Croatia adopts the euro and joins the Schengen area

Steph Deschamps / January 1, 2023

Croatia was counting the hours Saturday before switching to the euro and entering the Schengen area of free movement, two major steps for this small country that joined the European Union in July 2013. And it was at midnight that the country said goodbye to its currency, the kuna, to become the twentieth member of the euro zone. At the same time, Croatia becomes the 27th state to join the Schengen area, a vast zone in which more than 400 million people can travel freely without internal border controls.
This Sunday, European Commission President Ursula von der Leyen will come to Croatia to mark the two events. Croatian leaders regularly emphasize the expected benefits for this Balkan country of 3.9 million people.
Joining the euro zone and the Schengen area are "two strategic objectives for further integration into the EU," conservative Prime Minister Andrej Plenkovic insisted Wednesday. For experts, the changeover to the euro will help protect the Croatian economy, one of the weakest in the EU, in a world subject to galloping inflation, a serious energy crisis and geopolitical insecurity since the start of the Russian invasion of Ukraine.
In november, inflation reached 13.5 per cent, compared to 10 per cent in the euro zone. Eastern European countries that are members of the EU but not in the euro zone, such as Poland and Hungary, have proved even more vulnerable to rising inflation. "The euro certainly brings economic stability and security," said Ana Sabic, a Croatian central bank official.
The benefits of joining the euro will be felt by all segments of society - individuals, companies and the state, she insists. In particular, experts cite the elimination of exchange rate risks and better borrowing conditions in the face of economic difficulties. The euro is already very present in Croatia. About 80 per cent of bank deposits are denominated in euros, the Mediterranean country's main partners are in the euro zone and tourism, which accounts for 20 per cent of GDP, is driven by a large European clientele.
Croatia has received four times as many tourists as it has inhabitants this year. Joining the Schengen zone will also give a boost to tourism. The long lines at Croatia's borders with its European neighbors, Slovenia and Hungary, will be a thing of the past. This Sunday, 73 border crossings will close. At airports, the change will take place on March 26, for technical reasons.
At the same time, the situation at the country's borders with its non-EU neighbors - Bosnia, Montenegro and Serbia - will not change much: Croatia already applies the Schengen rules there. Cracking down on illegal immigration remains a major challenge. Since the country joined the EU, it has inherited the onerous task of protecting an external land border of more than 1,350 km, most of which is with Bosnia.
Croatia is on the so-called Western Balkan route, which is used by migrants, but also by traffickers of arms, drugs and human beings. The border with Bosnia is the most difficult to manage, not only because of its length, but also because of its rugged terrain. After the decline in illegal crossings due to the health crisis, Croatia registered 30,000 illegal migrants in the first ten months of 2022, an increase of 150 percent over the same period last year.
Croatians have mixed feelings about joining the euro and the Schengen area: while they are generally happy about the end of border controls, the change of currency inspires mistrust. "We're going to cry for our kuna, prices are going to explode," laments Drazen Golemac, a 63-year-old pensioner in Zagreb. "Nothing changes on January 1, everything has been calculated in euros for two decades anyway," said Neven Banic, an employee. Croatians have been counting in euros for a long time for the price of valuable goods, such as cars or apartments.
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