Croatia is set to become the 20th member of the euro zone from 2023
European Union finance ministers on Tuesday formally approved Croatia to become the 20th member of the common euro currency in early 2023.
The move was hailed as the culmination of an “incredible journey” for a formerly warring Balkan nation.
Croatia’s membership marks the first euro zone expansion since 2015 and comes just as the euro has fallen to its lowest level against the dollar in 20 years.
European Commission Vice-President Valdis Dombrovskis said Croatia’s membership confirms that the euro remains an “attractive, resilient and well-performing global currency” and a symbol of strength and unity.
“This is particularly important at such a difficult time when Russia’s aggression against Ukraine continues to send shockwaves around the world,” Dombrovskis said at a ceremony marking the joining of the Croatia.
The European Council, the grouping of 27 EU governments, has adopted three legal acts needed to allow Croatia – an EU member state since 2013 – to introduce the euro on January 1.
One of these acts fixed the conversion rate for entry to 1 euro at 7.53 Croatian kuna, with Croatia now having a few months to prepare the practicalities of the currency change.
Croatia, in southeastern Europe, has been an independent country since 1991, when it left the then federal Yugoslavia, which, together with Bosnia’s secession a year later, sparked years of devastating war with Serbia.
Neighboring Slovenia, also a former Yugoslav republic and now an EU member, adopted the euro in 2007. Lithuania was the last EU country to join the European Single Currency Area in 2015. Nineteen countries are currently part of the euro area.
Croatia was ruled by nationalist strongman Franjo Tudjman until his death in 1999 and to qualify for EU membership he took steps to fight corruption and improve governance, including the condemnation of Ivo Sanader, Prime Minister from 2003 to 2009.
Croatian Finance Minister Zdravko Maric described the EU’s green light to adopt the euro as a “great historic day” for his country, whose beautiful Adriatic coast is a major tourist destination.
EU Economics Commissioner Paulo Gentiloni hailed Croatia’s imminent entry into the eurozone as an “extraordinary achievement”.
“What an incredible journey it was for Croatia. For my generation, Croatia experienced the first (European) war after the end of the Second World War,” he said, referring to the Yugoslav conflict of the 1990s.
To adopt the euro, Croatia had to meet the criteria of price and exchange rate stability, sound public finances and moderate long-term interest rates, all measured against EU benchmarks.
Adopting the euro offers economic benefits from closer financial ties with other members of the currency bloc and the monetary authority of the European Central Bank (ECB).
The bank plans to raise interest rates for the first time in 11 years this month to tackle record inflation of 8.6%.
More concretely, this means that the 340 million inhabitants of the current euro zone who visit Croatia will no longer need to exchange their money for Croatian kuna.
Joining the euro also has political rewards as the common currency is Europe’s most ambitious project to integrate nations, giving them a place in the core of the EU. It means a seat at the highest decision-making tables in the EU.
The changes come as the euro’s exchange rate very briefly touched $1 for the first time in two decades on Tuesday before immediately rebounding. There are fears that a worsening energy crisis in Europe linked to Russia’s war in Ukraine could drag the economy down.
Created in 1999 between 11 countries, including Germany and France, the euro has seen seven previous enlargements, starting with Greece in 2001.
The allure of euro membership is reflected in the last three expansions, which were introduced in the Baltic states between 2011 and 2015. During this period, the euro area struggled to contain a crisis of the debt that Greece had triggered and which threatened to break the currency. Alliance.
A combination of European emergency loans to five financially vulnerable member countries and a commitment from the ECB to do “whatever it takes” to save the euro has enabled the currency bloc to ride out the turmoil and come out stronger.
Croatia is relatively small and poor, so joining the euro will have limited international economic implications. The country has a population of around 4 million and a per capita wealth that, at 13,460 euros ($13,500) last year, was less than half the eurozone average.