A Central Bank That Cannot Print
Montenegro pays for everything in euros and has never been in the euro area, the European Union or any monetary agreement with Brussels. It adopted the Deutsche Mark in November 1999 as an act of separation from Belgrade, inherited the euro when the Mark was withdrawn, and has run a state ever since without the power to issue a banknote.
A cash machine in Podgorica hands out euro notes printed in France or Germany or Italy. Shop prices are in euros, the bus fare is in euros, wages and the state budget are in euros. Montenegro is not in the euro area. It is not in the European Union. It has no monetary agreement with Brussels of any kind, it has never minted a euro coin, and its central bank cannot create a single cent of the currency the entire country runs on.
This is not an oversight nobody has got round to fixing. It is the settled arrangement of a sovereign state, and it began as a political act in the last months of the twentieth century, when the money in Montenegrin pockets was issued in Belgrade by a government that the government in Podgorica had stopped obeying.
What the dinar had done
By then the dinar carried a reputation that is difficult to convey to anyone who did not hold one. Federal Yugoslavia — by 1992 reduced to Serbia and Montenegro — was under UN sanctions imposed that May, was financing a state and a war simultaneously, and paid for both by printing. The result was one of the worst hyperinflations ever recorded anywhere. The National Bank issued a note denominated at 500 billion dinars. Wages were spent on the day they arrived because they were worth measurably less by the evening. It ended in January 1994, when Dragoslav Avramović's stabilisation programme launched a new dinar pegged one-to-one to the Deutsche Mark — an admission, written into the design of the currency itself, that the Mark was the thing people actually trusted. In practice it had never stopped being the unit of account: a car, a flat, a year's rent were quoted in Marks throughout the decade whatever the notes in the till said.
A currency as a declaration
Montenegro's leadership had broken with Slobodan Milošević in 1997, when the governing party split and Milo Đukanović took the presidency from Momir Bulatović by a margin of a few thousand votes. NATO bombed Yugoslavia, Montenegro included, between March and June 1999. That November the Montenegrin government decreed the Deutsche Mark legal tender alongside the dinar, and a year later, in November 2000, the dinar ceased to be legal tender at all. Belgrade called it secession by other means and was not wrong about the intent. Podgorica called it monetary self-defence and was not wrong about the arithmetic. When the Mark was withdrawn on 1 January 2002 and converted into euros at 1.95583 to one, Montenegro's currency changed with it — automatically, and without anyone in Frankfurt being asked.
Montenegro never chose the euro. It chose the Deutsche Mark, for reasons that had nothing to do with Europe and everything to do with Belgrade, and the euro arrived two years later in the same envelope.
What a state gives up
The list of things a euroised state cannot do is short and consequential. It cannot devalue, so a loss of competitiveness has to come out of wages and prices directly instead of out of an exchange rate. It cannot set an interest rate. It earns no seigniorage — the profit on issuing the notes circulating in Montenegro accrues to the Eurosystem, and when a worn note needs replacing Montenegro has to earn the replacement by selling something abroad. And it has no lender of last resort. The Central Bank of Montenegro, established in 2001, supervises banks, holds reserves and sets reserve requirements, but it cannot conjure euros in a crisis, which is the one function a central bank exists for. In December 2018 it placed two banks, Atlas banka and Invest banka Montenegro, under provisional administration; both went into bankruptcy the following year, and the Deposit Protection Fund paid out guaranteed deposits up to €50,000 after first borrowing the money to do it. A central bank inside the Eurosystem would have had other options. This one had that one.
Brussels has never blessed it
The four European microstates that use the euro — Andorra, Monaco, San Marino and Vatican City — hold monetary agreements with the EU and mint their own coins with their own national designs. Montenegro has neither the agreement nor a coin. When accession negotiations opened on 29 June 2012, the EU's negotiating framework recorded that Montenegro had introduced the euro unilaterally, that this was not compatible with the Treaty procedure for adopting the currency, and that the question of the monetary regime would be addressed at an appropriate stage of the talks. It has not been addressed. Nobody in Brussels wants to instruct a candidate country to invent a currency in order to qualify to abolish it again, and nobody wants to put in writing that unilateral euroisation works. So the file stays open. Kosovo, which took the Mark in 1999 under UN administration and the euro with it, sits in exactly the same place.
The test came in 2022
Prices rose across Europe that year and rose harder in Montenegro, where annual inflation reached the high teens by late autumn, several points above the euro area. The European Central Bank's response was a sequence of rate rises decided in Frankfurt with no Montenegrin input and no reference to Montenegrin conditions, because there is no mechanism by which there could be. What the government in Podgorica had left was fiscal and administrative: a published list of basic goods with capped retail margins, extended repeatedly, and the Europe Now programme, in force from January 2022, which scrapped the mandatory health contribution, raised the tax-free portion of wages and lifted the minimum net wage to €450, with a second round raising it again later. Whether that was good policy is argued about in Montenegro. That it was the only category of policy available is not.
None of this is visible from a café in Kotor, which is the part worth carrying around. Montenegro voted for independence on 21 May 2006, by 55.5 per cent against a 55 per cent threshold that the EU envoy Miroslav Lajčák had set in advance — cleared by well under a percentage point, and six and a half years after the currency decision had already been taken. The country still argues with itself about who it is. The 2023 census recorded Montenegrins as the largest declared group at about 41 per cent and Serbs at about 33, while more respondents named Serbian than Montenegrin as their language; a parallel dispute over which Orthodox church is the legitimate heir of the autocephalous one absorbed into the Serbian Church in 1920 put very large numbers of people onto the roads in 2019 and 2020 and helped end three decades of one party's rule. Both positions are held sincerely by people who have thought about them, and this is not the place to adjudicate either. What is striking is that the money is the one thing nobody proposes changing. A state that disagrees with itself about its church, its language and its name has an unbroken consensus on a currency it does not control and cannot issue, because everyone over forty remembers the alternative.