The Baltic republic has just become the euro zone’s 17th member state, carrying low public debt and high hopes for its economy
Euros take over for Estonian crowns
BRUSSELS – On Jan. 1 Estonia officially abandoned its currency, the crown, to become the 17th European state — and the first of the Baltic republics — to adopt the euro.
It might look to some like a counterintuitive move, as the European currency zone is facing its worst crisis ever. But as other Eastern European countries have stalled and pushed back their membership, Estonia forged ahead. The country first tried to join the euro zone back in 2007, but had to postpone entry because its inflation was too high. For this small republic (1.3 million inhabitants), which gained its independence from the Soviet Union in 1991, the obstacles the euro faced this past year don’t seem to matter.
To start with, joining the euro is a political symbol. “The European currency will allow Estonians to erase a little more of the memory of the former Russian domination by joining the core of the EU,” explained a high-ranking European official in Brussels.
But it also makes sense economically according to the Estonian Economy Minister Juhan Parts, who believes that switching to the euro is a logical step for a small economy opened to the world. “Eighty percent of our international trade is within the EU,” said Parts. “The euro will help Estonian businessmen sell their products more easily and therefore create jobs.”
For Prime Minister Andrus Ansip, joining the euro zone “will bring stability and an end to incompetent and even malicious speculation on devaluating the crown.” Estonian citizens aren’t overly excited about the transition but about half of the population favors the euro.
An open economy
The state of the country’s economy, which quickly overcame the crisis, explains this relative serenity. Two percent growth for 2010 and 2.5% for 2011 are expected. In 2009, the GDP shrunk by 18%, but this deep crisis did not undo the “Baltic Tiger’s’ seven-year growth. Estonia managed to keep its exemplary financial situation: with a 1.3% budget deficit and a public debt under 10% of GDP this year, it fits perfectly within the Maastricht criteria and is effectively at the top the EU’s rankings for economic health.
“Estonia is the opposite of Greece, with visceral aversion to public spending and civil service. They have made budgetary and financial discipline their trademark to inspire trust and attract foreign investments,” says a Brussels official.
Since their independence, Estonians have tried to build an open and modern economy and tried to get rid of any Soviet heritage. For example, all teachers and professors are now under private contracts. They are also trying to build an e-democracy where cabinet meetings and press conferences are broadcast on the Internet.
Estonia is also ready to prove its solidarity. The country, which received an “A” rating from Standard and Poor’s, will become a member the European Financial Stability Fund, created to help the weakest states. Indeed, it is one of the few countries that can boast a guarantee rate that is higher than its public debt!
Read the original article in French