With the start of the new year in a few hours, Croatia will adopt the euro and enter Europe passport-free Schengen zone after almost a decade since joining the European Union.
On January 1, 2023 at midnight, the Balkan nation of some four million inhabitants will do just that say goodbye to its kuna currency and become the 20th member of the Eurozone.
Experts say the introduction of the euro will help protect the Croatian economy at a time when global inflation has soared since Russia’s invasion of Ukraine in February led to higher fuel and food prices.
It will also become the 27th country in the passport-free Schengen zone, the world’s largest, allowing more than 400 million people to move freely in its member countries.
Croats, however, have mixed feelings about the changes.
While many welcome the end of border controls, some are concerned about the currency switch, with right-wing opposition groups saying it will only benefit big countries like Germany and France.
“We will cry for our kuna, prices will rise,” said Drazen Golemac, a 63-year-old pensioner from Croatia’s capital, Zagreb.
His wife, Sandra, disagreed, saying the “euro is more valuable”.
“Nothing will change on January 1, everything has been calculated in euros for two decades anyway,” says registrar Neven Banic.
Croatian officials have defended the decisions to join the eurozone and Schengen, with Prime Minister Andrej Plenkovic saying on Wednesday they were “two strategic goals of deeper EU integration”.
‘Stability and security’
Croatia, a former Yugoslav republic that fought a war of independence in the 1990s, joined the EU in 2013.
The euro is already largely present in the country.
About 80 percent of bank deposits are denominated in euros and Zagreb’s main trading partners are in the Eurozone.
Croatians have long valued their most prized possessions, such as cars and apartments in eurosshowing a lack of confidence in the local currency.
“The euro certainly brings [economic] stability and security,” Ana Sabic of the Croatian National Bank (HNB) told AFP news agency.
Inflation in Croatia reached 13.5 percent in November.
The Balkan country is entering the Eurozone at a time when the bloc itself is in turmoil as the European Central Bank (ECB) seeks to curb inflation after providing unprecedented stimulus over the past decade to rekindle growth when it was exceptionally low.
“We have to be careful that the domestic causes we see, which are mainly related to fiscal measures and wage dynamics, do not lead to inflation entrenching,” ECB president said. Christine Lagarde told the Croatian newspaper Jutarnji list.
Lagarde gave no new policy hints in the interview, but said the bank should “take the necessary steps” to bring inflation down to 2 percent from the current rate of nearly 10 percent.
The bloc’s expected winter recession, triggered by rising energy costs, is likely to be short and shallow, provided there are no additional shocks, Lagarde added.
Admission to Schengen
Croatia’s entry into the Borderless Schengen Area will also boost the Adriatic nation’s main tourism industry, which accounts for 20 percent of its gross domestic product (GDP).
However, due to technical difficulties, border controls at airports will not end until March 26.
Croatia will continue to apply strict border controls on its eastern border with non-EU neighbors Bosnia and Herzegovina, Montenegro and Serbia.
The fight against illegal migration remains the main challenge in guarding the EU’s longest external land border (1,350 km).