Brussels Behind the Scenes: Highway to the eurozone

Highway to the eurozone

Croatia is the EU’s newest member and might very soon be the latest country to adopt the euro and join Schengen. The odds are in the Balkan nation’s favour and a booster dose of European integration could be just what the Union needs right now.

European integration and - arguably - unity is at an all-time low. Hungary and Poland are actively spoiling the party, EU enlargement is in a catatonic state and collaborative spending on policies like defence is decreasing.

But this week there was some good news for fans of the ‘ever-closer Union’ genre. Croatia signed up to an EU partnership that will help prepare the country for membership of the eurozone, on what happened to be the 20th anniversary of the single-currency.

The Union’s newest member could join as soon as 1 January 2023, the 10th anniversary of its accession to the EU. Previous predictions that Croatia would have to wait until 2024 have been tweaked thanks to impressive economic performance.

BRUSSELS BEHIND THE SCENES is a weekly newsletter which brings the untold stories about the characters driving the policies affecting our lives. Analysis not found anywhere else, The Brussels Times’ Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels behind the scenes straight to your inbox every week, subscribe to the newsletter here.

Fitch’s, one of the ‘Big 3’ credit rating agencies, recently upgraded Croatia from BBB- to BBB, its highest-ever grading, thanks mainly to the government’s efforts in making structural reforms.

The agency says the main things standing in the way of eurozone membership now are factors outside of Croatia’s control, including pandemic-related economic shocks and a further spike in commodity prices.

So when the European Commission does its assessment of Croatia’s progress in May 2022 and the EU’s ECOFIN council decides later in the summer whether to give the green light, the Adriatic country looks likely to be approved.

Eurozone membership would hurtle Croatia ahead of the likes of Bulgaria and Romania, who joined the EU-proper six years earlier but which are still struggling to get close to the convergence criteria needed to trigger the next stage of the process.

Hungary and Poland also still use their own currencies, despite public support for the single-currency, according to recent EU surveys. The incumbent Brussels-blaming governments are unlikely to pursue eurozone membership anytime soon.

The Czech Republic is getting a new government but its citizens poll the lowest in terms of euro-appreciation. Sweden has also met the club’s criteria for a number of years but has repeatedly insisted it will follow public opinion, which still veers towards ‘no’.

Denmark has codified its opposition to joining the eurozone and still enjoys an opt-out from membership. After the UK left the EU, there was a brief discussion about scrapping opt-outs but that has since faded into background noise.

Whether Croatia will join even with a positive assessment from Brussels is another question. The most recent data suggests that Croatians are in favour of the euro but are very unsure about whether they are ready for it or if it will have a negative impact.

Rightwing eurosceptic forces in Croatian politics want a referendum on the issue, while the ruling party says it is not necessary because voters already accepted the eventuality when they backed the country’s EU membership back in 2012.

Most economists agree that adopting the euro will benefit Croatia, as it will make its economy more resilient, eliminate transaction fees for exporters and likely boost foreign investment.

For a country that is so dependent on tourism, cutting down on currency exchanges will probably lure even more visitors (Covid allowing). Concerns about price rises cannot be discounted though.

Given that Croatia’s economy is one of the EU’s smallest, it is unlikely to have any negative effect on the rest of the eurozone, so the decision is almost purely a political one.

If the hurdles are overcome and the national currency, the kuna, is ditched in favour of the euro, it may have an unexpected regional boost. Neighbouring Montenegro and Kosovo both use the euro unilaterally, in a weird arrangement that has in the past irked Brussels.

Adding a Western Balkans member to the eurozone club could inject some life back into the stalled EU membership process as well. However, enlargement will still rely on a significant change of political winds elsewhere in Europe first.

Croatia’s eurozone membership may also coincide with a revamp of the euro banknotes. The European Central Bank launched a consultation process this week, looking for ideas about what to put on the next-generation of cash.

The current designs are fictional bridges that represent different architectural styles, which could be replaced by famous Europeans, actual landmarks or something more abstract. The sky is apparently the limit.

Earlier this year, Croatia’s national bank indicated that it would put Nikola Tesla, the pioneer of alternating current electricity, on its euro coins. That sparked a predictable backlash from Belgrade, as Tesla is claimed by both Croatia and Serbia, despite spending much of his life in the United States.

Travel, hassle-free

Croatians may also enjoy passport-free travel within the Schengen area soon, after the European Council gave a positive appraisal of the country’s adherence to the joining criteria this week.

The Commission has already said that all of the requirements have been met but the Council-proper will have to give the green light before Croatia can scrap border checks on its frontiers with Slovenia and Hungary.

Slovenia was in the past a relatively significant hurdle for its southern neighbour, as an ongoing maritime border spat meant Ljubljana threatened to block Croatia’s Schengen membership until it was all resolved.

However, Slovenia’s six months leading the EU presidency has put the country in a neutral position and prime ministers Janez Janša and Andrej Plenković - both members of the EPP group - have normalised relations to an extent.

The Bosnian-Croatian border would become Schengen’s external border in this case, which could potentially throw more light on Croatia’s conduct in dealing with migrants and refugees on that particular frontier.

Investigative reports and the Council of Europe have all slammed the Croatian authorities for mistreating and abusing people. That has, regrettably, provoked little meaningful response from the likes of the Commission or European Council.

If Zagreb does get the green light, Croatia might well be the last country to join Schengen for quite some time, given that French President Emmanuel Macron wants to retool the passport-free zone and add a more politicised dimension to membership.

That muddies the waters for the likes of Bulgaria and Romania, who are also yet to join and who might see their bids put on ice if Macron’s agenda gains further traction in Brussels. It may already be too late for them.

Croatia is having one hell of a year really, in addition to these developments, the United States announced back in September that it would add the Balkan nation to its visa waiver programme.

Momentum is building and it would be very difficult for anyone to argue that Croatia is not a bonafide EU member. Whether Croatians themselves feel like EU citizens is an entirely different question of course and a topic for another column some other time.

BRUSSELS BEHIND THE SCENES is a weekly newsletter which brings the untold stories about the characters driving the policies affecting our lives. Analysis not found anywhere else, The Brussels Times’ Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels behind the scenes straight to your inbox every week, subscribe to the newsletter here.