Estonia moves into euro zone

 

Estonia switched smoothly to the euro today but bigger eastern European nations may not be able to join the single currency for up to a decade.

The Baltic state of 1.3 million became the 17th euro zone country at midnight and was the first former Soviet state to adopt the euro, capping 20 years of integration with the West.

Estonia sees the change as marking the end of its struggles since a 2009 recession lopped 14 per cent off its output.

It hopes to entice investors by removing fears of devaluation and make borrowing more secure for its people, many of whose mortgages are already in euro from Nordic banks.

"It is a small step for the euro zone and a big step for Estonia," said prime minister Andrus Ansip, who was the first to take euro out of a specially installed cash machine.

"We are proud to be a euro zone member state."

The central bank, whose governor will now help decide euro zone interest rates, said the changeover was smooth.

"The money reached ATMs and retail stores in time at the end of the year," said deputy central bank head Rein Minka.

Estonia will be the currency club's poorest member but its debt and deficit levels - the cause of the crisis for some euro zone members - are among the lowest in the bloc.

In economic terms, the single currency bloc will barely notice the addition - Estonia's GDP is 0.2 per cent of the euro zone's €8.9 trillion.

Poland, Hungary and other eastern European EU states are skeptical about joining the euro. They have all promised to join one day but want to see how the debt problems of Ireland, Greece, Spain and Portugal are solved.

They also fear that losing flexible exchange rates will make them less competitive and less able to fight financial crisis.

Polish central bank governor Marek Belka told newspaper Super Express 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 EU nations may now not join before 2019-2020.

German Chancellor Angela Merkel and French President Nicolas Sarkozy used New Year addresses to show support for the single currency.

Reuters