EM Daily Focus
By Padmashree Anandhan

Croatia adopts Euro and joins the Schengen area

On 30 December, European Commission in its press release announced the approval of Croatia to join the Schengen area and the eurozone. EU Commission President Ursula von der Leyen said: “I warmly welcome Croatia in the euro and in the Schengen free travel area…Schengen enlargement makes us stronger, and Croatia can now fully contribute.” On 01 January 2023, Croatia adopted the euro as its currency and became the eighth country to join the Schengen area. According to Croatian Prime Minister Andrej Plenkovic: “….we witness the achievement of strategic goals of a state — this is such a day."

Will the currency conversion affect the economy?
Croatia joining the Eurozone would mean the replacement of kuna (National currency) with euro at a set conversion rate of EUR one for HRK 7.53450 (Croatian kuna). This alarming conversion has raised concerns among consumers about being exploited through high prices by businesses providing goods and services. The EU has introduced a dual price display plan where both currencies will be in use for the next two weeks to allow a complete removal of kuna from the currency market. The prices of kuna and euro will be displayed till 31 December 2023, to ensure the protection of customers from unfair prices.

Additionally, a “Business Code of Ethics” will be followed to ensure the maintenance of stable prices for goods and services. The financial agency and post officer will facilitate the exchange or circulation of kuna banknotes with euro banknotes till 31 December 2023. The monitoring mechanism and the appointment of “consumer protection associations” are observed to keep a check on businesses from trading at unfair prices but in the case of a “business to business” transaction, it is exempt. Although the mechanism does seem positive, the timing of Croatia joining the Eurozone does not seem convincing. Since the Ukraine war and energy crisis that has hit Europe, the value of the euro is on the rising trend, if a financial crisis is declared later in 2023, as a follower of the single currency, will directly impact Croatia’s economy. Imagining a repetition of similar instances such as the 2008 financial crisis, being a euro or a non-euro country does not account for the impact observed to be the same.

Will the impact be positive or negative on Croatia's businesses being part of the Schengen area?
Tourism
The tourism industry comprises one-fifth of Croatia’s GDP and joining the Schengen area will be a boost for tourism. This would be possible as the crossing “between Croatia and Slovenia in the north” which sees many polish travelers in summer will now be free of checks. Without land, sea, and air control, travel is expected to boom with the removal of checks from 26 European countries, thereby promoting more movement.

Businesses: Health and construction sector
For the businesses, financial statements will remain in the HRK till 2022 and from 01 January 2023, they will be prepared in EUR and for employees, salaries will remain in HRK, which will be converted to EUR as per the conversion rules.

According to professor of Business and Economics, Albert Guivernau, Eurozone supports stability and helps in increasing capital mobility but does not provide worker mobility at the same level. In terms of economic growth, the euro countries experienced a “solid level of growth,” but it was not the same in the reduction of the unemployment rate. In Guivernau’s view, this was due to: “Evidence of the rigidity of prices and the divergence of production structures.”

Although joining the eurozone and Schengen area can help accumulate capital to impact businesses positively, the state of labour force remains a question. Croatia which has been facing a massive “general labour shortage” since accession to the EU, especially in health in construction sectors, joining the Schengen area can add more to the outflow. Since Croatia’s migration policy is observed to be restrictive and less integrated, the new situation might further push the government to adopt a friendly policy for migrant workers to convert capital into growth.
 
