Estonia geared up yesterday for historic New Year’s festivities as the tiny country today becomes the first former Soviet republic to adopt the euro, a symbolic boost for the currency tarnished by the worst crisis in its 12-year history.
The changeover officially started at midnight marking the beginning of the end of the Estonian kroon and a final step in the Baltic state’s dogged effort to become the 17th member of the eurozone and to integrate its economy with Europe. But the switch comes at a time of profound crisis with Europe’s common currency, particularly after two members – Greece and Ireland – required emergency bailouts earlier this year to prevent their economies from slipping into insolvency.
This is why many feel that the inclusion of Estonia, whose $19 billion economy is dwarfed by the euro’s total annual output of approximately $12.5 trillion, holds symbolic importance.
“Estonia’s accession to the eurozone is an encouraging sign for Europe as a whole because it shows the attractiveness of our common currency,” Germany’s Deputy Foreign Minister Werner Hoyer said in a statement.
Economists generally believe that Estonia, which has emerged from its worst economic crisis, will benefit from having the euro, though the country of 1.3 million still has painful structural reforms to implement before reaching western European living standards.
The country, which achieved independence in 1991, will be the poorest member of the eurozone. Celebrations included fireworks and a gala concert featuring the music of US composer George Gershwin, while Estonian Prime Minister Andrus Ansip was due to make one of the first bank-machine withdrawals in euros just after midnight.
The Finance Ministry said Estonia’s banks and IT-systems were prepared to cope with the changeover as hundreds of ATM-machines were being loaded with euro notes.
Selected bank branches and post offices were scheduled to stay open over the weekend to accommodate the switch, but police urged citizens not to rush about with large amounts of cash due to robbery risks.
After Slovenia and Slovakia, Estonia will be the third East European country using the euro. Seven other countries in the region — Poland, Romania, Hungary, Czech Republic, Bulgaria, Lithuania and Latvia – are also required to phase in the euro as part of European Union membership, though there is no deadline to do so.
Estonia’s Baltic neighbours Latvia and Lithuania have pledged to join the euro area in 2014.
Euro changeover
On the occasion of Estonia adopting the European single currency European Commission President José Manuel Barroso said: “I congratulate Estonia and warmly welcome all its citizens to the euro area. The euro is there to improve everyday life. It makes travel elsewhere in the euro area easier and cheaper for Estonian citizens, with no need to change currencies and pay commission. Estonia’s entry means that over 330 million Europeans now carry euro notes and coins in their pockets. It is a strong signal of the attraction and stability that the euro brings to member states of the European Union”.
“This is a great achievement and a fair reward for a country that has been firmly committed to maintaining sound fiscal policies,” said Olli Rehn, European Commissioner for Economic and Monetary Affairs.
“The single currency will provide a stable framework for the Estonian economy, which together with sound fiscal and macro-economic policies will create the basis for economic prosperity”,.
Preparations for the introduction of the euro in Estonia are now completed. Commercial banks have received euro banknotes and coins in advance from the Estonian Central Bank and have, in turn, supplied euro cash to shops and other businesses under a specific contract, so that they can handle payments and return change in euro from today.
There will be a dual circulation period of two weeks, starting today, during which the two currencies will circulate alongside each other to allow for a gradual withdrawal of Estonian kroons. Shops are however expected to give change in euro only in order to speed up the changeover and reduce the cost of having to handle two currencies simultaneously.
The general public has been able to buy 700 000 mini-kits of euro coins (with the Estonian national side) to acquaint themselves in advance with their new currency. As from 1 December, all bank branches with cash services have been exchanging kroon cash holdings free of charge at the official conversion rate (€1=15.6466 EEK). After June 30, this service will continue to be provided at a more limited branch network until the end of December.
The Estonian Central Bank will exchange kroons for euro during an unlimited period. To facilitate the changeover, the commercial banks will extend opening hours during the changeover and have foreseen additional staff. Most bank branches will be open today and tomorrow to offer cash services. All ATMs will be able to dispense euro banknotes.
In order to make it easier for consumers to get used to the new scale of monetary values, prices must be displayed both in kroons and euro as from July 1 until June 30. The implementation of this rule is supervised by the Estonian Consumer Protection Board, which publishes the names of enterprises that do not implement this rule correctly and which may also impose fines.
To address citizens’ concerns about possible price increases and abusive price practices in the changeover period, a Fair Pricing Agreement was launched last August. Businesses that signed up commit not to increase their prices without justification during the changeover to the euro and to respect the changeover rules. Over 500 entities joined the Agreement, covering around 2,500 sales locations.
The preparations for the changeover included a comprehensive communication campaign amongst all residents of Estonia to create awareness about the practical aspects of adopting the euro. The European Commission and the European Central Bank contributed considerably to these efforts.