented on euro adoption date or near that date.

First step was preparing different business software systems (core, DWH….), and removing everything that was hard-coded and related to the local currency. Systems are changed to be more flexible in the future so that currency can be replaced with new one, with one insert in the table. It was a preparation period, to replace as many things as possible in advance.

Second step was, preparing all core systems to the new currency and also to do all necessary changes so that thing that are need in advance as for example double pricing can be done.

Third step was to prepare systems not so visible to the clients as for example DWH, reporting systems to the different levels inside and outside of organizations.

Fourth step, parallel with previous two, was related with changes in integrations between different systems, mostly to add additional fields.

Fifth step was changes related with process as early euro supply for example, where banks and for example retail stores should be supplied with euro in advance so that can be fully functional after euro adoption date.

Outside IT preparations, public communication campaigns began in mid-2022 to ensure businesses and the public were well-informed about the upcoming changes. Over 80% of retailers and supermarkets joined an Ethical Code initiative to ensure transparent and fair pricing practices during the transition, starting from August 2022.

Planning for the necessary quantities of Euro banknotes and coins started about two years before the switch.

The Croatian National Bank (HNB) coordinated the production and distribution of Euro cash to ensure all financial institutions were adequately supplied.

Read more: Everything you need to know about ERP systems

– What additional costs did the transition to the euro incur for businesses?

The transition to the Euro incurred various one-time costs for businesses, primarily related to IT system upgrades, training, logistical adjustments, compliance, and dual pricing.

1. IT System Upgrades

Businesses had to upgrade their IT systems to handle dual currency operations, price conversions, and the introduction of the Euro into their accounting and financial reporting systems.

2.     Accounting and Reporting Adjustments

Adjustments were needed in accounting systems to ensure proper reporting in both Kuna and Euro, and to handle the new conversion rates and dual pricing displays.

3.     Training and Education

Extensive training programs were implemented to educate employees on handling Euros, understanding new procedures, and using updated IT systems​​. Public awareness campaigns were also conducted to inform consumers and businesses about the transition and to prevent misunderstandings.

4.     Logistical Adjustments

Costs were incurred for the production, distribution, and secure storage of new Euro banknotes and coins. This also included logistical adjustments such as recalibrating ATMs and point-of-sale systems to dispense and accept Euros from the transition date.

5.     Compliance and Legal Adjustments

Legal and compliance costs arose from ensuring all contracts, invoices, and financial documents were updated to reflect the change to Euros.

6.     Physical Cash Management

There were costs associated with managing the withdrawal of Kuna from circulation and the introduction of Euro notes and coins. Businesses had to handle dual cash operations during the transition period, which included additional cash handling and security measures.

7.     Dual Pricing Implementation

Implementing dual pricing displays required updating pricing systems and materials to show prices in both Kuna and Euros, starting from several months before the official transition.

Good practices from the experience of Croatia/yours that can be applied in Bulgaria

Some of the things that were the most important were how to organize euro adoption project and how to organize testing in this project. One of the issues regarding the project was fixed go-live date. Project phases were fixed and basically it can’t be any delays. Project phases were fixed and basically it can’t be any delays.

In Croatia, banks were deeply involved in the enactment of the law; they cooperated, read law proposals, and gave their opinion. Croatian national bank was deeply involved in euro adoption process in banks, defined an exact number of testing environments and testing cycles and requested reports regarding testing process.

Most of other projects were put on side and focus was on euro adoption project.

– Lessons learned from the transition in Croatia that can be useful for Bulgarian companies

It was a good opportunity to reorganize and cut some of the software that cover some small part of functionality and lacking support.

Knowledge learned on this project helped with better organization of future projects.

Read more: Quality management – how important is it and how do we do it at Balkan Services?

– Reconfiguration of the business software with which the companies operated in Croatia – what was the process for you and how long did it take?

In general, I’d say that the whole process took a bit over one year.

