Econostrum | Economic News in the Mediterranean

Croatia to become 20th member state to adopt the euro

Written by Frédéric Dubessy on Thursday, June 2nd 2022 à 19:35 | Read 224 times

On the twentieth anniversary of the euro as a physical currency, the euro area will welcome its twentieth member with Croatia on 1 January 2023.

Less than ten years after joining the European Union, Croatia will adopt the euro (photo: F.Dubessy)
Less than ten years after joining the European Union, Croatia will adopt the euro (photo: F.Dubessy)
CROATIA. Ten years after being the last country to join the European Union (EU), Croatia is preparing to adopt the euro. It had applied for membership in 2013 and confirmed this at the end of October 2017, setting a deadline of 2025 at the latest.

On Wednesday 1 June 2022, the European Commission and the European Central Bank (ECB) published two separate convergence reports in parallel, assessing the progress made by Bulgaria, the Czech Republic, Hungary, Poland, Romania and Sweden, and thus Croatia, towards joining the single currency. All are legally bound to do so, except Denmark. Denmark negotiated an opt-out clause in the Maastricht Treaty (endorsed by a referendum on 28 September 2000), and is therefore not covered in these documents for all Member States that may adopt the euro.

The European Commission's Convergence Report 2022 includes four conclusions: "only Croatia and Sweden fulfil the price stability criterion", "all Member States examined fulfil the criterion on public finances, with the exception of Romania, which is the only one subject to an excessive deficit procedure", "Bulgaria and Croatia are the two Member States examined that fulfil the exchange rate criterion", "Bulgaria, the Czech Republic, Croatia and Sweden fulfil the criterion on long-term interest rates".

Only country to meet all four convergence criteria

Croatia (€57.2 billion GDP in 2021 and 4.04 million inhabitants) is therefore the only country that is expected to join the single currency that meets all the conditions required for the adoption of the euro. It meets all four nominal convergence criteria. "Its legislation is fully compatible with the requirements of the Treaty and the Statute of the European System of Central Banks and of the ECB," says the European Commission.

This Western Balkan country will therefore abandon the kuna on 1 January 2023. Its inhabitants will join "the more than 340 million (editor's note: 344.65 million) citizens who already have the euro as their common currency, a factor of stability in these troubled times", emphasises Paolo Gentiloni, European Commissioner for the Economy. Croatia will be the 20th Member State to join the euro zone, 20 years after it was first introduced (see box below). However, we must also add Andorra, Monaco, San Marino, the Vatican and the two British sovereign military bases in Cyprus (Akrotiri and Dhekelia) which have been authorised to mint the single currency, as well as Montenegro and Kosovo which use it de facto.

However, since 10 July 2020, the kuna has already been part of the Exchange Rate Mechanism (ERM II), whose role is to help countries outside the euro zone prepare to join it.

"Croatia will make the euro stronger"

"Today, Croatia has taken an important step towards adopting the euro, our common currency. Less than a decade after joining the EU, Croatia is now ready to join the euro area on 1 January," enthused Ursula von der Leyen. This will make the Croatian economy stronger and benefit its citizens, businesses and society as a whole. Croatia's adoption of the euro will also make the euro stronger. Twenty years after the introduction of the first banknotes, the euro has become one of the most powerful currencies in the world, improving the lives of millions of citizens across the EU. The euro is a symbol of European strength and unity. Congratulations to Croatia!

Valdis Dombrovskis, Executive Vice-President for an economy that serves people, said: "This is a great achievement. (the euro) will bring real benefits to Croatian citizens and businesses and make the Croatian economy more resilient. It also shows that the euro remains an attractive and successful global currency. Our currency is a symbol of European strength, unity and solidarity at a time when these qualities are being tested by the war raging on our doorstep."

The European Commission will now submit a proposal to the Ecofin Council (Economic and Financial Affairs Council), which, after consultation with the European Parliament and discussion within the Eurogroup and among the heads of state or government, will decide whether the country qualifies and can adopt the euro.

In the event of a favourable opinion, which should be given at the beginning of July 2022 - this is purely a formality, since they will base their decision on the 2022 convergence report - "the Ecofin Council shall take the necessary legal measures and, on the basis of a proposal from the Commission and after consulting the ECB, shall decide on the conversion rate at which the national currency will be replaced by the euro, which shall then be irrevocably fixed", says a European Union press release.

Today, the kuna has a central rate of 7.53450 to the euro in ERM II, with a standard fluctuation band of plus or minus 15%.

The Euro in ten dates

7 February 1992: Adoption of the Maastricht Treaty (entered into force on 1 November 1993), which obliges most EU Member States to adopt the euro if they meet the convergence criteria.

1 January 1999: Introduction of the euro, the successor to the ECU (European Currency Unit) created in 1979, as a virtual currency

1 January 2002: Euro introduced in 12 countries (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain).

1 January 2007: Slovenia joins the euro.

1 January 2008: Cyprus and Malta adopt the single currency

1 January 2009: Slovakia adopts the euro

28 September 2000: Denmark decides in a referendum (53.2% no to membership) not to join the euro area

1 January 2011: Estonia adopts the euro

1 January 2014: Latvia adopts the euro

1 January 2015: Lithuania adopts the euro

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