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25th Feb 2024

Estonia to join embattled eurozone next year

  • Tallinn: little Estonia is the envy of other EU states in terms of economic figures (Photo: EC)

Estonia is set to become the 17th country to join the euro area, after the European Commission on Wednesday (12 May) said its economy has met all the accession criteria.

The decision comes at a time of unprecedented financial turmoil inside the single currency bloc, with market doubts over the public finances of several peripheral states causing the euro currency to sink to new lows versus the dollar last week and forcing politicians to hastily cobble together a massive €750 billion support fund for struggling governments.

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Announcing their decision on Estonia, senior EU officials in Brussels were quick to pounce on the imminent expansion as an indication of the currency's continuing appeal.

"Nobody wants to leave the euro, others are waiting to join," said commission President Jose Manuel Barroso.

In terms of procedure, the commission's recommendation must now be accepted by EU leaders at a summit in June. EU finance ministers meeting in July must then give the final go-ahead before Estonia can join on 1 January 2011.

Commission approval is seen as the most crucial step, however.

The EU executive on Wednesday said that another eight countries are not yet ready to join the single currency. They are: Bulgaria, the Czech Republic, Latvia, Lithuania, Hungary, Poland, Romania and Sweden. The UK and Denmark have a legal opt-out.

Support for joining the eurozone has fallen in many of these countries as a result of the Greek debt crisis. In a survey carried out by the Warsaw School of Economics in April, only 42.2 percent of respondents supported Poland's entry into the euro zone, down from 55.2 percent a year ago.

Despite not having a legal opt-out, Sweden has decided to indefinitely delay its eurozone entry. Polish Prime Minister Donald Tusk recently indicated that his country will do the same.

"Today I prefer to show a cautious stance. We will be following further developments in the south [of Europe] and will come back to the euro issue later," Mr Tusk said on 6 May.

Estonian politicians and diplomats say that euro accession will bring the country considerable benefits. "Our currency has been tied to the Deutsche Mark and then the euro since its creation in 1992," Kadri Uustal, the financial counsellor in the Estonian Permanent Representation to the EU, said on the status quo. "So we don't have the flexibility of our own monetary policy but neither do we have the benefits of being in a bigger club."

Estonia, with 1.3 million inhabitants, had initially hoped to join the euro in 2007, but was prevented from doing so by high inflation rates at the time.

Now Tallinn's economic figures are the envy of other EU members. According to the latest EU estimates, the country's deficit will clock in at 2.4 percent of GDP this year, with its debt set to be a miniscule 9.6 percent of GDP.

In contrast, the eurozone's average public deficit this year will be 6.6 percent of GDP, with average debt set to reach 84.7 percent.

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