kolmapäev, mai 12, 2010


When I heard the news today that the European Commission had recommended that Estonia adopt the euro as its currency on January 1, 2011, I was pleased.

Though I appreciate the aesthetics of Estonia's national currency, the kroon, the euro is the money that most of Europe uses. There is a belief that the adoption of the euro will allay any concerns about investing in an insecure economy, turning the FDI tap back on next year.

Local leaders haven't yet done the happy dance on Toompea. They are being cautious, reserved, taciturn. Eesti Pank President Andres Lipstok warns that Estonia's work is pole tehtud -- not finished. We won't know for certain whether Eesti really will join the troubled euro zone until July. But people are talking nonetheless. Here's a roundup of what they are saying:

Edward Altman, finance professor at New York University’s Stern School of Business, calls the adoption "ill timed" in Business Week. "Expansion at this time is not a good idea," Altman is quoted as saying. "There may have been internal political pressures that we don’t know about that caused this to happen or maybe it shows they are still a dynamic entity and want to show the world they’re not finished."

Peter Garnham blogs on the Financial Times website that euro adoption is better for Stockholm than it is for Tallinn: "The adoption of the single currency will not change much for the denizens of Tallinn, whose currency, the kroon, has long been fixed against the euro in a currency board ... But the EC’s enthusiasm for Estonia to join the single currency did have an effect on the wider market, helping the Swedish krona to rally across the board."

Garnham cites UBS analyst Geoffrey Yu: "We believe this is a major positive for Swedish krona as the risk of [Estonian] devaluation will no longer exist."

Jack Ewing writing in the New York Times notes an "unusually blunt" report from the European Central Bank that seems less convinced of Estonia's readiness for euro adoption. "While the country is well within the limits on government spending and debt, the Baltic country has a history of high inflation that raises concerns," Ewing states, citing the ECB's position.

Meantime, The Wall Street Journal's Richard Barley writes that the EC's decision "sends a signal that the euro zone is here to stay—but it may be a while before there are any more entrants."

According to Barley, the move is "due reward for the extremely severe recession it has endured." He writes that it will "remove the risk of any foreign-exchange mismatch in private-sector lending, a key concern for Western European banks in the depths of the crisis." Still, he argues that there will be "big challenges on the monetary-policy front: euro-zone interest rates may well be too low to restrain inflation as the Estonian economy reaps the benefits of euro membership. And at some point, Estonia may get an expensive call to support other euro-zone states in trouble, as the current members are doing for Greece."

With the EC saying one thing and the ECB saying another, Estonia's favorite analyst Lars Christensen at Danske Bank said that "though Estonian euro membership is likely it is still not a done deal due to the ECB’s obvious reservations." Said Christensen, "This is now entirely a European political decision."

UPDATE. Here are some more:

Russian analyst Igor Kostikov tells the Voice of Russia that Estonia is well prepared for euro adoption: Noting that Estonia's public deficit is well within the 3-percent of the GDP, as required by the Maastricht agreement, Kostikov says that Estonia is an "even better budgetary performer than Belgium and France, let alone Greece and other countries in Southern Europe." According to Kostikov, Estonia's entry would be a "signal of Eurozone readiness to encourage frugal economies" and the "lure of the euro remains irresistible."

For some, Estonia's status as a former Soviet country is no longer something of which to be ashamed, at least when it comes to euro adoption. Ahto Lobjakas writes in Radio Free Europe/Radio Liberty online that,
"assuming no late reverses, Estonia will be the third former communist-bloc country to join the euro after Slovenia and Slovakia." Poland and Romania are currently on course to accede to the single currency in 2015, he notes.

Edward Lucas, I presume, in The Economist reveals that the real remaining hurdle to Estonian euro adoption is political. "Some euro zone members (France is often mentioned) think that allowing an obscure and volatile ex-communist economy to join a currency union that has too many dodgy members already should not be a priority. If Estonia is really so solid, why not wait a year to be sure?"

By the way, The Economist leader had great artwork, so I decided to steal it for my own nefarious purposes. Credit where credit is due ...

19 kommentaari:

McMad ütles ...

New York Times: http://www.nytimes.com/2010/05/12/business/global/12assess.html?hp

Financial Times (mirror): http://www.geenstijl.nl/archives/images/FTracetothebottom.html

Personally i feel this country would be a lot better off as a sort of Singapore of the North (with US like Constitution).

Do we really want to be part of Europe that has been designed from the ground up to sidestep the Voter? Referendums in France, Netherlands, Czech Republic and France were blatantly ignored. Where corruption, non-accountability and non-transparency are the norm.
The sooner this monstrosity implodes the better.

Mart ütles ...

There is already an european Singapore. It's called Switzerland.

There's also an European Union Singapore. It's called Luxembourg.

Guess what they have in common? They are not located next to [CENSORED] Russia.

Justin ütles ...

The euro is a positive for Estonia, but I have doubts about there being some huge rush of FDI that was waiting on the euro before it flows in.

The reason is that most business expenses would not be effected by a devaluation. For example, loans on equipment and business premises are already made in Euro. While salaries are in EEK, a devaluation would actually reduce the employer's costs (on a euro basis) so that's not a negative either.

