2011 is set to arrive in a few hours. With its arrival, Estonia will join the EU currency regime as the last of 17 nations approved to use the Euro. They may be the proverbial last passenger up the gang plank to board the Titanic.
This is a major deal for the nation, as Estonia only left the ruble in 1992. It quickly fixed its own currency to the German mark at the time. Estonia with a population of 1.3 million people is tied to Europe in more ways than one. They have two choices and only one of them is acceptable to the citizens.
Once the Euro came into existence in 1999, Estonia fixed its currency to the Euro. So, while it is the last of 17 nations to officially join the currency, it has been a defacto member for years. Estonia needs to be European more than Europe needs a new client for the Euro currency.
The irony is that while Estonia is formally joining the EU, one of potentially four nations now is seriously considering leaving the EU and reissuing their own currency.
Since May there have been rumors from Berlin that Germany is prepared for a world without the Euro as their principle currency. Those rumors were officially denied in November. Reality is a rumor publicly denied is no longer a rumor.
The New York Times has a great article on Estonia,
“Whatever happens, our currency is tied to the euro,” said Riho Unt, chief executive in Estonia of Skandinaviska Enskilda Banken, or S.E.B., a Swedish bank that is one of the Scandinavian institutions that dominates banking in the country. “Being inside is better than being outside.”
Economic arguments aside, in Estonia the euro is still a symbol — tarnished, perhaps — of hope and prosperity.
“It symbolizes that Estonia has emerged as a full member of the European family,” said Joakim Helenius, chief executive of Trigon Capital, an asset management company based in Tallinn. “For people here that is a very big thing.”
While media portrays Estonia’s adoption of the Euro as the best possible event, not all Estonians are as excited. Nevertheless, many Estonians realize they have little or no choice. They committed to joining a while ago, and any attempt to not joining would be even more damaging to the Estonia economy at this stage.
“Talking about splitting the euro is not the way out,” Jurgen Ligi, the Estonian finance minister, said during an interview. “There would be huge immediate losses for both sides.”
“There is no alternative” to the euro, Mr. Ligi said. “This is the only boat in the sea.”
The reason there is no other choice, is that during the crisis the Estonian government cut spending by the equivalent of 9% of their GDP, to keep the budget in line with new membership expectations. They have by doing so forced their citizens to accept conditions that require joining the Euro, even if its obviously going to shatter in the coming months.
Estonian’s in the last few years, have refinanced their home mortgages in Euro or other like currencies. These loans would become unplayable if Estonia tried to back out of the currency merger at this point. You could say that their population gave up state sovereignty for cheap home payments in a future currency they will have little to no advice in going forward.
Hopefully if the Euro does shatter, Estonia can find a lifeboat in the future Next Generation German Mark. They have made the currency jump a few times now, what could be so hard with possibly having three currencies in one rolling twelve months?