Estonia’s long and arduous endeavor to become the 17th country to adopt the euro as its official currency will reach a key milestone next week. The European Commission will issue its official report approving or rejecting Estonia’s application on 12 May.
So what will the report conclude? In spite of the financial market turbulence wrought by the unstable situation in Greece, most analysts expect the EC to give Estonia a thumbs-up. A Reuters backgrounder out today concludes that the EC is “expected to grudgingly let in Estonia”. And Estonia’s bid continues to be supported by its closest neighbors. In an interview published yesterday, Finnish finance minister Jyrki Katainen was upbeat:
“Estonia has coped with a decline in economic activity of 10% and obviously still fulfills the criteria” for adoption of the common currency, he said. “In my opinion, nothing argues against the planned acceptance into monetary union next year.”
Latvian Prime Minister Valdis Dombrovskis was even more adamant, asserting in a speech last week in Munich: “We would like to highlight the importance of Estonia joining the euro zone at the earliest opportunity, for the economic recovery and stability of the whole Baltic region.”
Doubts have been raised, however, by an economic report released today which shows that Estonian consumer prices increased at an annual rate of 2.9% in April, the highest rate of inflation the country has seen since February 2009. And public comments issued by Olli Rehn, European Commissioner for Economic and Monetary Affairs, have become less favorable than they were just a few months ago.
Assuming a favorable report by the EC, will euro adoption be a good thing or a bad thing for Estonia? I summarized the arguments for and against the adoption of the euro in this earlier post. The Estonian political leadership is still 100% in favor of monetary union, and Estonian popular opinion is still decidedly lukewarm.
Estonia on the Map 