Eurozone and Schengen Area

What’s in today’s article?

• Why in news?
• What Is the Eurozone?
• What are the requirements for joining the eurozone?
• What is Schengen area?
• News Summary

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 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 all 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.

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What are the requirements for joining the eurozone?

• In order to join the eurozone and use the euro as their currency, EU nations must meet certain criteria consisting of four macroeconomic indicators that focus on: 
  • Price stability.
  • Sound and sustainable public finances.
  • The durability of convergence.
  • Exchange rate stability

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.

How will this move help Croatia?

• Joining Europe’s ID-check-free Schengen zone means Croats will now be able to roam its 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.

Q1) What is eurozone?

Eurozone is a geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency.

Q2) 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.

Source: Croatia rings in New Year as fully integrated EU member  |  European Council of the European Union  |  European Commission