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Croatia: Croatia becomes 28th member of the EU

July 3, 2013

On 1 July, Croatia officially became the 28th country to join the European Union (EU). Formal negotiations had started in October 2001, with the signature of the Stabilisation and Association Agreement (SAA), which marked the first institutional agreement between the EU and Croatia. In February 2003, Croatia applied for membership in the EU, but it was only since October 2005 when the EU started negotiations, after the country fully agreed to cooperate with the International Criminal Tribunal for the former Yugoslavia. Finally, in December 2011, the EU gave the green light for Croatia's accession and, on 22 January 2012, 66.3% of Croatians voted in favour of joining the European Union in a referendum.

With the accession of Croatia to the EU, the country gains access to one of the world's biggest economic blocs, thereby removing trade barriers and allowing free movement of capitals. Moreover, according to the 2012-2020 multi-annual financial framework, the total funds from the EU earmarked for Croatia will amount to EUR 13.7 billion. While Croatia will become a full member of the EU, the country will not yet join the Schengen zone or adopt the euro. Although all member states that do not have an opt-out clause shall adopt the euro once they fulfil the convergence criteria, Croatia does not have a specific calendar to join the common currency. That said, Central Bank Governor Boris Vujcic stated that the country should adopt the euro "as soon as possible", given the fact that Croatia's Central Bank already lacks the ability to independently conduct monetary policy and that the euro is widely used in the country.

Croatia's challenges will remain as the country is mired in a recession for the fifth consecutive year and the government's fiscal position remains fragile. Analysts polled by FocusEconomics expect the fiscal deficit to widen to 4.2% of GDP this year, before narrowing slightly to 3.9% of GDP in 2014. Moreover, authorities will struggle to cope with soaring unemployment, which FocusEconomics panellists expect to reach 20.7% this year and to moderate only to 19.7% in 2014.

The accession of Croatia may also pave the way for other Balkan countries such as Bosnia and Herzegovina, Macedonia, Montenegro and Serbia to join the European Union in the foreseeable future, thereby integrating one of the most unstable parts of Europe into the rest of the continent.


Author: Ricard Torné, Head of Economic Research

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