Eurozone remains Estonia's promised land (Feature)

By Mike Collier May 4, 2010, 4:08 GMT

Tallinn - The hoped-for adoption of the euro in Estonia next year will make more of a difference to Vallo Tonisver than to most people.

Tonisver is a partner in the coffee company 7Kohvipoissi, which supplies trendy espresso vending machines to offices across the small Baltic state of 1.3 million people.

'About 60 per cent of our machines use a coin mechanism. But with the Estonian currency, the kroon, most cash is in notes - you just don't carry coins. When the euro comes people will be carrying many more coins in their pockets, we hope!' Tonisver told the German Press Agency dpa.

Tonisver describes himself as 'quite optimistic' that on January 1, 2011 Estonia will become the 17th country to adopt the euro as its currency, an opinion that most of his compatriots share.

From top officials to ordinary people in the street, there is noticeable pride that Estonia has earned its right to the euro the hard way.

Despite an economic contraction of 14 per cent in 2009, the government of Prime Minister Andrus Ansip made meeting the Maastricht criteria governing euro adoption its No 1 priority.

Spending was slashed at precisely the time other governments were embarking on expensive stimulus packages. Social security payments were reduced even while unemployment rose into double digits.

Though painful, the strategy seems to have worked.

Inflation has tumbled from a peak of 11.4 per cent in June 2008 to 1.7 per cent this March. Government debt levels are the lowest in the European Union.

The most challenging of the Maastricht criteria, a budget deficit limit of 3 per cent of gross domestic product (GDP), has been met 'with room to spare' according to Finance Minister Jurgen Ligi.

'For Estonia, the euro is mostly a mark of trust and quality,' Ligi tells dpa. 'Belonging to the eurozone will increase investments here and thus help to create new jobs. It will also help people to save on interest costs.'

Ligi points out that Estonia's fiscal discipline could put many existing eurozone members to shame: 'One has to keep in mind that Estonia since 1992 has kept its fiscal policy line stricter than required even by the Maastricht criteria and, in that matter, joining the Eurozone doesn't change anything.'

Yet despite its impressive track record, there remain some fears that Estonia may not be allowed to join the euro club when the European Commission presents its thoughts on the matter on May 12.

The development of the debt crisis in eurozone member Greece has made other members wonder if admitting a new country would be a good idea.

Any refusal would provoke accusations of double standards. Speaking at a financial conference in the Estonian city of Parnu recently, Nenad Pacek of the Vienna-based Global Success Advisors made light of the issue to his largely Estonian audience.

'All of [the existing eurozone members] should step out as none of them fulfil the Maastricht criteria. By the time it joins, Estonia will probably be the only country meeting the criteria. You can start spending more as soon as you are in because no one can do anything about it,' he joked.

But to Estonians, refusal to issue an invitation to the eurozone would be blatant hypocrisy.

'We were able to meet the critical Maastricht budget deficit criteria even while we were in this deepest recession we've experienced since independence,' says Andres Arrak, director of the entrepreneurship institute at the Mainor Business School in Tallinn.

'The message from Estonia is that this is possible. If western European countries cannot solve their debt and loan problems, the eurozone will not last a very long time,' he says.

'There isn't serious reform of the eurozone rules needed - what is needed is for countries to follow the rules that they established for themselves 10 years ago. Even Germany, the biggest economy in Europe is cheating.'

The theme that it is the eurozone countries rather than Estonia that need to think again about their priorities is echoed by Ligi.

'To live in debt and maintain it is something that even the big countries can't do indefinitely,' he tells dpa. 'The European population is ageing and international competition is getting tougher. All the EU finance ministers must make an effort to fit the criteria. In the eurozone the Maastricht criteria is a rule as well.'