For people across the globe and often even for Europeans themselves, the European Union (EU) is a baffling maze, and not simply because of its complex institutions. Two of the EU’s greatest achievements are the common single market and the adoption of the common euro currency, and the free movement of people and goods through the Schengen Zone. Yet, not every EU member state is part of the Schengen area and neither has every member state adopted the euro as its currency. The United Kingdom (UK), before Brexit, was part of the EU but continued to use the pound as its currency and did not join the Schengen Zone. Sweden is part of the Schengen Zone but uses its krona currency. In fact, seven EU countries, including Bulgaria, Romania, Denmark, Sweden, Hungary, Poland and Czech Republic, do not use the euro.  Switzerland is not an EU member state but is part of the Schengen Zone, while EU member states Bulgaria, Romania, Cyprus, and Ireland are not Schengen countries. Thus, the EU and the Schengen area need to be distinguished, and being part of the EU does not automatically imply the adoption of the euro.

Joining the Schengen and Euro zones are being touted as major milestones in the  process of deeper European integration for the Balkan nation of 4 million people.

On 1 January 2023, Croatians rung in the new year with their country joining the Schengen and the eurozone. The former Yugoslav republic, which gained independence in 1991, joined the EU in 2013 as part of the bloc’s first enlargement since 2007. A decade later, joining the Schengen and Euro zones are being touted as major milestones in the  process of deeper European integration for the Balkan nation of 4 million people. The Schengen zone, covering 420 million people, is the world’s largest passport-free travel and borderless zone. Created in 1985 in the Schengen town in Luxembourg beginning with only five countries initially; the Schengen Agreement allows people, goods, and services to travel freely amongst its member countries, without having to pass identity checks at checkpoints by showing travel or customs documentation. The area covers 23 EU member states plus the four members of the European Free Trade Association - Iceland, Norway, Switzerland, and Liechtenstein, allowing citizens of these countries to work, study, visit, and live amongst any of these nations. Croatia’s entry as the 27^th country into the Schengen zone is the first new entry in 11 years and will abolish all border controls between Croatia and other Schengen area countries for people crossing by land, rail, or sea. For people travelling through air, the checks will end on March 26, 2023. On 1 January 1999, the euro was launched as an electronic currency, with coins and banknotes launching later on 1 January  2002. The eurozone comprises those member states of the EU that have replaced their national currencies with the euro. Today, 347 million Europeans use the euro daily, as emphasised by European Commission President Ursula von der Leyen.

Owing to low confidence in the kuna, the euro was already in widespread use even before, accounting for almost 80 percent of Croatia’s total bank deposits and 60 percent of loans.

After Lithuania’s euro adoption in 2015, Croatia becomes the 20^th country to replace its local currency kuna with the euro. However, owing to low confidence in the kuna, the euro was already in widespread use even before, accounting for almost 80 percent of Croatia’s total bank deposits and 60 percent of loans.

The benefits of accession

The benefits of officially adopting the euro are manifold from easier cross-border trade, especially when most of Croatia’s trading partners are part of the eurozone to increased capacity to attract investments, enhanced protection from external shocks, reduced borrowing conditions and interest rates, increased economic stability and growth, raised standards of living, and closer financial ties with the European Central Bank (ECB). Despite the timing coinciding with a weakened euro—the currency reached parity against the American dollar for the first time in 20 years in July 2022; eurozone countries have experienced lower levels of inflation, with Croatia’s inflation rate at 13.5 percent in November 2022 being higher than the eurozone’s 10 percent.

For Croatia where tourism accounts for 20 percent of GDP, the boost to tourism will be amongst the greatest benefits of joining both the Schengen and Eurozone.

For Croatia where tourism accounts for 20 percent of GDP, the boost to tourism will be amongst the greatest benefits of joining both the Schengen and Eurozone. The removal of border controls will eliminate the long lines at the 73 land border crossings with Slovenia and Hungary where most visitors come by car. And with 70 percent of its 20 million yearly tourists also arriving from eurozone countries, the common currency will eliminate the need to exchange money. Although whole-heartedly favouring their country’s entry into the Schengen Zone, Croatians have exhibited mixed sentiments towards adopting the euro, with only 55 percent in favour, while others fear a potentially increased cost of living. Interestingly, even in 2013, when Croatia was due to join the EU, only 45 percent of Croatians approved the move, citing similar fears of increased costs of living and competition from other EU countries. While the adoption of the euro will undoubtedly bring substantial economic benefits, the World Bank states that Croatia will still need to adopt suitable national policies to raise its average income levels, exacerbated by a declining population coupled with many young Croatians preferring opportunities in wealthier neighbouring countries, at par with the rest of the EU.

