Estonia clears final hurdle to join Europe’s currency union

EU: Estonia can join euro next year

BRUSSELS — European Union nations on Tuesday gave final approval for Estonia to become the 17th country to join the euro, a boost for the tiny Baltic country and a sign of confidence in the troubled currency union.

EU finance ministers said the nation of 1.3 million can join on Jan. 1, 2011. The official exchange rate is set at one euro to 15.6466 Estonian kroons.

Estonians believe swapping their kroon for the euro will encourage foreign investment in the country after an economic boom turned into a bust, with growth falling 14.1 percent last year. It is forecast to grow 4 percent next year.

Entering Europe’s currency union is a coup for the former Soviet republic, which has won plaudits from European officials for wrestling with a sudden recession.

But it’s also a small vote of confidence for the tarnished monetary project in the worst moment of its 11-year history. It is grappling with a deep debt crisis, slow growth prospects — and may have to rewrite its rules to restore faith in a currency union without a central government.

Nearly all eurozone members are currently disobeying rules designed to keep the currency stable. Fifteen out of its 16 members are flouting an EU limit on their budget deficits — the yearly difference between government spending and revenue.

Estonia will join Luxembourg as the only two countries with deficits below 3 percent of gross domestic product.