References
“Euro and Schengen: Croatia joins the Euro and Schengen areas,” ec.europa.eu, 30 December 2022
“ECONOMIC IMPACT OF MEMBERSHIP OF THE EUROZONE,” Universitat Abat Oliba CEU, 03 November 2021
“Enlargement of the Eurozone: Road Map to the Introduction of the Euro in Croatia,” Wolf Theiss, 23 August 2022
Lauren Simmonds, “A Week in Croatian Politics - A Schengen and Eurozone Special,” Total Croatia news, 30 December 2022
Michael Martens “Croatian double boom,” Frankfurter Allgemeine, 01 January 2023

IN BRIEF
By Allen Joe Mathew

AUSTRIA
Parliament releases regulation for taxes, CO2, allowance, and pension benefit for 2023
On 01 January, Austria’s parliament declared its new rules for 2023. The tax increase, known as the “cold progression” has been abolished, and this will lead to a person earning EUR 31 more per month. The CO2 tax has been enforced more strongly now with the revised tax, the law now states EUR 32.50 tax per ton of CO2 consumed. This law will affect motorists in particular. The family allowance amount has been increased from EUR 120 to EUR 165.10. The school start allowance scheme which provides EUR 100 per child is to be reintroduced from August 2023. New rules for waste segregation have been introduced, more plastic waste is now allowed in the yellow bins, whereas the collection of light packaging is to be standardized. The pension benefits for those who earn less than EUR 5,670 a month have been increased to 5.8 per cent, and starting March 2023 a EUR 500 direct cash transfer scheme will commence. (“Salaries, cash bonuses and regulations – What awaits Austrians in 2023?,” Austrian Press, 01 January 2023)
 
CYPRUS
Ex-transport minister drops out from the presidential bid
On 02 January, the Ex-Transport Minister, Marios Eliades announced that he had withdrawn his nomination for the President’s post. Eliades had announced his candidacy 14 months earlier and was on the campaign trail trying to build coalitions with other parties. After pulling out of the race, Eliades said, “Parties as well as presidential candidates, who share concerns with me, have remained attached to their initial plans, not caring if they are dead ends and most likely doomed to electoral failure.” Previously associated with the Edek party during the late 1970s and early 1980s, he becmae the Transport Minister of Cyprus. He did not reveal if he would be supporting any candidate or not, stating that the country needs an honest and progressive to lead the people. He did state that he would never abstain from casting his vote as that was a duty of each citizen. (Andria Kades, “Eliades withdraws from presidential race,” Cyprus Mail, 02 January 2022) 

FINLAND
Higher Female participation in military service and training says Finnish Defence Force
On 30 December 2022, the Finnish Defence Forces released data on women who underwent military training in 2022. The data revealed that in 2022, the highest number of women took up voluntary military service, and in total, more than 12,000 women had undergone training. 2022 was the first year that the number of women the Finnish Defence Forces are training/g in a single year went above 1,000. Finnish society’s view on women in the military largely seems to be changing as suggested by the results of a recent survey by the Uutissuomalainen, a Finnish newspaper group. Out of the people surveyed 35 per cent have stated that they support mandatory conscription for women. In the Finnish Parliament, one-third of all the MPs support this idea too. The majority still is against the idea of female conscription, both among the public and the parliament. This debate has been continuing in the country for many months and gained relevance after the Russian invasion. (“Record number of women volunteer for military service in 2022,” yle.fi, 20 December 2022)
 
Forecasts predict slow economy growth in 2023
On 02 January, the Ministry of Finance announced that Finland is staring at a period of slow growth, and consumer price rise in 2023. The statement came with the release of the latest economic forecast for 2023, in which the GDP is expected to contract by 0.2 per cent. This is not a new warning as experts from various fields have been warning of a looming recession in early 2023. On 16 December 2022, Bank of Finland, the Head of forecasting at the  Meri Obstbaum said: “National economy will contract by half a per cent year-on-year in 2023.” This has been attributed to the energy crisis facing Europe, causing the rise in the cost of living. The statement from the Ministry of Finance indicates that Finland’s economy will only recover in 2024, as inflation will recede and consumption will rise. The price rise due to the pandemic will reduce as supply chain bottlenecks get removed and raw material prices stabilize. A Financial Advisor at the Ministry of Finance, Jenni Paakkoen said:  “Public debt as a proportion of gross domestic product will decrease this year by almost a percentage point to 71.7 per cent. The decrease is attributable to the injection of tax revenue provided by robust economic growth and solid employment situation.” (“Finnish economy to slide into recession in 2023, say Ministry of Finance, Bank of Finland,” Helsinki Times, 02 January 2023)
 
