The euro before the Euro-union?

  • 1999-11-04
  • By Brooke Donald
TALLINN - Seven years after Estonia adopted its own currency and
subsequently pegged it to the Deutschemark, talk of changing to the
European monetary unit, the euro, has business leaders and
politicians butting heads over what course the country should take on
its road toward EU membership.

Estonia was the first post-Soviet state to break from the ruble and
take on its own currency in 1992 and may well be the first country to
adopt the euro before it even becomes part of the union.

Government officials are the least enthusiastic about the move to
scrap the kroon for the euro before accession. However, even they
aren't declaring a firm position in the matter.

In a recent meeting with visiting Australian ministers of Parliament,
Prime Minister Mart Laar said deciding to make the switch from the
national currency to the euro will be based on readiness for the euro
in the Estonian economy.

Laar has not said officially if he is for or against pre-accession
adoption of the European currency, according to his spokesman Priit

"There isn't quite a concrete view yet. More needs to be discussed,"
Poiklik said.

Kalle Jurgenson, Pro Patria Union MP and chair of the finance
committee, said Estonia is economically ready for the euro, but that
doesn't necessarily give a go-ahead to the currency's adoption.

"It is possible of course. But, the question is if there is a need,"
Jurgenson said. "We must give time for people to give their opinions
of this."

So far, public opinion has been restricted to the political and
economic spheres of society. While most bankers support transition to
the euro, most politicians waver with their opinions—only calling for
more meetings to discuss the possibility further.

"Regardless of what advantages there are, it is the logical step that
will happen in this business environment. The direction here is to
move toward the EU, so far this is not an impossible task," Mart
Habakuk, manager at Pricewaterhouse Coopers CBIF, said. "This is in
line with the main strategy of the country."

The strategy of the country is no doubt to move toward EU membership.
But, adopting the euro is not a precondition to joining the 15-member
bloc, according to the European Commission, the executive arm of the

"We are not proposing it to any candidate countries," said Arhi
Palosuo, head of the EC delegation in Estonia. "It is a process of
its own."

Palosuo said that Estonia was in a good position to adopt the euro
because of the country's economic stability and the fact that the
kroon has been pegged at a fixed exchange rate to the mark for
several years, however, he would not endorse the move to the euro.

"In the end, that is the way it will go. But, that is in the end," he
said. "Overall approach is that accession to the EU is one process
and accession to the European Monetary Union is another process."

Simplicity of settling international accounts, easier comparability
of prices, stability of loan interest rates and abolishing extra
expenses of exchanging currency are some of the advantages of using
the euro, supporters say. They also argue that fear of kroon
devaluation would be dissolved. Tiit Made, former MP who currently is
a professor at the Estonian Higher Commercial School, added that
adopting the euro is in accordance with the liberal economic policies
of the past decade that awarded Estonia with international attention
and a reputation for bold reform.

However, those against early adoption of the euro warn that
establishing it before induction into the political body using it
leaves Estonia without sufficient guarantees if customers suddenly
demand euros.

"The European central bank will lend no helping hand. It has no such
obligation, because Estonia has introduced the euro on its own
initiative," said Bo Kragh, vice-president of Svenska Handelsbanken,
in the daily Aripaev.

Finance Minister Siim Kallas said that rash introduction of the euro
may be dangerous for the Estonian economy, even though introducing
the euro is technically possible here because the country already
meets most of the Maastricht criteria.

During a meeting with Luxembourg Finance Minister Jean-Claude Junker
in October, the finance ministers said Estonia must be certain its
economy is competitive before adoption of the euro.

The government has set 2003 as a goal for accession into the EU, and
Laar and Kallas agree that adoption of the euro should be shortly

The Bank of Estonia has not made a formal statement regarding euro
adoption, but spokesman Andrus Kuusmann said discussions regarding
the move will be discussed with EU officials later this month.

On Jan. 1, 1999, the euro was launched in 11 member states as common
currency, meaning joint monetary, exchange rate and interest
policies. The euro will go into circulation as cash on Jan. 1, 2002.