Euro without Zone: the cases of Kosovo* and Montenegro

Introduction

If you travel across Montenegro or Kosovo, you may be surprised to find yourself paying with Euros, even though neither country is a member of the European Union or the Eurozone. This unusual situation often raises legitimate questions: How is this possible? Is it legal? And what does it mean for their EU integration?

As the youngest and smallest states of the Western Balkans, sharing a border, Montenegro and Kosovo are the only economies that use the euro without having a formal agreement with the EU. Unlike countries such as Croatia and Bulgaria, which respectively joined the eurozone in 2023 and 2026, or microstates like Monaco and San Marino, which use the euro under official monetary agreements, Montenegro and Kosovo adopted the euro unilaterally. This means that they do not mint euro coins, they do not have access to the European Central Bank (ECB) and its services, and they do not participate in eurozone decision-making. Yet, the euro is the sole official tender in both economies.

This article will delve into the unique cases of Montenegro and Kosovo’s use of the Euro currency. Taking off from the history of their euro adoption, linked to the collapse of Yugoslavia, and a quick dip into EU law, the article will build on the benefits and challenges of such a policy choice and the consequences for Montenegro’s and Kosovo’s potential EU accession process.

Why it all started: The Yugoslav Dinar Crisis

To understand why Kosovo and Montenegro decided to unilaterally adopt the euro, we need to go back to the 1990s, when the Socialist Federal Republic of Yugoslavia collapsed: the loss of monetary and fiscal control, the escalation of violent conflicts in the region, and the international economic embargo imposed on what was left of Yugoslavia sparked a deep economic crisis and further disrupted the internal political and economic stability (Petrović et al., 1999).

Indeed, this period was characterised by a devastating hyperinflation. Caused by excessive money supply, the Yugoslav hyperinflation ranks among the longest and highest in global history, after the 1946 Hungarian and the 2008 Zimbabwe ones. Between 1992 and 1994, inflation in Yugoslavia (at that moment only formed by Serbia, Montenegro, and today’s Kosovo) reached monthly rates of 313 million per cent (Petrović et al., 1999).

For ordinary citizens, money became unreliable. As their savings were being wiped out overnight, they quickly lost trust in state institutions. Economic and monetary instability pushed them towards foreign currencies, especially the strong and stable German Deutsche Mark, as a store of value and medium of exchange.

In the late 1990s, Montenegro was still formally part of the Federal Republic of Yugoslavia, together with Serbia, but politically it was slowly distancing itself from Belgrade and Milosevic’s policies. To protect its citizens from inflation, stabilise the economy, and reduce dependence on Serbian institutions, in 1999, Montenegro’s pro-independence government, led by President Milo Đukanović, decided to adopt the German Mark. After a transitional period during which the Yugoslav Dinar and the German Mark circulated alongside in the small Republic, the Mark became the sole legal tender in the year 2000 (Breffni O'Rourke, 2000). Once Germany adopted the euro in 2002, Montenegro automatically switched to the same currency, also marking a symbolic step towards the European Union, long before its EU membership became a realistic prospect.

Kosovo’s case is more closely tied to conflict and international administration. After the 1999 war, Kosovo came under UN administration (UNMIK). The Yugoslav dinar was associated not only with economic instability but also with Serbian state authority, which Kosovo Albanians overwhelmingly rejected. While UNMIK did not impose a new national currency, the German Mark was already common inside the territory of Kosovo, also due to the remittances from the Kosovar diaspora and direct foreign aid transactions completed in the German currency. In 1999, UNMIK officially adopted the German Mark with the intention of stabilising the economy (Svetchine, n.d.). Similarly to Montenegro, once Germany transitioned to the euro in 2002, Kosovo adopted the European currency as well (BQK, 2024). For Kosovo, the euro provided some kind of neutrality in a deeply divided society, facilitated reconstruction and humanitarian aid, and anchored the economy to a stable and trusted currency. Unlike Montenegro, Kosovo had no central bank tradition to “give up”: the priority was functionality, not monetary sovereignty.

A Word from EU Law

Strictly speaking, EU Law does not formally allow a unilateral adoption of the euro by third countries.

Instead, EU legislation states that the official adoption of the euro is tied to EU membership, therefore meeting strict economic criteria (the Maastricht criteria), or special monetary agreements, which is the case for the microstates of Andorra, Monaco, San Marino, and Vatican City, also allowed to mint their own coins. In any case, Eurozone membership must be approved by the EU Council (European Commission, n.d.-b).

Consequently, the EU does not formally allow or approve Montenegro and Kosovo to use the euro. Nevertheless, they adopted it and have been using it since 2002 as their de facto domestic currency (European Commission, n.d.-a). The European Central Bank itself does not officially endorse this situation, but it does not even try to deter it, therefore creating an ambiguous situation.