Koios had more than 50 people in the biggest banks in Croatia working on the euro adoption project. We mostly worked in DWH, on core DWH, data marts and regulatory reporting. In some banks, changes related with euro were implemented even before 2022, but in most of them, changes were done in 2022. In some of the banks we were incorporated in existing DWH teams, and in other we got parts of DWH to do everything ourselves, from analyzing to implementations. In parallel with euro adoption, Microsoft Croatia stopped supporting the custom-developed solution SIBS. Most banks in Croatia use SIBS for the creation and/or checking of regulatory reports before sending them to the Croatian national bank. All the banks chose Koios as the firm that will take over SIBS from Microsoft and continue with the development and maintenance of SIBS, so that was an additional task for Koios.

After Euro adoption date, in 2023, first and even second quarter effort was put in all the things that was in background, for example new regulatory reports, changes in existing reports. Additionally, reports were changed in –line with new rules provided from National bank.

–How can Bulgarian companies go more smoothly and easily through this process of readjustment of software systems? What would you advise them?

The other thing is to establish the best possible testing process and a way how to check and report progress on it. Related to this, crucial is to have the best possible project organization and enough man power to implement everything (externally or internally).

The third is (for banks mostly) cooperation between banks and Bulgarian national banks regarding new laws and rules, and also regarding new regulatory reports that follow euro adoptions.

– What factors determine the duration and complexity of preparation for companies (size of the company, number of software systems with which it operates, level of customization of the systems, industry in which they operate, other?)

Larger companies typically have more complex and extensive IT systems, requiring more time and resources to update, but they also have more knowledge, how to organize big projects and more man power.

As I already wrote, the number of software systems is key. An important fact is if these systems are old or new, internally or externally developed, customized a lot or not. Always is better to have newly systems in vanilla version. In that cases, it is easier to change them. The more systems involved, the longer the process, as each system needs to be individually addressed and tested.

Certain industries, such as finance, retail, and e-commerce, may face more significant challenges due to the high volume of transactions and regulatory requirements. Banks were one of the systems which need the most changes. It wasn’t only the changes visible to the clients, it was a lot of changes in the background, for example, how to change and convert historical reports.

For the core systems, the question was, what to do with historical data, which historical data is needed. If it is enough to store all historical data from core systems in DWH and convert the data there, and start with new data and new rules after euro adoption date or adopt the historical data in core systems according to the new rules.

– What is your experience with the reconfiguration of ERP and BI systems regarding the transition to the euro?

Initial phases involved thorough analysis of existing systems to identify necessary changes. This included mapping out all processes affected by the currency switch and designing system updates accordingly​​. Following the design phase, development teams worked on implementing the necessary changes in the ERP and BI systems. This was followed by extensive testing to ensure that all updates were functioning correctly, and that data integrity was maintained throughout the process​​.

Training programs were essential to ensure that employees understood the new processes and could efficiently use the updated systems. This included training on new functionalities related to dual pricing, reporting, and financial transactions in Euros​​. Ensuring the accuracy of data during the conversion was a major challenge. Rigorous testing and validation were necessary to prevent discrepancies.

Even after the official transition date, continuous monitoring was essential to address any issues that arose and to ensure the smooth operation of the updated systems. Post-implementation support was provided to help resolve any teething problems and ensure that all aspects of the business operations were running smoothly​​.

Read more: Why post-project development and expert support are key to business software effectiveness

– How does the process differ for small, medium and large companies?

Differences in the Transition Process for Small, Medium, and Large Companies:

No.	Factor	Small Companies	Medium Companies	Large Companies
1	Scope and Complexity	Fewer systems, simpler operations, basic adjustments	More complex operations, combination of solutions	Highly complex and integrated systems, extensive updates
2	Resource Allocation	Limited resources, external vendor reliance	More resources, balance transition with operations	Substantial resources, dedicated project teams, external consultants
3	Project Management	Direct oversight, straightforward	Structured approach, dedicated project managers	Advanced frameworks, multiple teams and managers
4	Training and Support	Informal training, external support	Formal programs, workshops, online resources	Extensive formal programs, e-learning platforms, dedicated helpdesks
5	Risk Management	Less formal, immediate operational risks	Structured strategies, balance with operations	Comprehensive plans, formal risk assessment, extensive testing

– Why is the reconfiguration of a more complex ERP system more complicated?

More complex ERP systems are often integrated with various other systems such as CRM, SCM, HRM, and BI systems, and it is very complex to ensure seamless integration and communication between all these systems during and after reconfiguration. Additionally, more complex ERP systems are usually highly customized to meet specific business needs.

