Balkan euro bandits?

As other European economies adopt a strict regimen to join the euro, a tiny state on the Adriatic -- not even an EU member -- has slipped in almost unnoticed. 

On Monday, Montenegro -- a former Yugoslav republic the size of Northern Ireland -- signs an EU stabilisation and association agreement.  The SAA brings Montenegro one step closer to membership, and the right side of the EU's tariff wall for industrial and a range of agricultural and fishery exports.  Yet it must also address an anomaly:  Montenegro's informal use of the euro.  Wanting to escape Slobodan Milosevic's rump Yugoslavia and its siege economy, Podgorica adopted the deutsche mark in 1999 alongside the dinar.  In 2002, as Germany swapped its marks for euros, Montenegro followed suit, with the ECB's tacit consent.  It finally split with Serbia last year.

Detaching itself from the Serbian train-wreck looks like its best move since 1991.  The euro has helped this tiny new state of 670,000 people.  The ECB has stewardship of its monetary policy.  Currency stability has encouraged foreign investors:  its FDI stock of 2 billion euros is a Balkans per capita record.  Montenegro could thus be ready for EU membership as early as 2012. But Brussels has misgivings about Montenegro's lack of political pluralism, corruption, organised crime and Russian presence, and the SAA will have tough things to say about money-laundering and Montenegro's financial sector.