What Crisis? Euro Zone Adds Estonia

NYT:

The funniest thing happened in Europe on Thursday. A new country joined (yes, joined) the euro zone. And the mood here was upbeat, James Kanter writes in The New York Times.

With a debt crisis that appears to be spreading from Greece to Spain, membership for the country, Estonia, might seem more curse than blessing. There had been speculation that countries might abandon the single currency. And some doubt Estonia is even ready for the move.

“Maintaining low inflation rates in Estonia will be very challenging,” the European Central Bank warned last month.

Still, the euro remains among the strongest currencies in the world, and membership opens the door to a club with global influence. For small and unsure countries on the fringes of the European Union, it doesn’t get much better — no matter the mounting downsides for countries already on the inside.

“Joining the euro is a status issue for countries seeking to cement their position at Europe’s top table,” said Simon Tilford, the chief economist for the Center for European Reform, a research organization based in London. “But you also could call it sheer bloody-mindedness of Estonia to join now with the outlook for the currency so uncertain.”

Meeting in Brussels, Europe’s 27 governments hailed the “sound economic and financial policies” that had been achieved by Estonia in recent years. They said Estonia would shift from the kroon to the euro on Jan. 1, 2011.

For the leaders of the bloc, expanding the euro zone to 17 nations is tantamount to a show of confidence at an inauspicious time for the battered euro, which has lost about 13 percent of its value against the dollar since the beginning of the year.

“The door to euro membership is not closed because we are going through a sovereign debt crisis,” said Amadeu Altafaj, a spokesman for Olli Rehn, Europe’s commissioner for economic and monetary affairs. “Estonia’s admission is a sign to other countries that our aim is to continue enlarging economic and monetary union through the euro.”

With economic output of about $17 billion, the Estonian economy is tiny. Yet the country’s central bank governor, Andres Lipstok, will now be able to take a seat on the European Central Bank’s powerful council that sets interest rates.

Membership is also an important signpost that a country is on the way to achieving Western European standards of living, an important goal for a former Soviet republic like Estonia that has long been among the Baltic states eager to develop.

Perhaps most important, membership is recognition of the hard work and sacrifice it took to keep Estonia’s bid on track. Estonia, along with Sweden, were the two countries with the smallest shortfalls between revenue and spending among all members of the 27-member European Union. Moreover, public debt in Estonia at 7.2 percent of gross domestic product is tiny compared with that of most other countries in the bloc.

“It’s a great day for Estonia,” Andrus Ansip, the Estonian prime minister, told Latvian state radio in an interview here. “We prefer to be inside, to join the club, to be among decision makers.”

Estonia becomes the third ex-Communist state to make the switch to the euro, after Slovenia and Slovakia, but it is the first former Soviet republic to do so, sending a signal to other countries in Central and Eastern Europe that they, too, can aspire to membership. 

Posted via email from Jim Nichols