On 1 January 2023 Croatia entered officially the monetary union of the eurozone (EZ), becoming the 20th EU member state to adopt the euro as legitimate currency. At the same time, Croatia became the 27th European country to join the Schengen Area – which today comprises 23 out of 27 EU member states plus the 4 EFTA member states. Croatia’s inclusion in the EZ followed the country’s fulfilment of the so-called “convergence criteria”, also referred to as the “Maastricht criteria”, which consist in a set of binding economic and legal conditions, including stable exchange rates and low inflation. The formal acceptance of Croatia’s accession to the euro was already approved by the Council of the European Union on 12 July 2022, fixing the conversion rate of the Croatian kuna at 7.53450 per euro. Although Croatia represents a small economy, the country is well integrated with the rest of the EZ through comprehensive trade and financial linkages. With a population of roughly 4 million and a GDP that totals 0.5% of the overall EZ’s GDP, Croatia has considered the adoption of the euro as an added value and perhaps a mandatory choice to fully benefit from the European common market and develop its economy. Croatia’s decision to adhere to the EZ originated also from the evaluation of the benefits that Slovenia – a EZ member since January 2007 – obtained by joining the currency union. From a macroeconomic standpoint, the chief benefits that the Croatian economy is expected to gain from the adherence to the EZ comprise the elimination of currency risk vis-à-vis the euro, a positive impact on foreign trade, tourism and investment due to lower transaction costs and greater transparency and comparability of prices, and lower borrowing costs for the economy thanks to well-anchored inflation expectations along with reduced regulatory costs and currency risk. However, along with benefits, the adoption of the single currency could also result in economic costs, including the risk of inflation, the decrease of purchasing power due to the lack of salary adjustments, and the possible cash shortage – particularly that of coins. Also, given the current weakening of the euro and the widespread recession in Europe, it has been questioned whether this was the most opportune moment for Croatia’s accession to the EZ.
Beyond the macroeconomic aspects, Croatia’s inclusion in the EZ bears geopolitical significance. From an historical point of view, Croatia has been repeatedly striving for the definition of its identity. As a border frontline throughout modern history between the Austrian and Ottoman empires, the catholic Balkan country was heavily influenced by the dynamics of imperial rivalry and suffered from a need for self-determination that could never truly manifest until the Second World War. As part of the Belgrade-led Yugoslav kingdom created after the First World War, Croatia felt underrepresented and marginal. However, the first break up of Yugoslavia in 1941 offered the opportunity to overcome Serbian primacy and establish a Greater Croatia in the form a of a Nazi-fascist puppet state headed by the Ustaše leader Ante Pavelić. Still, the end of the war reconfirmed the existence of a Yugoslav state in which Croatia represented a mere federated entity. It was not until 1991 that Croatia could claim once again its independence, looking at Europe as its natural region of belonging. Since the demise of Yugoslavia, Croatia has always attempted to “Europeanize” itself through deeper forms of integration with the European Community, supported by key European countries that have had important historical liaisons with Zagreb, including Germany, Austria, and Italy, as well as the Vatican – all steadfast recognizers of Croatian independence and sovereignty in 1992. In this frame, the “Europeanization” of Croatia has been inversely proportional to the country’s estrangement from Serbia and the Yugoslav legacy.
From a geopolitical point of view, the inclusion of Croatia in the EZ and Schengen Area – in tandem with its 2009 integration into NATO – confirms Zagreb’s willingness to adhere to the Euro-American West and to dissociate itself from its Yugoslav past, specifically with Serbia and its ties with Russia. After thirty years, Croatia’s Euro-Atlanticist shift – which began with the country’s recognition by most Western countries – is now complete. To be sure, Croatia’s European integration has significant repercussions in the context of the Balkan geopolitical rivalry between the EU and Russia. The geopolitical meaning of Croatian “shift towards the West” implies a downsizing of Russian influence in the Western Balkans and a consequent increase of German – and somewhat Italian – strategic penetration in the region. While the role of regional actors such as Russia and Turkey is increasing in the Western Balkans– respectively in Serbia and Republika Srpska and in Albania and Kosovo –, so is the role of European countries that enjoy a tradition of strong bonds with the Balkan-Danubian area like Germany, Austria, and Italy. The current ongoing Western-led integration of the Western Balkans finds obstacles in Russian-inspired, Turkish-inspired, and recently Chinese-inspired regional strategies. Moscow, Ankara, and Beijing are the main actors that currently question the primacy of Brussels and Washington in the Balkan region.
A part from rival geopolitical counterinitiatives, a potential issue that could have forestalled Croatia’s European integration was the relatively widespread Euroscepticism. However, Croatian Euroscepticism, which ultimately revolves around economic anxieties rather than political or ideological matters, occurs mainly among some sectors of the Croatian population, being almost absent among party representatives and political elites. Moreover, unlike other Balkan countries like Serbia, Croatia seems to have overcome its Eurosceptic tendencies through a consistent allegiance towards Western-inspired initiatives, including the pro-Euro-Atlanticist Three Seas Initiative (TSI) – whose first summit took place in Dubrovnik in 2016. Given that the domestic political elites and the Croatian society came to a consensus on the country’s European future and there were no third-party interests that obstructed Croatia, Europeanization in Croatia has been successful. On the other hand, in Serbia, where an anti-Euro-Atlanticist elite remains in power and Russian interests dominate the economy and politics, Europeanization – not to mention “Atlantization” – has been so far unsuccessful. Generally, Croatia has been better able to converge to the EU’s acquis than Serbia due to a less constrained domestic political arena, a minor dependence on regional powers interference in its politics and economics, and a more consistent enlargement strategy followed by the EU.
As for the geo-economic implications of Croatia’s integration in the EZ, the adoption of the euro is expected to contribute to tackling the soaring inflation that is currently affecting Europe, including the increase of energy prices, that followed the Russian-Ukrainian war. In addition, Croatia’s high debt levels imputable both to the overwhelming economic impact of the Covid-19 pandemic and to the war in Ukraine are expected to ease. Crucially, Croatia’s entry into the EZ and its deeper integration into the EU demonstrate how the attractiveness of the common currency has been exploited by Zagreb for political purposes as a remedy to counter Russia’s initiatives to weaken Euro-Atlantic compactness. Thus, the major geo-economic effect of Croatia’s adherence to the EZ rests on the strengthening of the European economic big space vis-à-vis the struggle for expansion of other economic poles – first and foremost Russian-led Eurasian integration and Chinese-inspired trans-Eurasian connectivity projects.
Today, the full-fledged Euro-Atlantic integration of Croatia marks the manifest bulwark of Euro-American penetration in the Balkan region. While the 2009 NATO membership delineated the country’s future strategic alignment, the admission into the EU in 2013 and now into the EZ and Schengen Area imprinted Croatia’s geo-economic character. Finally, after endless debates about its controversial identity, Croatia finds itself as belonging to the greater European family, putting an end to the age-old dispute over its correct placement in the geographical-political and civilizational realm.