Estonia becomes the Eurozone’s 17th member on January 1, and the third former communist state to join the single currency. The move is designed to boost the economy, but with the euro in crisis, not all Estonians are convinced it will.
Out with the kroon, in with the euro. On New Year’s Day Estonia becomes the 17th of 27 EU members to adopt the single currency. The move has been in the pipeline for the past half-decade, but following a tumultuous financial period for the Eurozone, its promise of economic and political stability for Estonia is not one that everybody is betting on.
An EU member state since 2004, the Baltic state is one of the group’s smallest countries, with a population of 1.3 million and a GDP of 14 billion euros. Unlike its neighbours Latvia and Lithuania, Estonia has weathered the financial storm well and emerged with the EU’s lowest public-debt ratio. At 8%, it’s something which most other EU countries can only dream of.
Joining the euro has been far from painless for Estonians, and the tough austerity measures that finally got them a seat on the euro-wagon, after initial attempts were shelved in 2007 and 2008, are not over yet. The continuing belt-tightening measures, along with creeping prices and an excruciating 16% unemployment rate, has left Estonians wary of a sudden currency change. A recent independent survey showed that 43% of the country was against joining the euro.
“We see prices going up – food, beverages, some services – but our wages stay the same,” says Julia Zalutskaja from Tallinn, the Estonian capital. “We’re afraid of going back to the 1990s when we were poor, like after we changed currency the last time, in 1991.”
European economists and Estonian politicians insist that the deal is a good one however – and for both parties. “It will boost commercial trade with France and Germany, for instance; it will bring an economic convergence in growth terms,” Frédéric Bonnevay of Paris-based independent think-tank the Montaigne Institute told FRANCE 24. Bonnevay insists that the move will “only be beneficial” for Estonia, passing off citizens’ worries as merely “a psychological trauma”.
Estonia is the first of the Baltic states to adopt the euro, and the move is expected to encourage neighbouring Latvia and Lithuania to revive efforts to join the club. All three countries’ currencies have been pegged to the euro or the dollar by a fixed exchange rate since the mid-nineties.
“In such circumstances”, Lithuanian Finance Minister Ingrida Simonyte told AFP, “there is not much rationale in staying outside the Eurozone, as almost all the restrictions apply but none of the benefits".
Latvian bank chief Ilmars Rimsevics expressed concern over potential short-term effects for his own country, suggesting that investors would choose Estonia over its neighbours once the euro was in place. "I think any investor will choose an environment where the euro has been introduced, without the various risks connected to rumours about a change in an exchange rate," he explained.
In Estonia itself, even the critics were feeling resigned to the change. “I like my currency. Like the British like their pound,” explained Ms Zalutskaja. “But we’ve chosen the European path. And along with most Estonian people, I’m loyal to this decision.”