The European Union welcomed the newest member country in its fold on Saturday, the former Soviet state of Estonia. However, the deepening currency crisis in the union may discourage other bigger countries from joining at least for a decade.
The 1.3 million population strong Baltic state joined the single currency 17 member state on Saturday, becoming the first former Soviet republic to join the EU.
“It is a small step for the euro zone and a big step for Estonia”, said Estonian Prime Minister Andrus Ansip, holding Euros taken out from a specially installed cash machine outside a theatre, where celebrations were organized to mark the switch over and the New Year. “We are proud to be a euro zone member state”, said the visibly happy Prime Minister.
Estonia has been badly affected by the recession with its economy shrinking by 14 percent and the country sees its integration to EU as an end to its stressed economy. This also will potentially remove fear from the mind of investors who were apprehensive of the domestic currency – the Kroon’s devaluation.
Estonia’s integration also marks an end to Russia’s influence, which started when the Soviet Union had collapsed in 1991. Neighbors Latvia and Lithuania also hope to integrate with the EU by 2014 and has already benchmarked their domestic currencies to the Euro.
The Kroon will cease to exist after two weeks and will be exchanged at a rate of 15.6466 for each Euro. Nobel laureate economist Paul Krugman commented that Estonia’s integration was historic, but came with a price tag. “So congratulations to Estonia – but condolences too. This wasn’t the glittering euro entrance you were promised”, said Mr. Krugman in his blog.
The East European countries of Poland, Hungary and others are skeptical about the Euro’s future. They have undertaken a wait & watch policy and are closely observing the developments in Spain, Portugal, Greece and Ireland.
The governor of Polish Central bank Marek Belka expressing his skepticism said: “In the euro zone there are dramatic things happening, so why rush?”
Germany however reiterated its faith in the Euro and the Chancellor Angela Markel said: “The euro is the foundation of our prosperity. Germany needs Europe and our common currency. We Germans assume our responsibility, even when it is sometimes very hard”.
French President seconded her view saying: “Don’t believe, dear compatriots, those who suggest that we should leave the euro. The end of the euro would be the end of Europe”.
Estonia is the EU’s poorest member with its GDP equal to 0.2% of the union’s 8.9 trillion combined GDP. However, its national debt and budgetary deficit are among the lowest of its members.