Why in news?

• Croatia adopted the European Union’s common currency, the euro, and joined the Schengen Area, Europe’s visa-free travel area, on January 1.
• With this, Croatia became the fully integrated member of EU. The country had joined the EU in 2013.
  • It was the last time a country was admitted as a new member nation of EU.
• 

What’s in today’s article?

• Eurozone – About, requirements
• Schengen Area
• News Summary

What Is the Eurozone?

• All European Union Member States are part of Economic and Monetary Union (EMU) and coordinate their economic policy-making to support the economic aims of the EU.
• However, a number of Member States have taken a step further by replacing their national currencies with the single currency – the euro.
• These Member States form the euro area, also known as eurozone.
• In other words, it is a geographic and economic region that consists of the European Union countries that have fully incorporated the euro as their national currency.
• As of January 2023, the eurozone consists of 20 countries in the European Union (EU):
  • Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.

What are the requirements for joining the eurozone?

• In order to join the eurozone and use euro as their currency, EU nations must meet certain criteria consisting of four macroeconomic indicators that focus on:
  • Price stability by demonstrating sustainable price performance and average inflation no more than 1.5 percent above the rate of the three best-performing member states.
  • Sound and sustainable public finances - the government must run a budget deficit no greater than 3% of GDP and hold public debt no greater than 60% of GDP.
  • The durability of convergence – It is assessed through its long-term interest rates, which cannot be more than 2 percent above the rate in the three member states with the most stable prices.
  • Exchange rate stability - The nation must demonstrate exchange rate stability by participating in the Exchange Rate Mechanism (ERM) II for at least two years without severe tensions and without devaluing against the euro.

What is Schengen area?

• Schengen Area signifies a zone where 27 European countries, abolished their internal borders, for the free and unrestricted movement of people.
  • Croatia became the 27^th nation in the passport free Schengen zone.
• Member of this area include: 23 of the 27 EU member states and all members of the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland).
• Being part of this area means that countries:
  • do not carry out checks at their internal borders, except in cases of specific threats;
  • carry out harmonised controls at their external borders, based on clearly defined criteria.

News Summary

• On January 1, 2023, Croatia switched to the shared European currency, the euro, and removed dozens of border checkpoints to join the world’s largest passport-free travel area.

Will this move help Croatia?

• Joining Europe's ID-check-free Schengen zone means Croats will now be able to roam 27 member countries without passports for work or leisure.
• Adopting the euro will offer Croatia the benefits stemming from deeper financial ties with the currency’s 19 other users and with the European Central Bank.
• It will also make traveling and doing business easier, removing the hassle of currency exchange for Croats going abroad and for tens of thousands of tourists.
• Experts also believe that the adoption of the euro will help protect Croatia’s economy at a time when inflation has been soaring globally due to Russia-Ukraine war.
• It will also provide a boost to tourism industry, which accounts for 20% of the country’s GDP.

What are the challenges?

• The country is entering the eurozone at a time when the bloc itself is in turmoil as the European Central Bank (ECB) tries to tame inflation.
• Before this, ECB was busy in rekindling the growth which was exceptionally low following the 2008 financial crisis.
• Also, Croatia will have to apply strict border control on its eastern frontier with non-EU neighbours.
• The fight against illegal migration remains the key challenge in guarding the EU’s longest external land border at 1350 km.