Croatia has switched to the euro currency from 1 January 2023. AP
With the onset of 1 January 2023, Croatia has switched to the European currency – the euro – and joined Europe’s border-free Schengen zone.
Croatia, the 20th member of the eurozone, dropped its kuna currency on Saturday midnight (New Year).
“It is the season of new beginnings. And there is no place in Europe where this is more true than here in Croatia,” European Commission president Ursula von der Leyen tweeted.
The development comes years after the Balkan nation became a part of the EU in 2013.
How can a nation join the euro area? Why has Croatia ditched its kuna currency to adopt the euro and how will it benefit the Adriatic nation? Let’s take a closer look.
Euro area
Euro area or ‘eurozone’ is a bloc of the member states of the European Union (EU) that have replaced their national currencies with a single currency – the euro.
As per the EU website, the euro was launched as an accounting currency in 11 member states on 1 January 1999, while its banknotes and coins started to circulate in 2002.
To become a member of the euro area, an EU nation has to meet the convergence criteria – economic and legal conditions such as low inflation, and a stable exchange rate, among others.
The Council of the EU takes the final decision on a member joining the euro area.
European Union finance ministers had given the nod to Croatia to adopt the euro single currency in July last year.
Notably, this is the first expansion of the eurozone in almost eight years after Lithuania joined it in 2015, as per Al Jazeera.
The historical change and its benefits for Croatia
Any of the euro area’s 340 million citizens who travel to Croatia will no longer need to exchange their cash for kuna currency.
The new Croatian euro coin will depict scientist Nikola Tesla on one side. It will also feature a map of the country and the national checkerboard design, as per Bloomberg.
The Croatian euro coin features an image of scientist Nikola Tesla. AP
Both the Croatian kuna and the euro will remain available for making cash payments for 14 days, after which people can only use euros.
Croatia will benefit from “deeper financial ties with the currency’s 19 other users and with the European Central Bank”, notes Associated Press (AP).
The switch to the euro is “partly aimed at cementing a Western alignment”, says Bloomberg.
Experts believe Croatia becoming a member of the euro area will help the nation with a four million population to protect its economy amid soaring inflation in the wake of the Russian war in Ukraine.
European Central Bank (ECB) president Christine Lagarde said Croatia would benefit from the “shield of the euro”, reported Financial Times.
“Croatia is the country that stands to profit the most from entry into the eurozone,” said Boris Vuj?i?, governor of the Croatian central bank, adding that it would eliminate foreign currency risk of the Balkan nation.
“When your currency depreciates against the euro it means your debt is worth more,” Vuj?i? told Financial Times.
“So your borrowing costs as a country are higher to reflect this risk”, he further stated.
Moreover, with Croatia joining the Schengen zone, the Croatians would now be able to move freely around the EU’s 27 member countries and would not require to show their passports while travelling.
However, Croatia will continue to impose strict border controls on its eastern boundaries with non-EU neighbours — Bosnia, Serbia and Montenegro.
“We opened our doors to borderless Europe. This goes beyond eliminating border controls, it is the final affirmation of our European identity,” Croatia’s interior minister, Davor Bozinovic, was quoted as saying by AP.
ALSO READ: No more border, different currencies between Croatia and EU
Economic woes
Croatia’s economy relies heavily on tourism, which generates a fifth of the nation’s gross domestic product (GDP).
The nation’s entry into the world’s largest passport-free travel area is expected to boost its tourism industry.
Croatia’s entry into the Schengen area is expected to boost the tourism industry. AP (Representational Image)
As per Vuj?i?, “euro-area membership can lower interest rates, improve credit ratings and make Croatia more attractive to investors”, Bloomberg reported.
The inflation rate hit 13.5 per cent in Croatia in November, while it was 10 per cent in the eurozone. The switch to the euro will reduce borrowing conditions in the backdrop of economic hardship, as per Al Jazeera.
“Croatia gains access to ECB liquidity and potential bailout financing from the European Stability Mechanism during periods of crisis,” Bloomberg said in a report.
Mixed reactions
While most Croatians have welcomed the currency change from the kuna to the euro, some are sceptical about the move.
Tourist agency employee Marko Pavic said Croatia has joined “an elite club”.”The euro was already a value measure – psychologically it’s nothing new – while entry into Schengen is fantastic news for tourism,” he told AFP.
Some fear the euro switch will prompt a rise in the cost of living.
“It will be difficult. Prices that are already high will become even higher,” Ivana Toncic, a teacher from Croatia’s capital city, Zagreb, told Al Jazeera.
“We will cry for our Kuna, prices will soar,” Drazen Golemac, a 63-year-old pensioner from Zagreb, was quoted as saying by AFP.
With inputs from agencies
Read all the Latest News, Trending News, Cricket News, Bollywood News,India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.