I hope they keep the swallow and the "Singer of the Dawn."
When I heard the news today that the European Commission had recommended that Estonia adopt the euro as its currency on January 1, 2011, I was pleased.
Though I appreciate the aesthetics of Estonia’s national currency, the kroon, the euro is the money that most of Europe uses. There is a belief that the adoption of the euro will allay any concerns about investing in an insecure economy, turning the FDI tap back on next year.
Local leaders haven’t yet done the happy dance on Toompea. They are being cautious, reserved, taciturn. Eesti Pank President Andres Lipstok warns that Estonia’s work is pole tehtud — not finished. We won’t know for certain whether Eesti really will join the troubled eurozone until July. But people are talking nonetheless. Here’s a roundup of what they are saying:
Edward Altman, finance professor at New York University’s Stern School of Business, calls the adoption “ill-timed” in Business Week. “Expansion at this time is not a good idea,” Altman is quoted as saying. “There may have been internal political pressures that we don’t know about that caused this to happen or maybe it shows they are still a dynamic entity and want to show the world they’re not finished.”
Peter Garnham blogs on the Financial Times website that euro adoption is better for Stockholm than it is for Tallinn: “The adoption of the single currency will not change much for the denizens of Tallinn, whose currency, the kroon, has long been fixed against the euro in a currency board … but the EC’s enthusiasm for Estonia to join the single currency did have an effect on the wider market, helping the Swedish krona to rally across the board.”
Garnham cites UBS analyst Geoffrey Yu: “We believe this is a major positive for Swedish krona as the risk of [Estonian] devaluation will no longer exist.”
Jack Ewing writing in the New York Times notes an “unusually blunt” report from the European Central Bank that seems less convinced of Estonia’s readiness for euro adoption. “While the country is well within the limits on government spending and debt, the Baltic country has a history of high inflation that raises concerns,” Ewing states, citing the ECB’s position.
Meantime, The Wall Street Journal’s Richard Barley writes that the EC’s decision “sends a signal that the euro zone is here to stay — but it may be a while before there are any more entrants.”
According to Barley, the move is “due reward for the extremely severe recession it has endured.” He writes that it will “remove the risk of any foreign-exchange mismatch in private-sector lending, a key concern for Western European banks in the depths of the crisis.” Still, he argues that there will be “big challenges on the monetary-policy front: eurozone interest rates may well be too low to restrain inflation as the Estonian economy reaps the benefits of euro membership. And at some point, Estonia may get an expensive call to support other euro-zone states in trouble, as the current members are doing for Greece.”
With the EC saying one thing and the ECB saying another, Estonia’s favorite analyst Lars Christensen at Danske Bank said that “though Estonian euro membership is likely it is still not a done deal due to the ECB’s obvious reservations.”
Said Christensen, “This is now entirely a European political decision.”
Justin Petrone is an American writer living in Estonia and the author of the best-selling travel novel “My Estonia.” He publishes one of the best-written blogs in the Baltic states, Itching for Eestimaa.
Disclaimer:
Views expressed in the opinion section are never those of the Baltic Reports company or the website’s editorial team as a whole, but merely those of the individual writer.