GERMANY 
Climate Activists go to extreme lengths to push for climate goals
On 02 January, The New York Times published an article illustrating how climate activists belonging to a group known as “Last Generation” are using extreme tactics to get the government’s and public attention. They have been in the news for various other incidents, like desecrating a Christmas tree in Germany, heckling Parliamentarians, disrupting concerts, and throwing paint on famous paintings in museums. The group Last Generation was founded in 2021, when a group of activists went on a hunger strike in front of the German Parliament, since then they have grown in numbers and are non-well-established. The latest method they are using is blocking traffic, by walking onto highways wearing yellow vests. The German public as well as the government have both taken note of their issues, as well as their disruptive tactics. The debate now rages, about how much is too much while protesting. This is leading to internal discussions among the activists as well if these actions are bringing the common people towards or away from the environmental cause. These actions also make the activists an easy target for right-wing conservative politicians, in particular the opposition parties in the German Parliament. Describing the protests a researcher studying protests at the WZB Social Science Centre, Daniel Saldivia Gonzatii says, “They mix claims really easy to implement, majority-winning policy claims — things that are quite accessible for a majority of the population — with a system criticism.” (Christopher F. Schuetze, “Climate Activists Find a Way to Get Germany’s Attention: Stop Traffic,” The New York Times, 02 January 2023)
  
NORWAY
Electric car sales record highest growth in 2022
On 02 January, the Norwegian Road Federation released the data of vehicle sales and registrations in 2022. The data shows electric cars recorded the highest growth in sales, with four out of every fifth car registered being an electric vehicle. Compared to 2021, electric car sales have gone up by 14.3 per cent to an all time high of 79.3 per cent in 2022. The US electric automaker, Tesla sold the highest number of vehicles out of all the electric cars sold in the country. Tesla has become the market leader for the second year in a row after 2021. In the EU, Norway has lead the path in switching over to electric cars. Norway’s policies incentivized buying and owning electric vehicles but this has changed in 2023. The tax exceptions on electric cars have been removed starting 01 January 2023. The government stated that tax exemptions had costed the government USD four billion in 2022, and will not be feasible in the long run. (“Norway: Electric car sales soar, setting new record,” Deutsche Welle, 02 January 2023)
 
RUSSIA
Effects of the war felt on new year celebrations
On 30 December 2022, The Moscow Times reported on the New Year celebrations and the public mood in the country. This is Russia’s first new year after the war in Ukraine began. Since then, it is estimated that around 1,00,000 Russian soldiers have lost their lives. The men fighting in the eastern and southern regions of Ukraine do not see any hope of returning back to families and celebrating together, nor do they see when would the war end. In Russia itself, war messaging has become normalized and a part of everyday life, as the pro-war symbols “Z” and “V” have been put up in public places. Criticism of the war is not tolerated and leads to immediate detention, nearly 19,500 were detained under these charges in 2022. Many young Russians have left the country, fearing forced conscription or due to being anti-war. Russia’s neighbouring countries of Georgia, Armenia, Kazakhstan and Kyrgyzstan have seen the arrival of tens of thousands of Russians in 2022. (Anastasia Tenisheva, “‘Where Are We Heading?’: Wartime New Year Prompts Russian Soul-Searching,” The Moscow Times, 30 December 2022) 

REGIONAL
30th Anniversary of Czechoslovakia dissolution
On 31 December 2022, the Czech Republic and Slovakia marked the 30th anniversary of the breakup of erstwhile Czechoslovakia. The country had got divided without a referendum and just based on an agreement between two Prime Ministers. There was a peaceful division afterwards, without any conflict or life being lost. The people of both countries still reminisce about the days when both counties used to be one. Many citizens inhabit the border areas and freely move to and fro across the border. Alliances and friendships are common among people. The only conflict to have happened is over the division of the fishing rights in the various rivers flowing through both countries, the situation never escalated to require any involvement from the police. The main difference being Slovakia adopted the Euro whereas the Czech Republic is still using its old currency. The citizens of both countries speak of the day the federal state got divided with nostalgia, recalling New Year’s Eve of 1992 when they sang the whole Czechoslovakia anthem. (Rob Cameron, “Czechoslovakia: Czechs and Slovaks mark 30 years since Velvet Divorce,” BBC, 02 December 2023)
 
NATO study on Baltic China relations released
On 20 December 2022, a NATO-funded study on relations with China conducted jointly by political scientists from Latvia, Estonia and Lithuania released a report. The study found that over the past 30 years, the Baltic-Chinese relationship has had both highs and lows. The methodology of the study included surveys among the citizens to know their opinion on China, and analyzing the bilateral ties and economic cooperation between the Baltic countries and China. China does not have many economic interests in the region, therefore most of the Baltic countries do not see China as a threat or competitor. Lithuania was the one exception, as the country has been blocked economically by China due to its opening an embassy in Taiwan. Estonia and Latvia have a less critical view of China, with the major issues of concern being Taiwan, Tibet and China’s relationship with Russia. The report concludes by stating that the majority of people have a neutral view towards China, with more than 40 per cent of people in the three countries selecting neutral. (“Baltic-China relations at one of the lowest points, study finds,” LRT.lt, 30 December 2022)

SCIENCE & TECHNOLOGY 
Thrush Nightingale named as Latvia’s Bird of the Year
On 02 January, the Latvian Ornithological Society picked the Thrush Nightingale as its bird of the year. This is in homage to Ukraine and to bring attention towards the conservation efforts for the Nightingale. The President of the Society, Andris Dekants while announcing the winner said, “Hearing the nightingale's song in nature in the spring, this year we invite you not only to enjoy the attractive voice of this bird, but also to think about how each of us can support Ukraine and Ukrainians and their efforts for independence.” The Nightingale can usually be spotted during the months of May and June, as they migrate from Africa at the end of April. The population of the Nightingale has fallen by a quarter of what it was in 2005, the society in its announcement stated. Dekantis in conclusion said, “This is one of the rare times when the Bird of the Year role is a songbird that is not characterized by expressive plumage, but by a bright song. Therefore, we invite residents to not only notice, but also hear the voices of birds in nature and try to recognize them." (“Nightingale is Latvia's bird of the year,” Latvia Public Broadcasting, 02 January 2023)
 
INTERNATIONAL
Austria-India hold bilateral talks, agreement to combat illegal migration signed
On 01 January, India’s External Affairs Minister, S. Jaishankar met with Austria’s Foreign Minister, Alexander Schallenberg and the two spoke of bilateral and international issues concerning the two countries. They signed a joint “Comprehensive Migration and Mobility Partnership Agreement” (MMPA) on 01 January. India views this agreement as a stepping stone to finalizing the India-European Union Free Trade Agreement. Previously, India has signed joint MMPA’s with other European Countries like France, the UK, Germany and Finland. The agreement helps to combat illegal migration to Austria, as India is one of the leading countries from which illegal migrants arrive in the country. In 2022, Austria received 15,000 illegal migrants of India origin. A spokesperson to the Austrian Foreign Ministry, Claudia Turtscher said, “The agreement is now a useful tool to combat illegal migration together, as it enables the swift return of illegal migrants.” The agreement also includes provisions for students and working professionals. The Austrian Foreign Minister spoke about India’s G-20 Presidency, the opportunity that provides and commented on India’s position on the Ukraine War, saying these are the two major issues that form the agenda.  (Kallol Bhattacherjee, ““Exploding number” of illegal immigrants from India came to Austria last year, says Austrian Foreign Minister,” The Hindu, 02 January 2023; Suhasini Haider, “India and Austria to sign migration and mobility agreement, shore up ties,” The Hindu, 01 January 2023)