Fact Sheet May 2005 Estonia Today EURO AND ESTONIA According to the Accession Treaty, all the countries having acceded to the European Union on 1 May 2004, including Estonia became members of the European Economic and Monetary Union (EMU) with a transitional period. Estonia will become a full member once the single currency, the euro, is adopted. In the case of Estonia, the earliest possible deadline for the adoption of the euro is the second half of 2006. Estonia’s goal is a rapid accession to the euro area, as it will promote our competitiveness, economic growth and employment leading to an increase in the living standard. Accession to the EMU requires that all the new Member States join the Exchange Rate Mechanism 2 (ERM2). ERM2 is a framework, in which the participants will tie their national currency rates to the euro and bring their economic indicators into line with the Maastricht criteria. Estonia joined ERM2 on 28 June 2004. The European institutions accepted the suitability of the Estonian Currency Board for the ERM2 period. It is important for the stability of Estonia’s economy, since it enables the preserving of the well-proven currency board arrangement until joining the euro area. The fixed exchange rate system helps Estonia comply with the standard exchange rate fluctuation band. The following Maastricht or convergence criteria must be met to join the Euro area: the annual state budget deficit must not exceed 3%, a state’s debt burden must not exceed 60% of the state’s annual GDP, low inflation and interest rates must be maintained. The balanced budgetary policy and keeping the state’s loan burden small enable Estonia at present to fulfil these formal requirements. Also, within recent years interest rates have decreased and inflation has subsided. Upon the introduction of the euro, savings and purchasing power will not decrease – when converting from one currency to another the principle of constant value will be observed. Since 1999, the EUR/EEK pegged exchange rate has been 1/15.64664. The euro became the single currency of twelve European Union Member States (Austria, Belgium, Spain, the Netherlands, Ireland, Italy, Greece, Luxembourg, Portugal, France, Germany and Finland) on 1 January 2002. Of the “old” Member States, the United Kingdom, Denmark and Sweden have not joined the euro area. The first two countries have a so-called opt-out clause, which means that they are not required to adopt the euro. Sweden does not have a special status and on principle the state is required to be orientated towards the adoption of the euro. Estonian Euro coins, where the national side is an outline of Estonia: 5 euro cent 50 euro cent 1 euro 2 euro coin coin coin coin Press and Information Department, Ministry of Foreign Affairs Islandi väljak 1, Tallinn 15049, Estonia Tel. +372 631 7600, Fax +372 631 7617, E-mail: [email protected] www.vm.ee .