TALLINN – Estonia and Lithuania joined the Exchange Rate Mechanism (ERM2) on June 27, the first major step in adopting the euro, while keeping their existing currency boards in place.
The announcement that the two countries, along with Slovenia, would joined was made after a special meeting of finance ministers of the 12 eurozone nations and the president of the European Central Bank.
The parity rate of the Estonian kroon was set at 15.6466 per euro, while that of the Lithuanian litas was fixed at 3.4528 per euro.
Government officials hailed the decision.
"Today's [June 27] decision to approve our application to join the exchange rate mechanism is historic for Estonia, as it creates a possibility for us to be technically ready for the single currency by the middle of 2006. It is primarily a recognition to the viability of our economic and budgetary policy principles in united Europe," Estonia's Finance Minister Taavi Veskimagi said.
"Following a careful assessment of the appropriateness and sustainability of Estonia's currency board, it was accepted that Estonia joins the exchange rate mechanism with the existing currency board arrangement in place," Bank of Estonia President Vahur Kraft said.
ERM2 is a multilateral agreement that facilitates exchange rate stability in Europe. Countries part of it must keep their national currency stable against the euro and meet the Maastricht criteria on inflation, interest rates, fiscal balance and national debt. Each country wishing to adopt the euro must be a member of ERM2 for at least two years.In Lithuania, Finance Minister Algirdas Butkevicius and Reinoldijus Sarkinas, governor of Lithuania's Central Bank, said that membership meant that the Baltic state could theoretically adopt the euro in the second half of 2006, provided it met all the requirements.
"Our position has not changed. We will make all efforts to make Lithuania part of the eurozone as soon as possible, but it is hard to say if this will happen exactly in two years' time," Sarkinas said. "We will have to solve many technical problems, such as minting euro coins."
Lina Adakauskiene, Finance Ministry undersecretary, said that ERM2 membership gave Lithuania a theoretical chance of adopting the euro in two years.
An official from the Bank of Latvia said the country would join the ERM2 in January 2005 and that the country would not lose anything by being six-month behind its neighbors.