Europe

Why Estonia wants to join the troubled euro

Estonian Bureau de change sign
Image caption The eurozone has been suffering as Estonia prepares to join

Who in their right mind would want to join the euro?

The EU's single currency is giving a very good impression of being in trouble.

A huge bail-out for the Greek economy and persistent rumours that other countries could need similar help have undermined confidence and credibility.

Dithering and bickering by Europe's political leaders has not helped.

So it is perhaps something of a surprise to find that Estonia, one of the EU's newest and smallest member states, is all set to adopt the single currency in January 2011.

Last week, as they have done for centuries, Estonians marked midsummer with a celebration, known as St John's Eve.

Bands played, people danced and beer was drunk around roaring log fires.

The sun was shining, even though it was nearly 11pm.

Austerity measures

But while some traditions last, others are changing.

This was the final time before the adoption of the euro that Estonians could buy their midsummer beer and sausages using the Estonian kroon.

To prepare, the country had to meet EU rules on budget deficits, so state spending has been slashed.

Massive austerity measures were put in place to ensure Estonia satisfied the EU's stability and growth pact.

Working in the government's cultural heritage department, Riin Alatalu has seen the effect of those cuts first hand.

Her department has had up to 30% of its budget slashed.

Other government employees have lost their jobs.

But she says most people still support the move to the single currency.

"I think the majority of people think that economically it's a good idea to join the euro," she says.

Symbolism

But there is still a strong emotional attachment to the old currency, a symbol of Estonian independence after years of Soviet domination.

"We are a small country with a very rough history and with short periods of independence," Ms Alatalu says.

"It's our own currency and a state symbol. And it's very symbolic for us to have our own currency."

Image caption Most Estonians appear enthusiastic about joining the euro

That symbol will soon replaced by the euro, itself symbolising the hugely ambitious European project of economic and monetary union.

Estonia's problem is that in the middle of preparing for euro membership, Europe's economies went into meltdown.

The Estonian economy shrank by more than 14% last year. Unemployment stands at just under 20%.

To keep the deficit down to acceptable levels government benefits were cut and taxes were raised.

So has it been worth the pain?

Finance Minister Jurgen Ligi is in no doubt. "Yes. It is a symbol and a quality mark," he says.

"It is a political symbol as well. We believe a small country should have a strategy of being integrated into the major zones and organisations that are active here. It's a trademark - a political trademark."

Sceptics rare

One of the big hopes is that being a member of the euro will encourage inward investment.

By being part of the single currency the risk of devaluation is removed.

But some worry that political differences are fatally undermining the single currency - and now is no time to join.

Professor Ivar Raig, of the private university Nord Academy, was once a government adviser.

Now he is almost a lone voice in calling for Estonia to resist the lure of the eurozone.

He fears the eurozone is in fact not one currency zone but two - the thrifty north, based around Germany, and the southern states where spending is out of control.

"We explained to our people that budget cuts are needed and people agreed with a 20% cut and this was passed.

"But in southern countries even a 5% cut is, for them, a catastrophe. And that's why I don't believe Europe is one optimal currency area."

He also fears that by sticking to the eurozone's rules on inflation and budget deficits, Estonia will get locked into years of low growth, when in fact it needs to grow rapidly to catch up with the European average.

But sceptical voices like Professor Raig are hard to find.

The days of Estonia's own currency are already numbered.

At the midsummer festival, there were a few who would miss the passing of the old currency.

But Estonia seems ready to embrace a brave new dawn. Who in their right mind would want to join the euro?