Accession by Estonia to the euro (2011)
Estonia fulfils the necessary conditions for the adoption of the euro. It will therefore adopt the euro as single currency from 1 January 2011. Estonia will be the seventeenth European Union Member State to adopt the euro.
Council Decision 2010/416/EU of 13 July 2010 in accordance with Article 140(2) of the Treaty on the adoption by Estonia of the euro on 1 January 2011 [Official Journal L 196 of 28.7.2010].
In this Decision, the Council states that Estonia fulfils all the necessary conditions for the adoption of the euro:
- Estonia fulfils the requirements established by the convergence criteria: price stability; the government budgetary position; participation in the exchange-rate mechanism of the European Monetary System; a satisfactory long-term interest rate;
- Estonia’s national legislation is compatible with the introduction of the euro.
Consequently, Estonia will adopt the euro on 1 January 2011.
Member States’ price performance must be sustainable. In order to fulfil this criterion, the annual inflation rate of the Member State must be below a reference value. This value is the average of the annual inflation rates of the three best performing Member States in terms of price stability. If the inflation rate of a candidate Member State does not exceed the reference value by more than 1.5 %, and if their performance in terms of price stability is considered to be sustainable, the criterion of price stability is fulfilled.
The Council notes that the average annual inflation rate in Estonia calculated in March 2010 (-0.7 %) is well below the reference value (0.3 %) and its performance in terms of price stability is considered to be sustainable.
Government budgetary position
Estonia does not have an excessive budget deficit. The government budgetary position of the country is therefore satisfactory and enables the euro to be introduced.
Participation in the exchange-rate mechanism of the European Monetary System
This mechanism establishes a central exchange rate between the euro and Member States’ national currencies, and allows for moderate fluctuations around the central rate. Each country applying to adopt the euro must have participated in this exchange rate mechanism for at least two years without having been subject to serious tensions as regards the rate of their currency.
In line with the requirements of the Treaties, the Estonian kroon joined this exchange rate mechanism in June 2004 and was not subject to serious tensions during the two-year application assessment period.
Long-term interest rates
Long-term interest rates are calculated on the basis of the interest rates for long-term bonds issued by Member States. However, the Council notes that the level of public debt is very low in Estonia and there is therefore no appropriate long-term interest rate available to analyse the sustainability of Estonia’s convergence.
The Council therefore relied on a qualitative analysis of different economic and financial indicators as well as Estonia’s fiscal policy track record and the flexibility of its economy in order to check compliance with the long-term interest rate criterion.
In addition to having to fulfil convergence criteria, the national legislation of a Member State that is applying to join the euro mechanism must also be compatible with the introduction of the single currency.
In this case, the Council notes that Estonia’s internal legislation does not pose any obstacle to the introduction of the euro. It is compatible with the Statutes of the European Central Bank and the European System of Central Banks (ESCB). The ESCB is composed of the European Central Bank and the central banks of Member States. The main objective of the ESCB is to maintain price stability.