A complex process 

As with most matters pertaining to Europe, the process for accession into the eurozone and the Schengen Zone is lengthy and tedious, requiring the green light from the European Commission, the European Parliament, and finally unanimous agreement from all 27 EU member states through the Council of the EU—in the case of Schengen, a unanimous agreement from member states which are part of the Schengen Zone is needed. For inclusion into the eurozone, the country in question needs to comply with several economic and legal conditions including low inflation, stable interest rates, sound public spending, and a government deficit of less than 3 percent of GDP, as outlined in the 1991 Maastricht criteria. The incentive of joining the eurozone encouraged Croatia to implement necessary structural reforms, and in June 2022, finance ministers of the eurozone supported Croatia’s accession based on positive Convergence Reports by the Commission and the ECB.

In November 2022, the European Parliament voted in favour of Croatia joining the Schengen area, with 543 MEPs in favour, 53 against, and 25 abstaining, urging the Council to adopt a final decision.

In December 2021, the Council confirmed that Croatia had fulfilled all the technical requirements, including managing external borders, data protection ,and police cooperation, of its Schengen evaluation process that began in July 2015, to join the Schengen area. In November 2022, the European Parliament voted in favour of Croatia joining the Schengen area, with 543 MEPs in favour, 53 against, and 25 abstaining, urging the Council to adopt a final decision. In December 2022, the final decision affirmed Croatia’s inclusion in the Schengen and eurozone through the unanimous vote by EU interior ministers in the Council. With Croatia’s accession to the Schengen zone, the EU’s external border shifts from Slovenia to Croatia. Thus, Croatia will have to fulfil the added responsibilities of securing the EU’s eastern external frontiers from non-EU neighbours Serbia, Montenegro, and Bosnia and Herzegovina through strict border controls.

Disappointment for Romania and Bulgaria

In recent years, the Schengen Zone has been under increased stress due to the migration crisis resulting from instability in the Middle East, Asia, and Africa. The situation worsened with the COVID-19 pandemic when many countries set up internal borders controls to control the spread of the virus. While Croatia celebrates this latest shift in its fortunes, two other EU member states and Balkan nations, Romania and Bulgaria who joined the EU in 2007 way before Croatia, began the year with disappointment on their entry being vetoed, despite support from the Commission and Parliament. The Netherlands voted against Bulgarian accession over alleged corruption, organised crime, and rule-of-law concerns, while Austria voted against both Romania and Bulgaria citing illegal migration concerns.

In 2022, Austria recorded 100,000 illegal border crossings, with most migrants arriving through the Western Balkans route through an EU external border, thereby, complicating Romania and Bulgaria’s chances of joining the Schengen area.

Ever since the 2015 migration crisis, immigration is amongst the most electric issues on the continent, being further complicated by the large influx Ukrainian refugees. According to the EU’s border police Frontex, the first 10 months of 2022 recorded 77 percent higher irregular entries from 2021 making this the highest figure since 2016. In 2022, Austria recorded 100,000 illegal border crossings, with most migrants arriving through the Western Balkans route through an EU external border, thereby, complicating Romania and Bulgaria’s chances of joining the Schengen area. The Austrian position drew criticism from the Romanian government with Prime Minister Nicolae Ciucă referring to this as “inflexible” and Romania’s Ministry of Foreign Affairs lamenting its “regrettable impact on European unity in the current complicated geostrategic context”. Indeed, Croatia’s accession does give a symbolic boot to European unity in the face of the ongoing Russian aggression and Russia’s hopes of fracturing EU unity, and the inclusion of Romania and Bulgaria into the Schengen and Eurozone may have further boosted this morale. As Croatian Prime Minister Andrej Plenkociv reiterated, these are “two strategic goals of a deeper EU integration”. Besides the benefits to the acceding member state, the EU as a whole also gains though the strengthening of its common currency, especially in the face of current challenges like soaring inflation pressuring the eurozone. As ECB president Christine Lagarde highlighted, Croatia’s addition is “a vote of confidence for the euro area”. With celebrations organised at the border, there is no doubt that for the Croatians, the new year has brought much reason to rejoice. Unfortunately, Romania and Bulgaria will have to wait longer to celebrate.

• International Affairs
• European Union
• Russia and Eurasia
• The Pacific, East and Southeast Asia
• Croatia
• economic
• EU
• Eurozone
• Free Trade
• inflation
• Schengen

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