Euro for Estonia: ready or not, here it comes
After years of preparation through painful economic belt-tightening, January 2011 has been set as the date for the arrival of the Euro.
But it’s not a single currency many in Europe would exactly call healthy.
Oleg Bessedin, a local businessman, already works in both currencies and says he has no problem with the Euro. But he’s worried that now is not the right time to join, and that doing so will hurt many Estonian businesses and consumers.
“The average salary is now 7,000-8,000 krones. If we convert that it comes out at 400 euros. That wouldn’t be considered a solid salary in other parts of Europe. An Estonian citizen compared to others becomes a tramp,” Bessedin says. “First of all our government is trying to convince us there will be no price rises. I think that for such goods as real estate and cars there prices won’t go up but goods like potatoes and bread are now five or seven krones. If we convert them into euros there are no such coins. That’s why shops will round the prices up.”
And there has already been a lot of economic hurt to get here. Estonia, Latvia and Lithuania, once called the ‘Baltic tigers’ for their aggressive investments, were mauled by the economic crisis.
Latvia and Lithuania are still viewed as too risky to be allowed to join. To meet the EU’s tough rules on joining Estonia has had to massively slash state spending, including wages, jobs and benefits, and raise taxes. So will it be worth it?
“I think the most important part of the Euro introduction is the confidence we are getting from it, belonging to a bigger currency area. So we are a very small, very open economy. It’s very hard to have your own currency and remain trustworthy during the crisis,” says Ulo Kaasik, Head of the Economics Department at the Estonian Central Bank.
Economics aside, Estonians are also very proud of their currency. To many it is a symbol of independence. When RT spoke to people in the shops, their reaction was mixed.
Meanwhile outside Estonia there is widespread incredulity the country would want to join. The potential financial disasters facing countries like Greece, Spain and Portugal have sent shockwaves through the Eurozone. And Estonia’s money problems won’t end with its accession.
“In a country like Estonia, which is already seeing a deeply recessed economy, inflation, high unemployment and shortages of skilled workers, the potential for price pressures and for being a less attractive venue for foreign investment could really create a lot of problems,” research associate at the Fund For Peace Mark Loucas says.
Estonians have been through hard times in recent years. They now hope the promised benefits of Euro membership will come sooner rather than later.
The euro's recent turbulence and Estonia's shaky economy raise more questions than answers over the timing of the currency change. Ivar Raig, who's a Dean of Economics at Tallinn University, says the country needs to recover to EU standards before eliminating the Krone.
“If Estonia wants to become a real Baltic tiger or even a Nordic star country, we have to maintain our current monetary policy and have one more growth wave to catch up to EU average levels and then join in the top of the next economic growth cycle.”
Economist and currency expert Professor Wilhelm Hankel doesn’t see Estonia’s becoming a part of the Eurozone as win-win situation.
“It’s not only investment. By losing your own currency, you lose your instruments for economic policy. And especially joining the Eurozone, you get into the temptation to become over-indebted, which is the tragedy of some countries in the South. So this union is not a win-win situation, you have the losers and the winners. And paradoxically, as the result of the Euro, the stronger countries are the losers and the weaker countries are the winners,” Hankel told RT.