for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up
Money News

Estonia wins ministers' approval to join euro zone

LUXEMBOURG (Reuters) - Euro zone finance ministers on Monday approved Estonia’s bid to join the currency area next year as its 17th member, reassuring other candidates that the bloc would remain open despite its debt problems.

An European Union flag flutters on the day marking the start of Spain's presidency of the EU, in the Andalusian capital of Seville January 8, 2010. Euro zone finance ministers approved Estonia's bid to join the currency area next year as its 17th member. REUTERS/Marcelo del Pozo/Files

Siding with a recommendation by the European Union’s executive arm, the ministers said the Baltic country of 1.4 million met all criteria to adopt the euro, and had committed to tough fiscal policies together with structural reform.

“Estonia will become the 17th member of the euro area on the 1st of January, 2011,” Eurogroup Chairman Jean-Claude Juncker told a news conference.

“The first commitment of the Estonian authorities is to ensure the sustainability of convergence and implement further reforms containing financial discipline, preserving financial stability,” he added.

Approval by EU leaders will be needed for the Estonian bid, but this is not seen as a hurdle despite some doubts at the European Central Bank over the country’s ability to control inflation.

Estonia will become the fifth of the states that joined the EU in 2004 to adopt the currency. Slovenia entered the euro zone in 2007, Cyprus and Malta in 2008 and Slovakia in 2009.

The decision will reassure other candidates that the euro zone remains open for expansion despite Greece’s debt crisis, which has fuelled tension in the region and forced it to create a $1 trillion aid mechanism for members with solvency problems.

“We have to treat everybody similarly. If there is a country that fulfils all the criteria, it should have the same right as we all have had,” Finnish Finance Minister Jyrki Katainen told reporters before the ministers’ meeting.

The next euro zone enlargement is not expected for another four years as other candidates such as the Czech Republic, Hungary and Poland have high budget deficits, inflation or both.

Tensions in the currency area have also dampened enthusiasm towards adopting the euro quickly among some politicians from candidate countries.

The move rewards Estonia’s austerity programme, which was implemented despite a deep recession last year and has ensured the country’s budget deficit is below 3 percent of gross domestic product -- one criterion for joining the euro zone.

The adoption of the euro is not expected to change much for Estonia’s investors and its citizens since the country has long kept its kroon fixed against the euro in a currency board.

The country cut its budget deficit to 1.7 percent of GDP last year despite an economic contraction of nearly 15 percent. Estonia also has one of the smallest national debts in the 27-country EU -- 7.2 percent of GDP.

Editing by Dale Hudson

for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up