By integrating countries financially, the main obstacle to the formation of an optimal currency area in Mundell's (1961) model is no longer problematic, making financial integration a key factor that enables ex post creation of an optimal currency area. Financial integration is important in currency area architecture as well as in countries undergoing monetary integration, because of the ability to absorb asymmetric shocks through a market-based risk-sharing mechanism, thereby fostering business cycle synchronization. In accordance with the theoretical framework, an empirical model has been created with the aim of determining the direction and intensity of the impact of financial integration on business cycle synchronization of Croatia with the eurozone countries. Particular emphasis was placed on the indirect impact of financial integration through channels of specialization and trade integration. Model parameters were estimated using panel analysis. Business cycle synchronization was measured by the Cerqueira-Martins (2009) index, which eliminates disadvantages of using the Pearson correlation coefficient. Results of the research confirm that the capital channel is not strong enough to allow a high degree of ex ante insurance, i.e. to prevent the occurrence of idiosyncratic shocks. In addition, the inefficiency of the credit channel during financial distortions and crises is confirmed, i.e. the inability to absorb idiosyncratic shocks ex-post and thereby synchronize the Croatian business cycle with the business cycles of the eurozone countries. Also, results confirm that financial integration induces specialization that moves to non-tradable sectors in Croatia. This way, the similarity of the sectoral structures of Croatia and the eurozone countries is reduced so they become more sensitive to idiosyncratic shocks. In conclusion, the concept of a currency area based solely on financial integration is naive and needs to be complemented by other shock absorption mechanisms, primarily anti-cyclical fiscal policy.