Croatia joins euro club, but region under strain

Croatia officially adopted the euro as its currency and entered the passport-free Schengen Area on New Year's Day, with the moves signaling the country's deeper integration into the European Union at a time of high inflation in the bloc and weakness in the single currency.

The twin developments make Croatia the 20th member of the eurozone, which includes 347 million EU citizens, and the 27th member of the Schengen Area, home to 420 million people. They also came nearly 10 years after Croatia joined the EU on July 1, 2013.

The European Commission said the euro will deliver practical benefits to Croatian citizens and businesses, such as by making traveling and living abroad easier, boosting the transparency and competitiveness of markets, and facilitating trade.

Entry into the Schengen Area is expected to boost the country's tourism industry, which accounts for 20 percent of its GDP.

Fitch, Moody's and Standard &Poor's raised their credit ratings for Croatia after the country got approval in July from the commission and eurozone finance ministers to adopt the euro.

Croatian Prime Minister Andrej Plenkovic on Wednesday described the decisions to join the eurozone and Schengen as "two strategic goals of a deeper EU integration".

The border and customs checks at crossings between Croatia and other Schengen member states were abolished on Sunday for people traveling by road, rail or water. But the screening of those traveling by plane will end on March 26 due to technical issues, especially relating to the International Air Transport Association.

Croatia has also started enhancing border controls with non-EU neighbors Bosnia and Herzegovina, Montenegro and Serbia. The fight against illegal migration is viewed as a key challenge along the EU's longest external land border of 1,350 kilometers.

Starting from Sunday, the euro is gradually replacing the kuna as the currency of Croatia at a rate of 1 euro for 7.7345 kunas.

The two currencies will be used alongside each other for two weeks. When people receive payment in kuna, the change will be given in euros to ensure the progressive withdrawal of the kuna from circulation. According to the European Commission, 70 percent of the ATMs in Croatia were distributing euro banknotes on Jan 1. The rest will follow within two weeks.

European Central Bank President Christine Lagarde said that for Croatia to join the eurozone is an "incredible success".

"It's wonderful to welcome the 20th member to the family as we round off celebrations of the 20th anniversary of euro cash," she said.

The European Central Bank has been fighting high inflation and an economic slowdown.

The euro fell below parity against the US dollar this summer and remains weak despite regaining some ground lately.

Before Croatia entered into the eurozone, the three Baltic states of Estonia, Latvia and Lithuania were the last to switch to the euro — in, respectively, 2011, 2014 and 2015.

Agencies contributed to the story.