The Baltic state of Estonia, which is struggling to recover from a deep recession, got final approval on Tuesday from European Union finance ministers to enter the euro zone next year.Estonia's central bank said becoming the 17th euro zone member would boost investor confidence in the country, but some analysts said growth would remain sluggish.Estonia, like its neighbours Latvia and Lithuania, was hit hard by credit drying up during the global financial crisis.Its economic output sank 14 percent in 2009, but it was able to meet the inflation criteria for adopting the euro because of a conservative fiscal policy and after a slide in demand resulted in deflation. Estonia's finance ministry expects the economy to grow 1 percent in 2010."To ensure that the adoption of the euro is a success, Estonia must pursue its efforts to maintain a prudent fiscal policy stance," European Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.He said Estonia needed to remain vigilant and react early if macroeconomic imbalances began to build up.Despite the fiscal woes of Greece and fears of long-term debt issues dampening growth, Estonia has remained keen on entering the euro zone, a culmination of a drive West after the fall of the former Soviet Union in 1991."The euro overnight by itself does not make us smarter or increase our productivity," the central bank said in a statement. "However, joining the euro zone means that trust in the Estonian economy is growing."The exchange rate, as expected, remained at 15.6466 kroons to one euro, where it has been fixed under a currency board regime, which allows for no fluctuations in the rate.Danske Bank economist Lars Christensen said Estonia's euro entry could make the country appear less risky to investors, but was less certain about its long-term benefits."The key point is that it is a political decision rather than an economic decision (by the EU)," he said. "I don't think it will bring any major boost to growth. Estonia is still slowly coming out of recession."Capital Economics emerging markets analyst said increased Baltic investment was possible, but it would "still be a sluggish few years ahead."BANKS MORE UPBEATAll three Baltic states saw surges in asset prices and double digit inflation due to large inflows of cheap credit from Nordic banks after their EU entry in 2004.But the global credit crunch and fears of overheating led the credit to dry up and property prices and output slumped.However, euro zone entry for Estonia, along with signs of economic stabilisation in all three countries, is helping to lift the economic gloom in the region.Swedish bank SEB, which along with rival Swedbank suffered most from Baltic bad loans' exposure, has said that its provisions for loan losses would be lower and that an economic recovery had begun in the region.Latvia, which had to take an IMF bailout in 2008, and Lithuania, are expected to enter the euro zone in 2014.(Additional reporting by Patrick Lannin, Editing by Lin Noueihed)News posted by www.newsinfoline.com
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