Estonia/euro: Euro zone members have many reasons to welcome Estonia into their fold. The Baltic country has done all it could to comply with the common currency requirements, and enlarging the euro family at the very moment it is facing a major existential crisis gives European leaders a rare reason for holiday cheer. All the more because Estonia is unlikely to be followed by any others in the next few years.
Estonia's GDP may be tiny: its GDP is less than 0.2 per cent of the euro zone total. But its commitment to joining the euro helps remind skeptics that there are benefits to a common currency. Estonia's economy is heavily dependent on exports, and 80 per cent of its trade is with the euro zone.
Being anchored into the common currency should boost its exports, and will help shield the economy from the type of wild swings that knocked 14 per cent off its GDP in 2009. With public finances under control and government debt at a ridiculously low eight per cent of GDP — about a tenth of the euro zone average — Estonia certainly won’t be endangering the euro’s stability. The ECB has voiced some concerns about the inflation rate. But GDP will grow by a healthy 4.4 percent in 2011, according to EU forecasts, making Estonia one of the fastest-recovering economies in Europe.
Its enthusiasm for joining even takes some courage on the part of the country’s government: Estonia will become a participant in the European Financial Stability Facility, designed to bail out troubled euro members. The liability it will take on as such will roughly amount to the country’s current public debt, less than one billion euros.
But once Estonia becomes the euro’s 17th member — and the first former Soviet republic to join — ECB president Jean-Claude Trichet will have to keep the champagne on ice for several years. Other potential euro candidates are either still too far from the standards required for entry, like Romania and Hungary; unenthusiastic like Poland; or downright hostile, like the Czech Republic. It’s probably just as well that Trichet is not in a proselytising mood: for now, strengthening the euro is a more pressing concern than enlarging it.