Estonia joins euro - safe haven or ticket for Titanic? (Feature)

By Mike Collier Dec 29, 2010, 2:06 GMT

Tallinn - Investors may be confident that Estonia's changeover to the euro on New Year's Day is a good thing for the former Soviet republic - but critics fear the move will be hike prices, limit economic sovereignty and, in the words of one, be akin to winning 'the last ticket for the Titanic.'

'If you compare Estonia with its peers in western Europe, it certainly looks quite attractive,' said Marcus Svedberg of the Swedish investment group East Capital.

Prime Minister Andrus Ansip, who is staking his political future on accession to the eurozone, is likewise upbeat. Both trade and ordinary citizens will benefit, he said earlier this month.

'Entrepreneurs can trust the euro as a currency. The euro will definitely support trade with other EU member states,' he said.

Estonia's switch to the euro will be marked early January 1 at a cash machine next to the National Opera Building. Ansip will make a ceremonial withdrawal of euro notes from the machine.

Prime ministers from euro-aspirant neighbours Latvia and Lithuania will be in Tallinn to mark the occasion, along with the EU's commissioner for economic and monetary affairs, Olli Rehn.

But not everyone is celebrating the disappearance of the Estonian kroon.

Recent bailouts of Greece and Ireland - and fears of defaults in Portugal, Spain and Italy - have left many Estonians sceptical that ditching the kroon during the current euro crisis is a good idea.

One of Estonia's first moves after joining the eurozone will be to pledge 800 million euros (1 billion dollars) to the new 440-billion-euro European Financial Stability Facility.

In the words of economist Andres Arrak of the Manior Business School in Tallinn, Estonia was 'invited to a wedding, but when we arrived it was a funeral.'

Lawyer Anti Poolamets has been Estonia's loudest anti-euro voice. The public face of the 'Stop Euro' campaign, he has used exhibitions, seminars and posters to point out the negative political and economic consequences of the single currency.

'Unfortunately, Estonia is like a passenger that got the last ticket for the Titanic,' Poolamets told the German Press Agency dpa.

'The one-size-fits-all ideology of the eurozone is a reflection of the dreams of a federal Europe,' Poolamets said. 'Estonia has managed very well for 18 years with its national currency, and with the adoption of the euro we will lose a very important tool for managing our economy.'

Besides stifling economic growth, Poolamets argues, the euro's adoption runs counter to the Estonian constitution. He claims public support for the currency is much lower than politicians such as Ansip admit.

In October he commissioned an independent pollster to gauge levels of support. The resulting survey showed that the majority of Estonians oppose the euro. Only one group clearly supports it, Poolamets said: those with the highest incomes.

Even the Estonian central bank - which has been one of the strongest supporters of the drive toward the euro - admitted in its December 20 economic outlook that the country is entering uncharted territory.

But Ansip is undeterred by the critics. He is betting that parliamentary elections on March 6 - an early referendum on the euro - will return his Reform Party to power.

He brushes aside concerns that adopting the euro will inevitably lead to price rises, saying that the experience of recent eurozone members Slovakia and Slovenia expose this supposed effect as a myth.

'Inflation is much more dependent on developments in the world market: food and fuel prices, the economic cycle and not so much the currency which is in use,' he said.

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