site.btaCroatia: One Year in Schengen, Eurozone

Croatia made history as the first country to join both the eurozone and the Schengen area on the same day, January 1, 2023. Unlike the Schengen entry, the adoption of the single European currency drew ambivalent reactions in the country: quite a few people were apprehensive of a price hike, and part of Croats were reluctant to part with the kuna as a symbol of national identity.

Eurozone: Benefits and Risks

Politicians and the Croatian national bank assess the country's first year in the eurozone as successful.

Back in December, Finance Minister Marko Primorac commented that all expected benefits from the euro changeover had materialized: Croatia's credit rating has improved, the risks related to exchange rate fluctuations have decreased substantially, and currency conversion costs have been scrapped.
 
"The economy has saved approximately EUR 160 million in costs simply because currencies don't have to be converted any longer," Primorac said, quoted by local media. 

Croatian National Bank Governor Boris Vujcic also highlighted the elimination of the exchange rate risk. 

"The cost of loan-financing the State, companies and households would have been higher [without joining the Eurozone]. Worse yet, inflation would have been higher, and Croatia has a lower inflation than all countries that have not adopted the euro," Vujcic commented recently according to Croatian media reports.

In his words, the introduction of the single European currency has led to a price increase of as little as 0.2 to 0.4%. The central bank Governor stressed the positive role of the euro in particular for Croatia's resilience in times of crisis. 

Croatia's annual inflation rate was 8% in November 2023, down from a record 13.5% a year earlier.

Peculiarly, the country joined the eurozone with high inflation. Early in 2023, there were complaints that prices were rounded upwards without justification when converted from kuna to euro terms. The Government intervened immediately, including by on-the-spot checks, and the Ministry of Economy and Sustainable Development launched an app enabling a comparison of the price variations from the end of December 2022.

Members of the public are still adjusting.

Fifty-one per cent of Croatians believe that the euro changeover is a good thing, while 36% disagree, according to a Eurobarometer survey conducted in October 2023.

As from January 1, 2024, price tags no longer have to state both kunas and euros and may use the single European currency. Some Croatians find this disconcerting because they will no longer be able to compare the worth of the services and goods they buy.

The Faculty of Humanities and Social Sciences at Zagreb University found in a poll that as many as 47% of people continue to calculate the euro prices back to kunas, 46% do it occasionally, and just 6% don't do it at all.

Assistant Professor Nikola Erceg of the Zagreb University Faculty of Philosophy sees these data as indicative that Croatians are not yet completely used to the euro.

"I suppose that conversion helps people as a sort of safeguard against unwanted spending and a precaution for a more sensible management of their money," Erceg said, quoted on Croatian Radiotelevision (HRT).

Marijana Ivanov, who teaches at the Zagreb University Faculty of Economics, warned that the end to kuna price quotes may push prices up because traders may again take advantage of the lack of transparency. 

By Schengen Rules

On January 1, 2023, Croatia closed down over 70 border checkpoints with its neighbours Slovenia and Hungary which, too, are part of the Schengen area, as well as checkpoints on its sea border. Checks at the internal air borders were abolished on March 26, 2023.

The easier and faster border crossing of people and goods within Schengen provides a substantial impetus to the Croatian economy in which tourism is a major industry.

Croatia's borders with Serbia, Montenegro and Bosnia and Herzegovina function as EU external borders.

Talking to the Croatian News Agency (HNA) at the end of last year, Interior Minister Davor Bozinovic said that Croats has been able to feel best the advantages of their country's accession to the European border-free area during the Easter holidays and the summer tourist season as they have been able to travel abroad without border-crossing congestions, unlike previous years.

Foreign tourists in Croatia generated nearly EUR 13 billion revenue between January and September 2023, which was 11.4% more than the comparable period of 2022, the Croatian National Bank reported. 

In October 2023, however, the Slovenian Government reintroduced controls on its borders with Croatia and Hungary as a measure for the prevention of terrorism, extremism and cross-border crime. The decision was prompted by increased concern about security in Europe after the Hamas attack against Israel. Schengen countries have the right to introduce temporary border controls with other members of the common area in case of a serious threat to public order and national security.

Croatia, which has one of the EU's longest land borders, has long been an attractive entry point to the Union for illegal migrants. Zagreb has drawn criticism from human rights activists for frequent massive expulsions, including migrants' pushbacks.

For his part, Interior Minister Bozinovic commented in December that Croatia Schengen entry had led to changes in the work of the police which, as he put it, copes "more than successfully" with all challenges.

Bozinovic specifies the Croatian police had apprehended a record 1,850-plus human traffickers in 2023, which was 90%-plus up from 2022.  

The Interior Minister said that the number of illegal entries in Croatia had increased by 40% from the previous year.

He does not think, however, that the country is exposed to a massive and uncontrolled migrant influx.

Bozinovic pointed out that the Croatian border is guarded by 6,700 border police officers and several thousand riot police officers, which is five times more than the forces of the European Border and Coast Guard Agency (Frontex).

"If Croatia did not guard successfully its borders up to the rigorous standards and EU law, it would not have been part of Schengen," he argued.