Estonia clears final hurdle to join Europe’s currency union

EU: Estonia can join euro next year

BRUSSELS — European Union nations on Tuesday gave final approval for Estonia to become the 17th country to join the euro, a boost for the tiny Baltic country and a sign of confidence in the troubled currency union.

EU finance ministers said the nation of 1.3 million can join on Jan. 1, 2011. The official exchange rate is set at one euro to 15.6466 Estonian kroons.

Estonians believe swapping their kroon for the euro will encourage foreign investment in the country after an economic boom turned into a bust, with growth falling 14.1 percent last year. It is forecast to grow 4 percent next year.

Estonian Finance Minister Jurgen Ligi said the euro “will be very important in getting our economy back on track and boosting well-being.”

He greeted the EU decision by handing out chocolate Estonian euro coins to other finance ministers.

Estonian President Toomas Hendrik Ilves called the euro “an insurance policy” for the small nation’s people and economy. But he stressed that the common European currency “is no magic stick that will solve all our problems.”

Neighboring Latvia and Lithuania, whose economies are more troubled than Estonia’s, have both said they aim to enter the euro zone by 2014 at the earliest. Lithuania is the only country to have its euro membership application rejected when in 2006 its inflation was judged too high to enter.

Estonia joined the EU in 2004. The membership brought in a flow of foreign investment but that stream dried up in late 2007 when the country entered into its worst recession since independence in 1991.

Lawyer Aku Sorainen says Estonia’s membership will encourage foreign cash to return to Estonia and draw it close to its main trading partners, Finland — which also uses the euro — and Sweden.

Entering Europe’s currency union is a coup for the former Soviet republic, which has won plaudits from European officials for its efforts wrestling with a sudden recession.

But it’s also a small vote of confidence for the tarnished monetary project in the worst moment of its 11-year history. The eurozone is grappling with a deep debt crisis, slow growth prospects — and may have to rewrite its rules to restore faith in a currency union without a central government.

Nearly all eurozone members are currently disobeying rules designed to keep the currency stable. Fifteen out of its 16 members are flouting an EU limit on their budget deficits — the yearly difference between government spending and revenue.

Estonia will join Luxembourg as the only two countries with deficits below 3 percent of gross domestic product.

Associated Press writer Jari Tanner in Tallinn contributed to this story.