The small Baltic nation of Estonia officially adopted the euro as its currency on January 1, 2011 and became the 17th member of the euro zone. Estonia is the first former Soviet state to adopt the common currency. Even though its national debt and deficit levels are among the lowest of the euro-zone members, Estonia will be the poorest member of the euro zone. Estonian Prime Minister Andrus Ansip was the first person in the country of 1.3 million to withdraw euro notes from a cash machine in a special celebration event. The prime ministers of Latvia and Lithuania, nations which hope to adopt the euro by 2014, attended the celebration events. The common currency was plagued by crisis for most of 2010 and it may be years before another nation joins the euro zone, either over the concerns about adopting the increasingly unpopular currency or due to an inability to meet the economic criteria for membership.
QUESTIONS FOR DISCUSSION:
- Nearly 70% of Estonia’s exports are to euro-zone members. How will adopting the euro help the nation’s economic growth?
- The Estonia currency, the kroon, had been a fixed currency for the last 18 years, first to the German deutschmark and then with the euro. What are the economic challenges the nation might face by entering the euro zone?
- Given the current crisis in the euro zone with Greece and Ireland needing bailouts from the International Monetary Fund and the European Union in 2010, some consider this to be the worst possible time for Estonia to join the euro zone. Prime Minister Ansip said that it was better for his country to be part of the decision-making process for the euro zone than to have no say at all. Is the cost of admission to the euro zone going to be worth it for Estonia?
- Estonia had its currency pegged to the euro. This gave the nation a stable exchange rate and the nation had conservative fiscal policies. Now the nation may be called upon to provide up to $800 million for its share of the euro-zone stability fee. Would it have been better for Estonia to continue to use a fixed exchange rate rather than officially adopt the euro?
SOURCE: Estonia adopts the euro. (2011, January 1). Wall Street Journal Online. (Retrievable online at: http://online.wsj.com/article/SB10001424052748704450504576054971155706038.html)
RELATED ARTICLE: Fairclough, G. (2010, December 31). Estonia counts down to adopting euro. Wall Street Journal, p. A12. (Retrievable online at: http://online.wsj.com/article/SB10001424052970203574404576051522423996468.html)
Related video clip available at: