Croatia enters the euro and Schengen on the same day: what the double accession proves

On 1 January 2023 Croatia became the twentieth Member State to use the euro and the first country to join the Schengen area in eleven years[1]. The two events fell on the same day. The Commission calls the Schengen step the eighth enlargement of the area and says that 420 million people can now travel between its members without border checks[1]. The euro area now counts twenty Member States and 347 million citizens[1]. Croatia joined the Union in 2013[1]. For a generation that has only known a Union with a single currency and open borders, the Croatian case shows what both still require of a Member State.

Two legal routes with the same end date

The euro route ran through the Treaty's convergence procedure. On 1 June 2022 the Commission published its Convergence Report and found that Croatia met all four nominal criteria: price stability, public finances, the exchange rate and the long-term interest rate[5]. The Commission assessed seven Member States. Only Croatia met every criterion and had monetary legislation fully compatible with the Treaty and the Statute of the ESCB[5]. The exchange-rate criterion had been met since 10 July 2020, when the kuna entered ERM II at a central rate of 7.53450 kuna per euro with the standard fluctuation band of plus or minus 15 per cent[4].

The Council completed the procedure on 12 July 2022. It adopted Council Decision (EU) 2022/1211 on the adoption of the euro by Croatia, Council Regulation (EU) 2022/1207 on the introduction of the euro and Council Regulation (EU) 2022/1208 on the conversion rate[3]. The rate fixed in the Regulation is the ERM II central rate of 7.53450 kuna per euro[2].

The Schengen route ran through evaluation and unanimity. Croatia already applied parts of the Schengen acquis after accession, including the rules on external border controls, police cooperation and the Schengen Information System[6]. The lifting of internal border controls required a verification under the Schengen evaluation procedure and then a unanimous Council decision[6]. The evaluation ran from 2016 to 2020 and included a targeted verification visit in 2020[1]. The Council concluded in December 2021 that Croatia fulfilled the conditions[6]. On 8 December 2022 the Council adopted the decision on the full application of the Schengen acquis in Croatia[6]. Checks at internal land and sea borders ended on 1 January 2023, and checks at internal air borders end on 26 March 2023[6]. From 1 January Croatia issues Schengen visas[6]. Croatia will be evaluated again within one year[1].

The exclusion of Bulgaria and Romania

The same Council meeting of 8 December 2022 refused Bulgaria and Romania. Austria blocked both. The Netherlands supported Romania and opposed Bulgaria[7]. The two countries were voted on as one item, and the Czech interior minister, Vít Rakušan, said that decoupling them was not possible "from a legal point of view"[7]. The Austrian interior minister, Gerhard Karner, justified the veto by the number of irregular border crossings recorded in Austria in 2022. The Dutch objection to Bulgaria concerned the rule of law and pending legislation on corruption and organised crime[7]. The Commissioner for Home Affairs, Ylva Johansson, said that Romania and Bulgaria "are fulfilling all the requirements"[7]. The Commission has considered both countries ready since 2011[7]. The European Parliament had asked the Council to admit them in a resolution of October 2022[11].

We draw one conclusion from the contrast. The Schengen evaluation procedure measures whether a Member State can manage the external border and share data. The unanimity rule allows one Member State to add conditions that the procedure does not contain. Croatia passed through the second filter because no capital chose to use it. Bulgaria and Romania did not. The rule of law concern raised against Bulgaria is legitimate as a Union concern. It belongs to the Article 7 procedure and the conditionality Regulation, where it can be examined on evidence. It does not belong to a border vote where no evidence is required.

Prices, trust and the first week

The Croatian public was divided[10]. A Eurobarometer survey conducted in April 2022 found that 55 per cent of Croatians supported adopting the euro, seven points less than a year earlier, and that 81 per cent expected the euro to raise prices[8]. The changeover rules were designed against that fear. Prices had to be displayed in both currencies from 5 September 2022 and must remain so until 31 December 2023. The kuna and the euro circulate together for two weeks. The authorities track the prices of 103 frequently purchased products and services[1].

The fear was not groundless. Within days of the changeover, citizens filed complaints about prices rounded upwards. On 5 January the prime minister, Andrej Plenković, told his cabinet that the increases were "completely unjustified" and promised state action against anyone who raised prices without justification. The State Inspectorate and the tax and customs authorities were instructed to act on irregularities. The economy minister, Davor Filipović, announced a digital platform to monitor prices[9]. We consider that the government's reaction is correct in law and late in practice. The Code of Ethics for businesses is voluntary[1]. A voluntary code cannot stop a retailer who prefers a round figure in euro to an exact conversion.

Four lessons follow for the Union and for the next candidates. First, the euro area and Schengen should keep their separate legal routes, because the Croatian case shows that a country can satisfy both at once when the criteria are objective and the timetable is known. Second, the Council should decouple Bulgaria and Romania and vote on each country against the Schengen evaluation alone, since the legal argument against separate votes deserves a written opinion from the Council Legal Service. Third, the Commission should publish, before the next changeover, a comparative study of the rounding effect in Croatia based on the 103 monitored products, so that the next Member State can write a binding price rule in place of a voluntary code. Fourth, our generation should describe the Croatian accession as the ordinary working of the Treaties: Croatia met the conditions, and the Union kept its word.