Estonia joins crisis-hit euro club

TALLINN Sat Jan 1, 2011 8:54am EST

1 of 4. A cashier gives change to a customer in Euro coins in a supermarket in Tallinn January 1, 2011.

Credit: Reuters/Ints Kalnins

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TALLINN (Reuters) - Estonia switched smoothly to the euro on Saturday, brushing off worries about a crisis in the currency club which is likely to put off bigger eastern European nations from joining for up to a decade.

The Baltic state of 1.3 million became the 17th euro zone country at midnight and was the first former Soviet state to adopt the euro, capping 20 years of integration with the West.

Estonia sees the change as marking the end of its struggles since a 2009 recession lopped 14 percent off its output. It hopes to entice investors by removing fears of devaluation and make borrowing more secure for its people, many of whose mortgages are already in euros from top Nordic banks.

"It is a small step for the euro zone and a big step for Estonia," said Prime Minister Andrus Ansip, who was the first to take euros out of a specially installed cash machine.

"We are proud to be a euro zone member state."

The central bank, whose governor will now help decide euro zone interest rates, said the changeover was smooth.

"The money reached ATMs and retail stores in time at the end of the year," said deputy central bank head Rein Minka.

Estonia will be the currency club's poorest member but its debt and deficit levels -- the cause of the crisis for some euro zone members -- are among the lowest in the bloc.

In economic terms, the single currency bloc will barely notice the addition -- Estonia's GDP is 0.2 percent of the euro zone's 8.9 trillion euros.

EASTERN SCEPTICS

Poland, Hungary and other eastern European EU states are skeptical about joining the euro. They have all promised to join one day but want to see how the debt problems of Ireland, Greece, Spain and Portugal are solved.

They also fear that losing flexible exchange rates will make them less competitive and less able to fight financial crisis.

Polish central bank governor Marek Belka told newspaper Super Express Poland would join when there was "order" in the euro zone. "In the euro zone there are dramatic things happening, so why rush?" he said.

Czech Prime Minister Petr Necas has said the euro would not be to the country's advantage for a long time. Economists say the larger eastern EU nations may now not join before 2019-2020.

German Chancellor Angela Merkel and French President Nicolas Sarkozy used New Year addresses to show support for the euro.

"The euro is the foundation of our prosperity," said Merkel. "Germany needs Europe and our common currency ... We Germans assume our responsibility, even when it is sometimes very hard."

With a similar history of Nazi and Soviet occupation, all three Baltic states made joining Western structures their goals and joined NATO and the European Union in 2004.

Latvia and Lithuania hope to adopt the euro in 2014 and have had their currencies pegged to the euro for years.

The kroon will be converted at the rate of 15.6466 at which the currency was pegged to the euro. They will circulate together as legal tender for two weeks.

(Additional reporting by Patrick Lannin in Stockholm; Editing by Patrick Graham, Lin Noueihed and Padraic Cassidy)

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Comments (3)
FBreughel1 wrote:
And again, the international press is being grossly misused by hedge fund hysteria. Joining the euro is the best thing that has ever happened to Estiona since WWII and indeed, as Reuters notices, there are some investors claiming the euro will fall. While US has a debt of 15 trillion and Japan is de facto already bankrupt (189% debt GDP), the world is focusing on the miniscule 80 bln the EU is paying for Greece. Wake up, we are talking about 0,6 % of EU’s GDP here. Inflation is higher !

Jan 01, 2011 7:30am EST  --  Report as abuse
peteplester wrote:
Estonia is not the first “former Soviet Bloc country” to adopt the EURO as its currency…. Slovenia adopted the EURO as its national currency on January 1st, 2007….

Jan 01, 2011 10:34am EST  --  Report as abuse
anonym0us wrote:
Welcome to the club of PIGS (Portugal-Ireland-Greece-Spain). Or should it now spell PIGSE?

Jan 01, 2011 11:10am EST  --  Report as abuse
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