Estonia to enter new era with euro adoption

Friday, December 31st, 2010 | Finance News

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TALLINN, Estonia – Estonia was gearing up Friday for historic New Year's festivities as the tiny country becomes the first former Soviet republic to adopt the euro, a symbolic boost for the currency tarnished by the worst crisis in its 12-year history.

The changeover will officially start at midnight Jan. 1, marking the beginning of the end of the Estonian kroon and a final step in the Baltic state's dogged effort to become the 17th member of the eurozone and to integrate its economy with Europe.

But the switch comes at a time of profound crisis with Europe's common currency, particularly after two members — Greece and Ireland — required emergency bailouts earlier this year to prevent their economies from slipping into insolvency.

This is why many feel that the inclusion of Estonia, whose $19 billion economy is dwarfed by the euro's total annual output of approximately $12.5 trillion, holds symbolic importance.

"Estonia's accession to the eurozone is an encouraging sign for Europe as a whole because it shows the attractiveness of our common currency," Germany's deputy Foreign Minister Werner Hoyer said in a statement Wednesday.

Economists generally believe that Estonia, which has emerged from its worst economic crisis, will benefit from having the euro, though the country of 1.3 million still has painful structural reforms to implement before reaching western European living standards. The country, which achieved independence in 1991, will be the poorest member of the eurozone.

Celebrations will include fireworks and a gala concert featuring the music of U.S. composer George Gershwin, while Estonian Prime Minister Andrus Ansip was due to make one of the first bank-machine withdrawals in euros just after midnight.

The Finance Ministry said Estonia's banks and IT-systems were prepared to cope with the changeover as hundreds of ATM-machines were being loaded with euro notes.

Selected bank branches and post offices were scheduled to stay open over the weekend to accommodate the switch, but police urged citizens not to rush about with large amounts of cash due to robbery risks.

After Slovenia and Slovakia, Estonia will be the third East European country using the euro. Seven other countries in the region — Poland, Romania, Hungary, Czech Republic, Bulgaria, Lithuania and Latvia — are also required to phase in the euro as part of European Union membership, though there is no deadline to do so.

Estonia's Baltic neighbors Latvia and Lithuania have pledged to join the euro area in 2014.

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Associated Press writer Juergen Baetz in Berlin contributed to this report.

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