EU says Estonia is in line to adopt the euro currency next year

EU says Estonia could join euro in 2011

TALLINN, Estonia — Tiny Estonia won the European Union’s backing Wednesday to adopt the euro, overcoming a deep recession to meet the strict requirements and underlining the currency club’s allure to small countries — despite Europe’s crisis over government debt.

The European Commission’s green light for the common currency’s potential 17th member comes at a time when the euro is experiencing the worst agony in its 11-year history due to Greece’s economic crisis and a loss of market confidence.

But the commission said that Estonia has made “determined and efficient efforts” to keep its debt, deficit and inflation rates within EU limits.

EU Economy Commissioner Olli Rehn said Estonia “stands out” from other eastern European nations who plan to join the euro eventually because of its “long-standing commitment to prudent policies.”

“Estonia … is ready to adopt the euro on Jan. 1, 2011,” he said in a statement.

The Baltic nation of 1.3 million people will get the final word on whether it can swap the kroon for the euro in July when EU finance ministers will vote on its membership application.

The commission’s nod is a matter of pride for Estonia’s center-right government, which has battled the most severe recession since Estonia broke off from the Soviet Union two decades ago. Economic output dropped 14.1 percent last year — one of the steepest falls in the EU.

“Belonging to the eurozone creates credibility for Estonia and is a strong stimulus for the Estonian economy,” Finance Minister Jurgen Ligi said.

Still, feelings about the euro are mixed among average Estonians.

“I’ve seen (Soviet) rubles changed to kroons, and soon it’ll be the euro,” said Evert Oruma, 88. “It doesn’t matter much to me. As long as I get my pension regularly, the name of the currency can be whatever.”

Younger Estonians are more upbeat.

“The euro will be a very good thing,” said Annika Uudelepp, 33. “It will make our economy more credible. We have sacrificed a lot to get in to the eurozone.”

For the EU, Estonia’s eligibility will be “a strong signal about the euro area,” Rehn said, after recent weeks of currency turmoil that has plunged the euro’s value against the dollar on concerns that Greece and other indebted eurozone nations could default on their soaring debt.

EU nations have tried to calm these fears by heading a euro110 billion rescue package for Greece and euro750 billion ($1 trillion) in financial help for any other eurozone countries in trouble. Greece is so far the only country to ask for financial aid.

On Wednesday the European Central Bank expressed concerns about rising inflation in Estonia, saying the Baltic state would likely see higher consumer prices over the next few years as the country catches up to other euro area members in terms of wealth.

The EU Commission report said Estonia’s average inflation in the year to March 2010 was minus 0.7 percent, well below a 1 percent limit for joining the euro. The rate is likely to stay below the EU ceiling, the commission said, warning the government to make sure to keep inflation low.

Still, annual inflation reached an alarming 2.9 percent in April, a dramatic jump from 1.7 percent in March.

Estonia’s deficit and debt are “well within the acceptable limits” for joining the euro, it said. Despite a deep economic slump, the deficit was 1.7 percent of gross domestic product last year — under a 3 percent limit — and is expected to climb to 2.5 percent this year and 2011.

Overall public debt was a minuscule 7.2 percent of GDP last year, well below a 60 percent limit that most current eurozone members are flouting.

None of the other eight prospective euro candidates — including Poland and Hungary — are ready to enter the currency, the commission said.

White reported from Brussels.