Accessibility links

Breaking News

Estonia Becomes 17th Member Of Eurozone

A sign in a restaurant window shows the price of a hamburger in outgoing Estonian kroons and euros.
The adoption of the euro single currency on January 1 is the culmination of tiny Baltic state Estonia's historic move away from the dominance of its powerful neighbor and former ruler, Russia.

But it comes at a time when the euro is growing increasingly unpopular among members of the currency club.

For many of Estonia's 1.3 million residents, joining the eurozone club is preferable to uncertainty linked to its outgoing currency, the kroon, and is seen as a good way to attract further investment.

Estonia also hopes the move will help its economic prospects improve after recent years of recession and austerity measures. Estonia's Central Bank is forecasting growth of nearly 4 percent next year.

Like its Baltic neighbors Latvia and Lithuania, Estonia is used to having little currency flexibility. The kroon has been fixed, first to the German mark and then to the euro, since its launch in 1992, when Estonia became the first ex-Soviet state to quit the ruble zone.

No. 17

Becoming the 17th member of the eurozone will mark the end of a remarkable journey for the former Soviet state. It culminates its westward journey -- which began with entering both the European Union and NATO in 2004 -- away from the dominance of neighboring Russia.

Ordinary Estonians say they are hoping the change will help them save money on currency transactions. Homeowners, too, are expecting to benefit, as most mortgages -- which are mainly provided by major Nordic banks such as Swedbank, SEB, and Nordea -- are already in euros.

In the Estonian capital Tallinn, residents like Eve anticipate that joining the euro will make life easier.

"I respect the decision to join the eurozone," she tells Reuters. "I think that on a daily basis it won't change so much, but it will definitely be easier to travel, you won't need to exchange money."

Some Estonians, however, say they will miss their national currency, which has come to symbolize their hard-won independence. Georg speaks for many Estonians when he says that he will miss the kroon.

"Of course I will miss the Estonian kroon," says Georg. "Estonia is my home. I'm very proud of my homeland and if there are no kroons anymore, then it will certainly hurt a bit."

Others are skeptical that the switch to the euro will be good for Estonia. Estonia is only the third postcommunist country to enter the eurozone, following Slovenia in 2007 and Slovakia in 2009. But the moves comes amid rising disenchantment with the single currency, as members of the zone have been forced to bail out states like Greece and Ireland in the wake of the financial crisis.

Overcoming Doubts?

Estonia's debt and budget deficit are among the lowest of the eurozone countries. Prime Minister Andrus Ansip's center-right government made budget deficit cuts equal to more than 9 percent of GDP to meet the euro entry terms. Inflation also fell as the economy contracted by nearly 14 percent in 2009 after a pre-crisis boom.

Tallinn joins the single currency at a time that not only Ireland and Greece but also Spain and Portugal are struggling with big budget deficits and Brussels is working to ensure the stability of the eurozone. Citizens in a number of eurozone countries, including Germany and Slovakia, have called for their governments to pull out of the zone and restore their national currencies.

Estonian Finance Minister Jurgen Ligi admits that the crisis in the eurozone is a concern but it didn't deter them from joining the European single currency.

"It's better to be inside the boat than outside, when it's stormy," says Ligi.

But euroskeptics in Estonia invoke the same metaphor to argue their case.

"Estonia joins at the worst possible time, when the European president is saying that the whole European project is under threat," says lawyer Anti Poolamets, who is leading an anti-euro campaign, explains why joining the eurozone is not a good idea. "And Estonia is like the 'Titanic' -- the iceberg is visible but the 'Titanic' is still running at full speed. The party is moving up to the upper decks, but the 'Titanic' is already missing its watertight sections. The watertight sections -- this is the national currency."

Majority Opposes Move

Poolamets commissioned an opinion poll that showed 53 percent of people were against the euro. A poll taken for the government showed support for the euro at 54 percent.

A steady rise in inflation in recent months has also caused some worries. The Estonian Central Bank raised its forecast for average annual inflation from 2.7 percent this year to 3.5 percent in 2011.

All cash points in Estonia will be shut down for the last four hours of 2010. From the start of January 1, 2011, ATMs will dispense euros only. The first euros were to be withdrawn by Prime Minister Ansip at midnight.

During the first two weeks of the changeover, it will still be possible to use the Estonian kroon in simple transactions. Shops are expected to give change in euros only whenever possible. The currency exchange rate fixed by the Central Bank is one euro to 15.6466 Estonian kroons.

based on agency reports