BRUSSELS -- The European Commission has said Estonia is ready to join the EU's single currency, the euro on January 1, 2011.
Olli Rehn, the EU monetary affairs commissioner, praised the Estonian government's economic performance during the global downturn in meeting the strict entry criteria.
Estonia reaped the rewards of having pegged its currency, the kroon, to the Deutschmark in 1992 and the euro in 2001.
Estonia will now have to await the final decision of EU finance ministers in early July, after the 16 eurozone countries and the European Parliament have issued their opinions and EU leaders have weighed the issue at their June summit.
But officials say -- barring unforeseen developments of an extraordinary magnitude either within the EU or Estonia itself -- the country is virtually assured of membership of the euro.
The European Commission decision on May 12 clears Estonia on all objectively measurable counts. The country's budget deficit, inflation rate, and government debt are all well below the so-called Maastricht entry criteria -- and considered sustainable.
A warning on Estonia's possible susceptibility to inflation, issued also today by the European Central Bank (ECB) in its nonbinding report on the country, does not substantially change the picture.
In his behind-closed-doors address to the full college of the European Commission this morning, Rehn said the ECB reaches "a largely similar assessment of [broader] convergence." Overall, Rehn offered Estonia glowing praise -- saying it has a "long and exemplary track record of fiscal discipline and prudent housekeeping."
'Business As Usual'
Despite the global economic crisis, Estonia's assets cover its public debt -- which remains negligible at 7 percent of gross domestic product (GDP). Rehn also observed that unlike earlier euro entrants, Estonia's adjustment to the euro is such that it should suffer no negative economic effects.
Reflecting the severity of the public finance crisis gripping the EU, the European Commission today also adopted proposals for close eurozone surveillance of national budgets, harmonizing "imbalances in competitiveness and domestic demand," and threatening fines for noncompliance. This is seen in Brussels as a significant step toward joint EU economic governance -- something so far advocated by France and resisted by Germany.
The European Commission sought to portray its decision on Estonia as further proof that everything is "business as usual" within the EU after the announcement this weekend's of a 750-billion euro rescue package for southern eurozone countries struggling with public sector debt.
Standing next to Rehn in Brussels, commission President Jose Manuel Barroso said "In all this debate, let's remember: nobody wants to leave the euro, and others are seeking to join." Rehn said the decision on Estonia was also a signal to other Eastern European EU nations that their adherence to strict convergence programs will eventually bear fruit and see them join the euro.
Assuming no late reverses, Estonia will be the third former communist-bloc country to join the euro after Slovenia and Slovakia. Poland and Romania are currently on course to accede to the single currency in 2015.
In Estonia itself, the government has long viewed membership in the euro as offering security benefits, as well as economic advantages. Bordering Russia, Estonia is keenly pursuing further integration within the EU and is seeking to ensure it will not be left outside any "core Europe" group should any such formation emerge from the current crisis.