The European Commission on Friday confirmed having sent Croatia in mid-June an official letter of warning regarding the conversion of loans denominated in Swiss francs into euro loans, being of the opinion that the country's loan conversion law had shifted all of the conversion costs onto banks and that its retroactive application jeopardised the principle of legal security.
On June 16 the European Commission sent a letter with a formal warning to Croatia regarding the law on the conversion of loans denominated in Swiss francs, EC spokesperson Vanessa Mock said.
She said that loans denominated in a foreign currency, like those pegged to Swiss francs, were known to possibly become a problem when their holders cannot protect themselves from sudden exchange rate changes, adding that the EC fully supported the need to help loan-holders in such difficult circumstances.
However, the law adopted by the Croatian parliament allows all loan holders (except for legal persons) to retroactively convert loans pegged to Swiss francs into euro loans in line with historical exchange rates, regardless of their ability to repay those loans. That makes loan conversion costs fall entirely on creditors and goes beyond what is necessary and proportionate to achieve the legitimate goal of protecting impoverished loan holders and avoiding a consumer loan crisis, Mock said.
Also, retroactive application of the law jeopardises the principle of legal security, which may undermine the trust of investors in the Croatian economy, she added.
The EC believes that it is necessary to strike a balance between the interests of consumers and the need to protect the single capital market and its legislative framework, Mock said, adding that the EC hoped Croatia would find a proportionate solution to suit the interests of all, consumers and investors alike.
A letter with a formal warning is the first step the EC takes against a country it believes has violated EU law.
If the country fails to reply to the letter or fails to provide a satisfactory explanation in its reply, the EC takes the second step, namely a substantiated opinion. If after that there is still no satisfactory response, the EC may approach the Court of the EU.