Estonia joins crisis-hit euro club, others wary

TALLINN (Reuters) - Estonia joined the euro zone as its newest member on Saturday, but the currency club’s deepening crisis is likely to put off bigger eastern European entrants from joining for up to a decade.

People walk past a placard placed by anti-Euro activists in Tallinn December 31, 2010. Estonia will join the euro zone from January 1, 2011. REUTERS/Ints Kalnins

The small Baltic state of 1.3 million became the 17th euro zone country at midnight, beginning a switch from the kroon, and was the first former Soviet state to adopt the euro.

Prime Minister Andrus Ansip was the first to take euros out of a specially installed cash machine outside a theater where a ball had been held to celebrate the switchover and the New Year.

“It is a small step for the euro zone and a big step for Estonia,” he said, holding the euro notes.

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

It also caps a drive for integration with the West, away from the influence of Russia, that began with the collapse of the Soviet Union in 1991.

With a similar history, neighbors Latvia and Lithuania hope to adopt the euro in 2014 and have also had their currencies pegged to the euro for years.

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However, the attitude to euro adoption is more skeptical in Poland, Hungary and other eastern European EU states.

These countries have all promised to join the euro zone one day but want to see how the debt problems of Ireland, Greece, Spain and Portugal are solved.

They also fear that losing the flexibility of their exchange rates will make them less competitive and less able to withstand financial ructions.

The debt crisis has also undermined the idea that being a euro zone member guarantees lower borrowing costs.

Polish central bank governor Marek Belka, who has said there more risks in the euro zone than out of it, repeated his skepticism to tabloid newspaper Super Express.

He said 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 European nations may now not join before 2019-2020.

Chancellor Angela Merkel, however, reiterated Germany’s commitment to the single currency in a new year address.

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

French President Nicolas Sarkozy was also firm:

“Don’t believe, dear compatriots, those who suggest that we should leave the euro...The end of the euro would be the end of Europe,” he said in a televised New Year address.

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