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23 Sep, 2010 01:11

Putting in their two euro cents’ worth: Estonians split over currency change

On January 1st, Estonia will become the 17th country to join the Euro community. It has taken years of economic reform and government spending cuts to reach this step, but many still doubt that Estonia is ready for it.

“We need to keep inflation low, but that also means we need to keep our salaries low and we can’t have the high growth we need and that's why, according to my understanding, the timing of joining the Euro zone is not good,” says Ivar Raig, Estonian economist and professor.

At a recent exhibition to mark the Euro countdown, politicians and economists came together to convince the Estonian public of the currency’s virtues. The Finance Minister, Jurgen Ligi, was eager to justify government financial policy that has hurt many people.

“As late as the spring of 2009, Europe was skeptical about Estonia joining the Euro zone, but the attitudes changed within half a year and people started to see Estonia as a prospect, and maybe even a good example for the Euro zone,” Ligi said.

Estonia joined other Baltic states in over-leveraging their economies, sacrificing long-term stability for short-term growth, but the rapid development phase was abruptly frozen by the financial crisis.

"After Latvia, Estonia became the second most severely affected EU member state in terms of output decline. The severity of the adjustment revealed that the period of rapid output growth was, to some extent, also a period of imbalanced growth and economic overheating," noted Jean-Claude Trichet, the president of the European Central Bank.

Now many Estonians are afraid that he impending arrival of the single currency will mean the cost of living will be considerably higher.

“As a regular housewife I’m against the adoption of the euro, because with that adoption, prices for basic groceries such as sugar, potatoes and carrots will go up," Yulia Maspanova, a resident of Tallinn shares her concerns.

However, besides the obvious economic factors, there are also subjective reasons for Estonians to be reluctant to give up the kroon: for Estonia, more than most European countries, the national currency represents independence, both political and economic, which it is afraid to lose.