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The 1st of January 2023 is a big day for Croatia - new currency and border controls

Written by  Dec 31, 2022

The 1st of January 2023 is a big day for Croatia. A day when Croatia becomes an even closer member of the European Union. The year starts with Croatia entering two of the most important EU cornerstones, the Schengen border-free zone and adopting the Euro as the official currency. Two incredibly central beliefs of the EU will come into effect on the same day, as Croatia dives even deeper into European integration.

So what can we expect from both of these moves. What will change? What are the advantages and disadvantages?

Starting with the Euro, the official currency of 19 out of the 27 member states of the European Union, and the end of the Kuna. Now, Croatia has for a long time been a country that has co-existed with the Euro. All major transactions are done in Euros, from houses to cars and land. The vast majority of savings in Croatia are in Euros. In many ways it was inevitable that the Euro would replace the Kuna. Joining the euro will mean the possibility of cheaper borrowing and easier access to the financial market, which both the government and the Croatian National Bank point out as one of the main motives for joining.

The tourism industry, one of the largest contributors to GDP, will benefit for sure. Tourists and cruise ship passengers will no longer have the dilemma of having to exchange currency and the costs involved. “Without a doubt the introduction of the Euro will be a huge boost for tourism. The problem that we have with the Kuna now is that tourists just don’t know what to do with them when they go home. With the introduction of the Euro it will be much easier for visitors to understand what they are spending and they’ll also be able to spend their Euros in other countries in Europe. They will also probably spend more,” explained Ivan Vuković a leading guide in Dubrovnik. The euro is already widely used in tourism in Croatia, so the benefit of making an official currency are clear. And that’s not mentioning the benefits for Croatians travelling to the Eurozone.

However, Croatia is actually joining the Eurozone in a time of financial crisis for the whole of the Union. Due to the war in Ukraine, the pressure on the energy sector and the aftereffects of the Covid-19 pandemic the European Union is facing record levels of inflation. Recession could well follow. Inflation in Croatia is higher than in the Eurozone. Coincidently Croatia signed up to adopt the Euro as the official currency on the same day that the Euro hit the lowest price against the dollar since 2002. One of the biggest fears from Croatian citizens is the possible rise in prices when the Euro comes. There could well be price rises, but these could also be more connected to the current financial situation and the high level of inflation than the new currency. Inflation in Croatia in November 2022 reached 13.5 percent. Higher than the Eurozone which was 10.1 percent.

And entry into the border-free European Union zone, the so called Schengen Zone, will undoubtedly be another boost for tourism, and also for trade.

So what are the advantages of joining the border-less Schengen zone? Schengen is the world’s largest border free region, with around 400 million people. Whilst Croatia has had all the benefits of trade with the EU since it became a full member in June 2013 it has still been outside of the Schengen area meaning extra paperwork and unwanted bureaucracy at the land borders with both Slovenia and Hungary. In fact, Croatia has 83 land borders with both these countries. And as the EU is by far Croatia’s most important trade partner any hindrance to the flow of goods is unwanted. The acceleration also brings a reduction in the cost of transporting goods, which many exporters are looking forward to. “In our case, it could be about 10 percent off the top of my head, but saving time is the most important thing for us," commented exporter Ratko Čoporda to N1. The long queues of trucks to and from the EU will soon be a thing of the past.

Another major plus for Croatia entering the Schengen zone is tourism. Tourism accounts for around 20 percent of the Croatian GDP and in pre-pandemic 2019 around 20 million tourists arrived. In fact, Croatia's travel and tourism industries contribute a higher share of GDP than any other EU member state. And a large proportion of tourists arrive on vacation in Croatia by car. In 2019 around half of the 20 million tourists arrived by car. So clearly, the waving of the current border system will not only help cars flow quicker but also attract more tourists to holiday in Croatia.

 

The Voice of Dubrovnik

THE VOICE OF DUBROVNIK


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