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Estonia joins crisis-ridden euro club, others wary

Estonia may be the final new entrant for some years when it becomes the 17th euro zone member on Jan. 1, with the club's deepening crisis of confidence likely to put off larger eastern European states for up to a decade.   

Crowds queued at some banks in the snow blanketed capital, Tallinn, on Friday to exchange cash, mainly coins, in a move the small Baltic state of 1.3 million hopes will mark the end of its struggles since the 2008 financial crisis.   

Joining the euro caps a drive for integration with the West and away from the influence of Russia that began with the collapse of the Soviet Union. Estonia is the first former Soviet state to adopt the single currency and neighbors Latvia and Lithuania hope to follow.    

The government, battling its way out of a recession that knocked almost a fifth off GDP last year, hopes the move will shore up interest of Nordic banks in the economy, add to its appeal for other investors and make borrowing easier and more secure for ordinary citizens.   

"Our Estonian kroons are really beautiful bank notes, but, unfortunately, investors cannot trust those beautiful bank notes as much as they can trust euros," Prime Minister Andrus Ansip told a news conference.   

"It will be really beneficial to join as soon as possible and now it will happen," added Ansip, who will be one of the first to take euros out of a cash machine at midnight.   

Baltic neighbours Latvia and Lithuania hope to follow into the single currency club in 2014, cementing the independence they gained with Estonia from Moscow in 1991.   

The country will become the 17th member of the euro zone in celebrations which will include EU Monetary Affairs Commissioner Ollie Rehn and the prime ministers of Latvia and Lithuania.  

Estonia's kroon will be converted at a rate of 15.6466.   


Elsewhere in the former Communist bloc, governments are far less keen. Poland, Hungary and other central and eastern European EU members have all promised to join the euro zone one day, but they are in no hurry.   

They want to see how the debt problems of Ireland, Greece, Spain and Portugal are solved and fear that losing the flexibility of their exchange rates will make them less competitive and less able to withstand financial ructions.   

The debt crisis has also undermined the idea that being a euro zone member guarantees lower borrowing costs and -- in contrast to the Poles and others -- Estonia, Lithuania and Latvia have had their currencies pegged to the euro for years.   

"There are more risks to being in the euro zone than being outside," Polish central bank governor Marek Belka said earlier this month.   

Czech Prime Minister Petr Necas said adopting the euro would not be to the country's advantage for a long time and economists say the larger eastern Europeans may not join before 2019-2020.   

A British think-tank on Friday said the euro has only a one-in-five chance of surviving in its current form over the next 10 years because of competitive imbalances between members.   

Chancellor Angela Merkel, however, reiterated Germany's commitment to the single currency in a new year address.   

"The euro is the foundation of our prosperity," she said. "Germany needs Europe and our common currency. (...) We Germans assume our responsibility, even when it is sometimes very hard."   


Estonia will be the currency club's poorest member after a brutal recession in 2009, but its debt and deficit levels -- the cause of the crisis for some current euro zone members – are among the lowest in the bloc.   

Ansip's centre-right government also slashed spending and hiked some taxes to ensure the budget deficit stayed low.  

"We know what is happening in some euro zone member states and of course we also worry about what is happening in Greece, what is happening in Ireland, but I am sure they will be able to handle all those challenges," Ansip added.  

In economic terms, the single currency bloc will barely notice the addition -- Estonia's gross domestic product is just 0.2 percent of the current euro zone's 8.9 trillion euros.   

The Balts also hope euro membership will in time confer greater political and economic stability after the crisis set back a previously successful transformation from Communism.  

It could also help the Nordic banks, now the major players in the region, led by Swedbank and SEB.  

All three Baltic nations went through Soviet, Nazi and then Soviet occupation again, so becoming part of western economic and security structures has been of prime importance. They joined NATO and a self-confident European Union in 2004. CTV Two CTV News CTV News Channel BNN - Business News Network CP24