Two countries in the Balkans use the euro as their main currency, although they are not part of either the European Union or the eurozone. These are Montenegro and Kosovo, which have been using the single European currency for 23 years.
Montenegro seceded from Yugoslavia in 2006, and since 2012 the country has begun negotiations to join the EU. Montenegro is currently one of the most advanced countries in the Western Balkans in the process of European integration, with the country's goal of becoming a member of the Union by 2028.
Kosovo, which seceded from Yugoslavia in 2008, also applied for EU membership at the end of 2022, but the country's candidacy has stalled due to a lack of consensus among the 27 members, as five EU countries - Cyprus, Greece, Romania, Slovakia and Spain - have not yet approved the application. do not recognize Kosovo's independence.
However, the use of the euro could be a problem for the eventual accession of both countries.
Why do Kosovo and Montenegro use the euro without being part of the EU?
According to the website of the Central Bank of Kosovo, the use of the euro in the country was preceded by the widespread use of the German mark during and after the end of the Yugoslav wars due to the lack of a functioning monetary system. In September 1999. The German mark was approved by the UN Mission in Kosovo as one of the main means of payment in the territory of Kosovo, along with other currencies such as the Yugoslav dinar, although no negotiations were held with either the European Central Bank (ECB) or the German central bank, the Bundesbank, in connection with this process.
A similar situation occurred in Montenegro, which also began using the Yugoslav dinar and the German mark in parallel with the permission of the Bundestag in 1999. Since 2001. The country used only the German mark, a measure that was an attempt by the then authorities, led by President Milo Đukanović, to control hyperinflation and the political and economic marginalization of Montenegro by Slobodan Milošević, who was ruling in Belgrade, notes the Montenegrin publication "Radio Titograd".
The then Minister of Finance of Montenegro, Miroslav Ivanišević, believes that the country had no other option, since printing its own currency would be risky due to the expected lack of discipline in the country. Montenegro was excluded from the monetary operations of the National Bank of Yugoslavia, and the Institute for the Calculation of Payments was transferred under the control of the Montenegrin authorities. The decision to use the mark, despite Germany's consent, provoked a strong reaction from Belgrade, but also from international factors.
"We could have chosen - either to remain silent and endure the destruction - currency and any other - of official Belgrade, with devastating consequences for the economy and citizens of Montenegro, or to introduce a foreign currency into the country's payment system," Ivanisevic commented to the Montenegrin publication "Pobieda".
In early 2002, the euro became the official currency in Germany, and with this decision the German mark remained in history. This change caused Kosovo and Montenegro to replace the German mark with the euro.
Unlike the adoption of the German mark, the then Payments and Banking Authority of Kosovo led the transition to the euro in cooperation with the ECB and some of the central banks of the eurozone countries.
With the introduction of the euro, six new banks were established in Kosovo, and the financial sector experienced a significant boom despite the high costs that the country incurred in withdrawing the German mark from the market and introducing the single European currency.
In Montenegro, major changes occurred even with the introduction of the German mark, when the Law on the Central Bank and Banks was adopted, which completely eliminated the Yugoslav dinar from the country's payment system. The United States Agency for International Development and the European Agency for Reconstruction provided technical assistance. A Currency Council and a Central Bank of Montenegro are being established, which will lead the process of adopting the euro as the official currency.
"This process was entirely within the power of the Central Bank. In 2001, we held talks with the European Central Bank and the Bundesbank, but we implemented the operation to introduce the euro with German commercial banks, since we were not part of the European Monetary System," explains Ljubiša Krgović to "Pobieda", who was the chairman of the Currency Council during the introduction of the mark, deputy prime minister for the financial system when the law on banks was adopted, and governor of the Central Bank when the euro was adopted.
Unlike Montenegro, which "cleansed" dinars from its entire payment system with the adoption of the German mark, in Kosovo the dinar and the euro have been used in parallel for years. Only since February 2024 did the Central Bank of Kosovo define the euro as the only currency that can be used for monetary transactions within the country, which caused serious dissatisfaction among Kosovo Serbs and led to a call from the ambassadors of France, Germany, Italy, the United Kingdom and the United States to reconsider the decision.
How does the euro affect the lives of ordinary citizens?
According to Montenegrin experts, the adoption of the euro in the country has made life easier for citizens.
"With the euro, we introduced stability and security. There was a lot of pressure to return to the dinar after the fall of Milosevic, but we had already made a lot of progress in the process of independence in this area," points out Ljubiša Krgović. "With the euro, the EU accession process can be completed much more easily and quickly. It takes away the possibility of politicians influencing currency policy, which was often detrimental in the past. The euro was the basis for foreign investment. It made life and international communication easier for citizens and the economy," he said.
According to Montenegrin economist Predrag Drecun, the mark and the euro are Montenegro's first step towards achieving political independence, which was finally achieved in 2006 with the country's separation from Serbia.
Despite the adoption of the euro as the main currency in Kosovo, the Serbian dinar continues to be used in some regions of the country, and the problem of counterfeit euro banknotes and coins is common. According to the newspaper "Koha ditore", the most frequently counterfeited coins are the "2 euro" coins, which in 2023 Kosovo businesses have asked for help from the institutions.
How will the use of the European currency affect the accession of Kosovo and Montenegro to the EU?
It seems that the premature adoption of the euro in Kosovo and Montenegro is not actually a plus in the EU accession negotiations. Usually, member states join the euro area after they have become members and fulfilled the relevant conditions. The issue is addressed in Chapter 17 of the pre-accession framework "Economic and Monetary Union", and with regard to Montenegro, it has been decided to keep the euro after its accession, but a clear procedure has not yet been proposed.
"If the EU allows us to use the euro despite the criteria that approve its use within the EU, it is possible to cause internal turmoil," notes Predrag Drecun and emphasizes that there are still countries in the EU, such as the Czech Republic, Romania, Sweden, Poland and Hungary, that do not use the European currency. "If they don't allow us, then there is a possibility of great instability in Montenegro, so the question is how such an unstable country can be part of the EU. It's lucky that we are a small economy by the size of the EU and they can turn a blind eye," he added.
Despite Kosovo's desire to join the EU, the process is currently stalled due to the five countries that do not recognize the country's independence, as well as tensions in the northern part of the country, where the majority of the population is Serb.