With the onset of the new year in a few hours, Croatia will adopt the euro currency and enter Europe’s passport-free Schengen zone after nearly a decade since joining the European Union.
At midnight on January 1, 2023, the Balkan nation of some four million people will bid farewell to its kuna currency and become the 20th member of the eurozone.
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Experts say the adoption of the euro will help protect Croatia’s economy at a time when inflation has been soaring globally since Russia’s invasion of Ukraine in February led to heightened fuel and food prices.
It will also be the 27th nation in the passport-free Schengen zone, the world’s largest, which enables more than 400 million people to move freely around its member nations.
However, Croatians have mixed feelings about the changes.
While many welcome the end of border controls, some worry about the currency switch, with right-wing opposition groups saying it only benefits large countries such as Germany and France.
“We will cry for our kuna, prices will soar,” said Drazen Golemac, a 63-year-old pensioner from Croatia’s capital, Zagreb.
His wife, Sandra, disagreed, saying the “euro is more valuable”.
“Nothing changes on January 1, all is calculated in euros for two decades anyway,” said clerk Neven Banic.
Croatian officials have defended the decisions to join the eurozone and Schengen, with Prime Minister Andrej Plenkovic saying on Wednesday that they were “two strategic goals of a deeper EU integration”.
‘Stability and safety’
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 assets such as cars and apartments in euros, displaying a lack of confidence in the local currency.
“The euro certainly brings [economic] stability and safety,” Ana Sabic of the Croatian National Bank (HNB) told AFP news agency.
Croatia’s inflation rate reached 13.5 percent in November.
The Balkan nation is entering the eurozone at a time when the bloc itself is in turmoil as the European Central Bank (ECB) tries to tame inflation after spending the past decade unleashing unprecedented stimulus to rekindle growth when it was exceptionally low.
“We need to be careful that the domestic causes that we are seeing, which are mainly related to fiscal measures and wage dynamics, do not lead to inflation becoming entrenched,” ECB President Christine Lagarde told Croatian newspaper Jutarnji list.
Lagarde provided no new policy hints in the interview but said the bank must “take the necessary measures” to lower inflation to 2 percent from its current rate of nearly 10 percent.
The bloc’s expected winter recession, induced by soaring energy costs, is likely to be short and shallow, provided there are no additional shocks, Lagarde added.
Admission into Schengen
Croatia’s entry into the Schengen borderless area will also provide a boost to the Adriatic nation’s key tourism industry, which accounts for 20 percent of its gross domestic product (GDP).
However, border checks will end only on March 26 at airports due to technical issues.
Croatia will still apply strict border controls on its eastern frontier with non-EU neighbours Bosnia and Herzegovina, Montenegro and Serbia.
The fight against illegal migration remains the key challenge in guarding the EU’s longest external land border at 1,350km (840 miles).