Bye kunas, hello euros: Croatia to change its currency in 2023

Eight years after Lithuania, Croatia is set to finally adopt the euro on Jan. 1, 2023. The move is symbolic of Croatia’s desire to move away both from its Communist past and economic struggles.

First Look

The European Union is set on Tuesday to remove the final obstacles to Croatia adopting the euro, enabling the first expansion of the currency bloc in almost a decade just as the euro has dropped to its lowest level against the dollar in 20 years.

EU finance ministers plan at a meeting in Brussels to approve three laws that will pave the way for Croatia to become the 20th member of the eurozone on Jan. 1. The last EU country to join the European single-currency area was Lithuania in 2015.

In the 27-nation EU, adopting the euro offers economic benefits stemming from deeper financial ties with the currency bloc’s other members and from the European Central Bank’s monetary authority. The bank plans to raise interest rates for the first time in 11 years this month to combat record inflation of 8.6%.

More tangibly, it means that any of the current eurozone’s 340 million inhabitants who visit Croatia will no longer need to exchange their cash for Croatian kuna.

Euro entry also has political rewards because the shared currency is Europe’s most ambitious project to integrate nations, giving them a place in the EU core. That means a seat at the EU’s top decision-making tables.

The changes come as euro’s exchange rate very briefly touched $1 for the first time in two decades Tuesday before immediately going back up. There are fears that a worsening energy crisis in Europe tied to Russia’s war in Ukraine could send the economy into a tailspin.

Croatia was itself at war in the early 1990s during the violent breakup of Yugoslavia. The country applied for EU membership in 2003 and joined the bloc in 2013. That was the last time the EU expanded.

In 2012, the Monitor reported on Croatia’s referendum to join the European Union:

With almost all the ballots counted, the electoral commission announced that 67 percent had voted in favor of joining the bloc, with about 33 percent against. ... Prior to the referendum, campaigners in favor of EU membership argued that a “no” vote would cost Croatia some €1.8 billion ($2.3 billion) in EU funding over the next three years – cash that the country sorely needs to revive its economy, flagging like much of the EU. Accession is also of great symbolic importance to Croatia, bringing to a close its painful post-Communist era, during which it suffered economic collapse, fought a bloody war for independence from Yugoslavia, and became embroiled in the Bosnian conflict.

Created in 1999 among 11 countries including Germany and France, the euro has gone through seven previous enlargements starting with Greece in 2001.

The appeal of euro membership is reflected by the last three expansions, which brought in Baltic states between 2011 and 2015.

During that period, the eurozone was scrambling to contain a debt crisis that Greece had triggered and that was threatening to break apart the currency alliance.

A combination of European emergency loans to five financially vulnerable member countries and an European Central Bank (ECB) pledge to do “whatever it takes” to save the euro enabled the currency bloc to weather the turbulence and emerge stronger.

Joining the euro requires a country to meet a set of economic conditions. These relate to low inflation, sound public finances, a stable exchange rate, and limited borrowing costs.

Croatia is relatively small and poor, so its euro entry will have limited international economic implications. The country has a population of around 4 million and per-capita wealth that, at 13,460 euros ($13,500) last year, was less than half of the euro-area average.

Nonetheless, against the backdrop of the Russian war in Ukraine and Kyiv’s hasty application for EU membership, Croatia’s imminent adoption of the euro sends a potentially significant political signal.

The story was reported by the Associated Press.