Time to prepare for carrying around lots of coins instead of mostly paper money.

Sharon ütles ...

A change of currency is often a good time to review current prices. You may find nothing is "devalued" in the end...

McMad ütles ...


Switzerland has survived next to other countries that have been extremely expansionistic in the past.
Both Switzerland and Singapore have HUGE military forces for their size. Adolf studied the possibility to occupy Switzerland (various invasion plans were drawn up) but decided against it as it would have been too costly. For the same reason Switzerland's neutrality could be maintained during WW1. Now there is a lesson to be learned. History shows clearly how little treaties are worth..

And if we are going to rely on unions and treaties, then Nato membership is a better bet for security than EU.

bunsen_lamp ütles ...

McMad: Estonia needs some mountainous terrain, and pronto. Switzerland has Alps, which makes all the difference when it comes to defending against invaders. Estonia is flat and easily overrun by hostile motorised troops. We need mountains I say. Let them unemployed grab shovels and start some serious digging, maybe EU subsidies could be allocated as well. See, I single handedly solved both Estonia's biggest threats: unemployment and defence.

Lingüista ütles ...

I have to agree with Mart. Being a new Singapore so close to Russia wouldn't be a good idea. Singapore itself is at a respectable distance from China... whereas Hong-Kong ended up going back to the Middle Empire.

Lingüista ütles ...


if things go the way they are here in the Netherlands, you won't need to carry coins around instead of bills. It's all electronic money, PINs and debit cards these days!...

Temesta ütles ...

These people will be happy that they can finally pay with euro's:


Martin-Éric ütles ...

I'm wondering what happened of Lithuania's case? Last time, they missed the mark by so little.

LPR ütles ...

This would be an opportune time for the beleaguered Gulf resorts owners to sell worthless vacation packages to showy Estonians. They'd lap them up even better that the shitty Egyptian or Turkey ones.

Read on ...

Sunday May 16 2010

ESTONIA wants to join the euro. That's worth repeating, just to give the idea time to sink in. Estonia wants to join the euro. Do they not get the news in the Baltic?

Applying to join the single currency at the moment is a bit like trying to hitch a ride on the Titanic after it hit the iceberg. The rest of the passengers are scrambling desperately for the lifeboats, while the Estonians are blithely admiring the wallpaper in the stateroom and picking out the best bunks. Though proving there's never a shortage of space for more lunatics in the European asylum, the EU says they're welcome to climb aboard in 2011.

Presuming there still is such a thing as the euro by then, of course.

As for being welcome, I wouldn't be so sure. Last weekend, European finance ministers finally thrashed out a rescue package for the eurozone worth nearly a trillion euros (or about a hundred quid, in old money). There's an impressive quantity of zeros on that figure, but it won't go far divided 16 ways.

The last thing we need is another struggling nation dipping their hands into a dwindling pot. But wait, there's no need to panic, because apparently Estonia's finances are "in a healthy state". Yeah, I know that's what the economics experts were saying about us a few years ago, but this time they really mean it. Phew, and there I was getting worried.

Of course, it does raise the question of why, if the tycoons of Tallinn are doing so well, they want to risk it all by throwing their lot in with a kamikaze currency like ours? They'd be better off sticking with... er, whatever their currency is called.

Eilis O'Hanlon

- Eilis O’Hanlon

Sunday Independent

Mart ütles ...

@ Brüno

A pretty dumb person has written a pretty dumb opinion piece.

Your point?

Serial_ ütles ...

Sorry Brüno, Mart said it all, there is no point to quote someone, who even do not bother to look up some information before "writing" an "article". Ireland (a country, where Sunday Independent is published) is not enjoying the moment itself, I guess.
Besides, Eilis, the author of the article knows as much about economy, as pigs about flying.
Eurozone has had better times, I don't think that I am much wiser, but do we really have a choice? Kroon is pegged to Euro anyway and if Euro falls, then Kroon falls with it, which means it would be devaluated sooner or later.

LPR ütles ...

I guess the point is, every man for himself. There will not be enough lifeboats. It will get ugly toward the end.

Lingüista ütles ...

Or maybe it won't, Brüno. The Titanic was not the only boat ever to hit an iceberg...

LPR ütles ...

Time will tell. Milton Friedman, if he is of any authority on anything, said something to this effect back in 1999.

Damn you Milton, you party pooper!

Serial_ ütles ...

Please, don't compare eurozone with Titanic. When Titanic hit the iceberg, the catastrophe was inevitable, Eurozone can and hopefully will, be saved. It depends about few unpopular political decisions.

Temesta ütles ...

It's ironical that Estonia's government tried to limit Estonia's budget deficit and debt as much as possible to get into to the Eurozone, and now they probably will be forced to take loans and make debt to bail out richer Eurozone members.

viimneliivlane ütles ...

When it comes to economic analysis I find myself reminding myself that France has in the past been capable of producing rational thinkers, after all, they gave us the French Enlightenment, however I'm very glad the economic analysis that really matters is being done in Frankfurt.