European Central: Croatia Joins The Eurozone and Schengen Area
LynaStock / Tuomas A. Lehtinen
The new year was not only joyful for Croatia as it was the 10th anniversary of the nation's accession to the European Union but also because it was the member state’s entrance into the Eurozone and Schengen Area. Contrary to what some may think, member states do not immediately enjoy all benefits upon joining. Another example is the free movement of workers commonly being restricted from new member states to existing members for up to seven years. To help consumers understand the differences in prices now, particularly the elderly, businesses have been required to display prices in euros and kunas from September 5th, 2022, until December 31st, 2023. While most Croatians approve of using the euro currency, the transition has not been seamless.
The Currency Transition Has Had Some Difficulties
Unfortunately proving the concerns right of some Croatians, prices have increased since Croatia switched currencies. Coffees that were sold for the equivalent of 1.09 euros when prices were in Kunas are now costing people 1.20-1.50 euros. Davor Filipović, Croatia’s Economy Minister is trying to resolve this and has called for a meeting with the heads of national chains over the price hikes. Whether discussions are useful for Croatian consumers is yet to be seen. Citizens were expecting price increases, but not as high as what consumers are currently finding. Part of the problem is that the cost of the currency transition has been passed on to consumers. The cost alone for banks to prepare IT services and ATMs is estimated at between 80-100 million euros. Consumers will also have to adjust to their bank accounts, appearing to have significantly less savings due to how much stronger the Euro is than the Kuna. 1 euro is worth approximately 7.53 kunas.
Despite the downside for consumers, many Croatian businesses have been using euros before the official adoption rate. This is because Croatian businesses who export products to the Eurozone have typically traded their goods in euros. For Croatia, already 70 percent of exports are traded in euros. Switching to the Euro can also attract more foreign investment by potentially lowering interest rates and improving the nation’s credit ratings. This would be beneficial for the member state which only saw its GDP per capita finally surpass its 2008 value in 2021. Tourism is also an important aspect of the Croatian economy, estimated account for 24 percent of the Economy. Using the euro in all businesses will allow for tourists within the Eurozone to have an easier time traveling throughout Croatia. 70 percent of tourists already come from the Eurozone.
Croatia has chosen to feature an outline of the nation on the 2-euro coin, a kuna (weasel) on the 1-euro coin, Nikola Tesla on the 50, 20, and 10-cent coins, and finally on the 5, 2, and 1-cent coins the nation’s initials HR are written in glagoljica (first known Slavic written alphabet). Including Nikola Tesla caused some friction with Serbia. While Tesla was born in the village of Smiljan, Croatia he was ethnically Serbian. Two years ago, Serbia’s Central Bank threatened to take action against Croatia if it put Tesla on its euro coins, yet obviously, Croatia went ahead with its original plan. While ethnicity has unfortunately been a very touchy issue in the Balkans since the Yugoslav civil war, it is important to remember that the European Union does not have the same view. As Croatia is a member state, workers can freely move there if they meet some requirements and vice versa. If Serbia becomes a member state, it will also be expected to tolerate workers from other member states.
Entering the Schengen Area
Besides being admitted to the Eurozone, Croatia is also now in the Schengen Area. This means that Croatia will be joining a group of 26 nations that currently do not have passport inspections between national borders, allowing for easier travel. Romania and Bulgaria have already applied for membership yet will have to wait longer due to objections from some current members. Membership to the Schengen Area is not just restricted to EU member states. Norway, Lichtenstein, Iceland, and Switzerland are also members of the Schengen Area, yet not the EU. Like EU membership, accession to the Schengen Area requires unanimous approval from all current members. As a member, Croatia will share the responsibility of enforcing common rules for the external borders. Time will tell if this has an impact on Croatia’s regulation of its border with Serbia and Bosnia and Hercegovina. In the past Croatia was criticized for accusations of border police abusing migrants trying to cross the border. While these migrants were trying to cross without permission, this does not give Croatia the right to abuse them.
While members of the Schengen Area must allow free travel in general, they can temporarily reintroduce national border checks in extraordinary circumstances. One example would be nations restricting entry during the Covid-19 pandemic. Another example is when countries implemented border checkpoints to combat illegal immigration of people not citizens of any Schengen Area nation. A recent example is when the Czech Republic temporarily restricted migration across its border with Slovakia. For Croatia, this would apply to the national land borders it shares with Slovenia and Hungary.
The transition to the Euro has had a rocky start in Croatia but it will be interesting to see what Croatia’s economy looks like a decade from now. Then it will be possible to reflect and analyze whether the euro aided or inhibited economic growth. It is also yet to be seen whether the Schengen Area will help Croatia’s tourism industry due to travel becoming easier for citizens of the 26 other nations who are members of the Area. Entering both the eurozone and the Schengen Area simultaneously helps Croatia end its first decade of EU membership on a high note.