In short, the EU has taken a pragmatic approach, tolerating the situation without officially recognising it. The unilateral adoption of the euro as domestic currency is not encouraged, but there is no intention of prohibiting it, since the precocious use of the euro is seen as a first step towards potential future legislative alignment with EU norms (Montebusiness, 2025).

Nevertheless, the EU made clear that Montenegro and Kosovo cannot automatically become eurozone members upon accession, and their current use of the euro will need to be regularised. This means that, in practice, Montenegro and Kosovo are still required to accept the euro formally as part of EU accession negotiations, align their financial and banking regulations with EU standards, and commit to eurozone rules.

Benefits and Downsides of Unilaterally Adopting the Euro

For both economies, the euro has brought important advantages, such as economic stability, increased trade and investments, and public trust.

The low inflation rates of the German Mark first and the euro later, with no risk of currency devaluation, managed to stabilise the two economies, consequently enhancing the trust in the local economy and commerce. Trade with EU Member States and Eurozone countries became easier, thanks to lower transaction costs and no exchange rates, which also increased Montenegro’s and Kosovo’s attractiveness for foreign investors. At the social level, coming from years of financial instability and overnight loss of savings, Montenegrin and Kosovar citizens trust the euro far more than any local alternative, also because, since national governments cannot implement monetary policies, savings are protected from political interference (BQK, 2024b).

Despite the multiple benefits, using the euro inevitably comes with trade-offs too.

Unilaterally adopting the euro means limited policy flexibility. Montenegro and Kosovo now have no independent monetary policy, with no control over interest rates and no ability to devalue currency during crises. National governments are basically powerless when it comes to monetary policy, depending completely on the decisions of the EU and the ECB, organizations in which they are not allowed to have a say. In times of financial crises, the two governments rely on taxation and spending as fiscal tools, and local banks cannot count on the ECB in case of emergencies (Semra Tyrbedari, 2006).

In essence, Montenegro and Kosovo are now open economies, which sacrificed monetary sovereignty in exchange for stability.

Beyond economics, the euro carries a strong political meaning. It signals a clear geopolitical orientation toward the EU, taking distance from the legacy of Yugoslavia and reinforcing a European identity in societies still navigating post-conflict state-building. In this sense, the euro is not just money but a statement of belonging.

Conclusion

Montenegro and Kosovo did not adopt the euro because they were economically stable and or institutionally ready, as required to join the EU and the Eurozone. Rather, euroisation came as a pragmatic response to systemic collapse, hyperinflation, and political disintegration.

Although EU Law does not formally allow a unilateral adoption of the Euro, the continued use of the currency in Montenegro and Kosovo signals a deep trust in the European currency, so strong as to give up national monetary policy in exchange for predictability, credibility, and protection of savings.

Over time, what began as an emergency measure during a period of war, hyperinflation, and political collapse has become a long-term economic anchor. Today, the euro remains one of the few widely trusted institutions in both societies, also representing a political symbol, signalling a clear European orientation and a distance from Yugoslav legacies. Nevertheless, this choice exposes a clear paradox: Montenegro and Kosovo are fully subject to eurozone monetary trends and decisions, without taking part in its decision-making structures and safety mechanisms.

As they picture their future as EU Member States, unilateral euroization will remain an unresolved anomaly. It does not accelerate or substitute formal integration into the Economic and Monetary Union, but it will need legal and institutional clarifications during EU accession negotiations. The cases of Montenegro and Kosovo, therefore, illustrate both the stabilising power of the euro and the limits of monetary integration without political membership.

References

BQK. (2024a, November 12). Conversion into Euro - BQK. BQK. https://bqk-kos.org/operacionet-bankare/paraja-ne-qarkullim/konvertimi-ne-euro/?lang=en

BQK. (2024b, November 12). Kosovo‘s Experience in euroisation of its economy - BQK. BQK. https://bqk-kos.org/operacionet-bankare/paraja-ne-qarkullim/eksperienca-e-kosoves-me-euroizimin-e-ekonomise-se-saj/?lang=en

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Petrović, P., Bogetić, Ž., & Vujošević, Z. (1999). The Yugoslav Hyperinflation of 1992–1994: Causes, Dynamics, and Money Supply Process. Journal of Comparative Economics, 27(2), 335–353. https://doi.org/10.1006/jcec.1999.1577

Semra Tyrbedari. (2006). Euroisation Outside Euro-Zone: Assets and Challenges the Experience of Kosovo. Academia.edu. https://www.academia.edu/64072730/Euroisation_Outside_Euro_Zone_Assets_and_Challenges_the_Experience_of_Kosovo

Svetchine, M. (n.d.). KOSOVO EXPERIENCE WITH EUROIZATION OF ITS ECONOMY. https://www.bankofalbania.org/rc/doc/M_SVETCHINE_en_10164.pdf

* This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.