Complex ERP systems are usually critical to daily operations, and any downtime can have significant operational and financial impacts. Planning and executing reconfiguration without disrupting business operations adds to the complexity. Coordination with multiple vendors and service providers is often necessary, especially when the ERP system includes third-party integrations.

Managing such a large and complex project requires advanced project management skills and tools. Multiple teams need to be coordinated, milestones and deadlines managed, and risk mitigate to ensure successful reconfiguration.

– What was your government’s involvement in the transition process?

Aside from political decision about the conversion. They were mainly involved in strategic planning (orchestrating institutions within Croatia and EU institutions), public communication, and legal adjustments which were necessary for the change, of course.

Consumer protection was also their responsibility, but I feel they failed in this area. Or at least I think that this part could have been much better.

– Did the government monitor the companies’ progress on the preparations and if so, how? Was there an institution that was responsible for this?

Unfortunately, there wasn’t anyone that was strictly monitoring only the progress of Euro conversion. However, each particular institution in the country was responsible for their part. Ministry of finance for taxes, FINA and banks for transactions, HANFA for insurances, CNB for bank coordination and reporting, etc.

Coordination Committee for the Introduction of the Euro  was established to oversee the entire transition process but in my opinion it wasn’t so sucessful.

– Role of the Croatian National Bank in the euro transition process – how was it organized and monitored?

CNB was involved mainly with the banks (along with some public communication). They were taking care of the legislature regarding banking sector and communication with the ECB. Monitoring of bank’s process was one of their main tasks in the conversion year. And this monitoring process was not taken lightly.

They have implemented some of the most strict controls, which had to be fully implemented and satisfied by the banks, and they monitor intensively testing process inside each bank. Their part on the legal side could have been better – there was a lot of uncertainty, especially in the beginning. However, given the situation we were all in, it was kind of normal that some of the questions simply didn’t have the answers.

Of course, there were other roles for the CNB as fiscal policies etc., which were important but not visible by other on the market that were dealing with IT system changes.

– Which laws/regulations/rules were modified before and after the euro migration? What was done before and what after?

Before the Euro Migration	After the Euro Migration
Enactment of Legal Framework – Enacted the “Zakon o uvođenju eura” (Law on the Introduction of the Euro) to provide a legal framework for the transition​​​​. – Established principles such as consumer protection, prohibition of unjustified price increases, and continuity of contracts​​​​.	Continuation of Compliance – Continued monitoring and enforcement of compliance with the new regulations. – Ensured ongoing compliance with EU regulations and Croatian laws.
Financial and Logistical Preparations – Coordinated the production and distribution of Euro banknotes and coins, ensuring availability before the transition​​​​.	Post-Transition Adjustments – Managed the ongoing exchange of Kuna for Euros at banks and financial institutions ​​.
Consumer Protection and Dual Pricing – Mandated dual pricing displays starting from September 2022 to ensure transparency​​​​. – Implemented measures to prevent price gouging and ensure accurate conversions​​​​.	Monitoring and Support – Continued support for businesses and consumers to address any issues arising after the transition​​. – Ongoing training and education programs to ensure smooth adaptation to the Euro​​.
Adjustments to Financial Systems – Required financial institutions and businesses to update their accounting and financial reporting systems​​. – Ensured that all systems could handle dual currency operations during the transition period​​​​.	Compliance and Reporting – Ensured accurate financial reporting and adherence to new accounting standards in Euros​​. – Ongoing inspections and audits to ensure compliance with the new regulations​​.

The Croatian government and the CNB undertook comprehensive legislative and regulatory reforms to facilitate the transition to the euro. These changes spanned various sectors, including currency laws, taxation, accounting, consumer protection, and financial regulations.

The modifications ensured a smooth transition before the adoption date and continued adjustments and monitoring after the euro was fully implemented. This approach helped address any emerging issues and reinforced the stability and acceptance of the new currency.

No business today can grow and be competitive without the use of IT systems. Choosing the right software solution and implementing it is a complex, difficult but critically important decision.

At Balkan Services we have expert knowledge of business, technology, and legislation, and we speak all three languages. We will listen carefully and advise you on choosing the right business system for your needs.

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