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Estonia set to switch to euro on 1 January - 15/07/2010

Jyrki Katainen, Jürgen Ligi, Olli Rehn, Didider Reynders, Siim Kallas, Franc Križanic © EU

Baltic country wins final approval from finance ministers after getting the go-ahead from parliament, the central bank and other EU institutions.

The decision culminates an approval process that began in May when the commission determined Estonia had met all the conditions for adopting the common European currency.

Estonia is now set to switch from krooni on 1 January, becoming the 17th nation to join the euro area.

It will enter in a strong position, with public finances in good shape. Estonia recorded a budget deficit of 1.7% of GDP last year, well under the EU’s 3% limit. Government debt was also low– just 7.2% of GDP.

The economy is highly flexible and, while not immune to the crisis, has shown its ability to operate and adjust under a fixed exchange rate for close to two decades.

Euro adoption is not the end of the road, however. As a euro area country, Estonia will be required to continue policies that support growth and contain the risk of excessive domestic demand.

In the months ahead, the Commission and the European Central Bank will work closely with Estonia to ensure a smooth changeover. Preparations include an information campaign to familiarise Estonians with their new currency.

The euro began life in 1999 as a virtual currency for cashless payments and accounting purposes. Euro coins and banknotes entered circulation three years later.

With 1.2 million people, Estonia will bring the euro population to 330 million. Other recent additions include Slovakia in 2009, Cyprus and Malta in 2008 and Slovenia in 2007.

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