Tag Archives: estonian kroon

Farewell to the kroon: European Commission endorses Estonia’s bid to adopt the euro

Posted on 12 May 10 | Leave a comment

Estonia’s long and determined effort to join Europe’s monetary union was rewarded this morning when the European Commission endorsed Estonia’s application to adopt the single currency.

In its 2010 Convergence Report, the EC formally declared that Estonia has satisfied all 5 criteria for membership and recommended that Estonia become the 17th country to adopt the euro as its official currency. The final decision will be made by the finance ministers of the 16 countries already in the eurozone. If, as expected, they give the green light at their meeting in July, Estonia will make the switch from kroons to euros in January 2011.

The Convergence Report asserted that eight other euro candidates (Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania and Sweden) are not ready and must wait awhile longer. Analysts take this to imply a waiting period of at least four more years, so Estonia is likely to be the last country to join the eurozone until at least 2014.

This moment of triumph for Estonia also contains a hint of contention, because even as the EC has endorsed Estonia’s readiness to join the eurozone on the bases of all five required criteria (budget deficits, debt, long-term interest rates and currency stability, and inflation), a report released today by the European Central Bank calls into question Estonia’s readiness on the last factor. According to a Bloomberg report,

[t]aking direct issue with the commission’s ruling, [the ECB] voiced “concerns regarding the sustainability of inflation convergence in Estonia.” Prices in April, the month after the euro test, rose 2.9 percent from a year earlier, the fastest pace in 14 months. Asked in a telephone interview how Estonia will counter the criticisms, Finance Minister Jurgen Ligi said he will work with European governments “to explain our case so that no doubts remain about our eligibility.”

Estonia is probably not too worried. The ultimate decision-makers, the finance ministers of the 16 existing eurozone countries, have always followed the recommendation of the European Commission, and they are under no obligation to heed the European Central Bank’s suggestions.

You can read the New York Times’s report here. And here’s a nice backgrounder on the history of the euro with a list of the countries that currently use it and their dates of adoption.

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Key milestone is approaching for Estonia’s 2011 euro bid

Posted on 7 May 10 | Leave a comment

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.

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The last new Estonian kroon coin?

Posted on 30 January 10 | Leave a comment

In the same week that Estonia’s ministry of finance announced that the country had completed its application to join the eurozone, the Bank of Estonia released the newest — and perhaps the last — Estonian kroon coin. The silver coin was issued to commemorate the Vancouver Winter Olympics and carries a nominal denomination of 10 kroons.

The eye-catching design is meant to depict “a dynamic stylised image of racing cross-country skiers.” While you may or may not be able to discern the skiers in the rather abstract image, what you will see on the coin is the word “krooni” for perhaps the last time. And its probable status as the last kroon-denominated coin to be minted by Estonia should greatly enhance its collectible value.

Interested in picking one up for your collection? Notwithstanding its modest face value, it’s made of real silver, so it will cost you 350 kroons. Information on how to order the coin is here.

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The Estonian kroon is officially an endangered species

Posted on 29 January 10 | Leave a comment

Estonia’s determined push to adopt the euro as its legal currency has reached its final stage as the government today approved a convergence program that it believes will pave the way for euro adoption next January. Barring any unforeseen surprises, Estonians will exchange their kroons for euros in less than a year.

The Finance Ministry’s report concludes that Estonia has met the requirements for adopting the euro. Known as the Maastricht criteria, these include a cap on government budget deficits of 3 percent of GDP, maximum government debt of 60 percent of output, and inflation no more than 1.5 percent above the average of the three European Union countries with the lowest inflation rates.

Estonia is not alone in its optimism. Two European political heavyweights — German foreign minister Guido Westerwelle and EU commissioner Olli Rehn — have recently voiced support for Estonia’s euro bid.

Coming soon to Estonian wallets

So what are the pros and cons for Estonia of joining the euro club? Here’s a concise summary of the arguments on both sides of the debate.

Benefits

  1. Estonia becomes a much more attractive target for foreign investment, as foreign investors won’t need to worry that their investments will lose value due to currency fluctuations
  2. The country is insulated from the unpredictable and potentially devastating forces of foreign currency speculation
  3. Estonian households and businesses are able to borrow money, free of foreign exchange risk, from any bank in the eurozone; the increased competition could considerably reduce Estonians’ borrowing costs
  4. Estonians reap the psychological benefit of full membership in every European club

Costs

  1. Estonia loses control over its own monetary policy; decisions about interest rates and the amount of money in circulation will be made in Frankfurt rather than Tallinn
  2. The process of qualifying for the euro may have made Estonia’s recession deeper by restricting government spending just when it was most needed
  3. Estonians must endure the loss of a big source of national pride, the kroon

Estonia’s application will be voted upon by the European Commission on June 18th. If it is approved, Estonia will, on January 1, 2011, become the 17th country to adopt the euro as its official currency. And it will be time to wave goodbye to the kroon.

CORRECTION: An earlier post asserted that the euro could be adopted by Estonia as early as June 2010. This is of course the earliest possible approval date; as noted above, the soonest adoption date is January 1, 2011. Estonia on the Map regrets the error.

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RIP modern Estonian kroon: June 1992 – June 2010?

Posted on 11 December 09 | Leave a comment

In spite of the economic crisis, Estonia’s government policy-makers have continued to focus, laser-like, on fulfilling the Maastricht criteria for adoption of the euro. Most of the criteria are being met, and the country appears to be on track to become the 17th country to adopt the euro as its official currency.

Getting to this point hasn’t been easy. And as a policy goal, euro adoption has many critics because meeting the Maastricht criteria has meant reducing government spending — and therefore the size of the social safety net — just as tens of thousands of Estonians are falling victim to unemployment. But for better or worse, according to a brand new International Monetary Fund publication, euro adoption could happen as early as next June.

Estonia became the first former Soviet republic to dump the ruble and issue its own currency, the kroon, in June 1992. More correctly, the kroon was reissued. The kroon was first introduced by the fledgling Estonian Republic in January 1928, and it remained the country’s legal tender until the Soviet occupation began in 1940. So taking into account both of its iterations, the kroon will have had a 30-year lifespan if current forecasts prove to be accurate.

If you’ve had the pleasure of holding them in your hands, you know that Estonian banknotes are beautifully designed and a pleasure to behold. I provide a fond description of my first encounter with a 500-kroon note in chapter 12 of my book. Here’s an overview of the notes currently in circulation:

For a more detailed perspective, you can click to open images of every version of every denomination note at the website of the Bank of Estonia.

If Estonia does manage to adopt the euro next summer, it will become the first former Soviet republic, and the third formerly Communist country (after Slovenia and Slovakia) to do so.

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