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Baltic state of Estonia adopts the euro

Estonia Euro

Dec. 27: People pass by a poster saying 'Euro is our money' in Tallinn, Estonia.AP

The Baltic state of Estonia early Saturday became the 17th European Union member to adopt the joint European currency, the euro.

The small nation's decision to change from the Estonian kroon to the euro was the final step in a two decade-long effort to integrate its economy with Europe after it achieved independence in 1991. It is the first former Soviet republic to join the single currency club.

Estonian Prime Minister Andrus Ansip was the first person in the country of 1.3 million to withdraw euro notes from a cash machine specially installed for the midnight changeover at the opera house in central Tallinn.

Ansip's example was followed by EU transportation commissioner Siim Kallas, Lithuanian Prime Minister Andrius Kubilius and Latvian Prime Minister Valdis Dombrovskis.

The four men waved their fresh euro notes at a crowd of some 5,000 cheering people as New Year fireworks burst in the cold night marking the advent of 2011 and a new era for Estonia.

"The euro is first and foremost a guarantor of our security. We are now full-fledged members of the world's second largest financial region with all the consequent obligations that this brings," Ansip said, after withdrawing the euros.

"The euro is a good thing. The world is now probably going to see us as being a developed nation," said Erik Villemson, a 21-year-old university student.

The inclusion of Estonia, a minuscule $19 billion economy, in the $12.5 trillion euro area is being touted for it's symbolic importance after the currency was battered throughout 2010 by bad news. Two members — Greece and Ireland — required international bailout funds to avoid bankruptcy.

Estonia could be the last new entrant for several years as all other potential newcomers from Eastern Europe either shy away from adopting an unpopular currency or fail to meet criteria on budget deficits and inflation.

Hours before the currency switch, European Commission President Jose Manuel Barroso welcomed Estonia to the euro zone, saying the euro would boost the nation's economy and send a powerful message to all EU members.

"It is a strong signal of the attraction and stability that the euro brings to member states of the European Union," Barroso said in Brussels on Friday.

Leaders of Germany and France, the euro zone's powerhouses, also made laudatory New Year's statements in support of the common currency after the worst year in it's 12-year history.

"My dear compatriots, don't believe those who propose that we get out of the euro," French President Nicholas Sarkozy said in a televised address to his nation. "The isolation of France would be madness. The end of the euro would be the end of Europe."

In her appeal to Germany on Thursday, Chancellor Angela Merkel called for strengthening the euro, which is now the main currency for 330 million Europeans.

"This is not just about our money — the euro is far more than a currency," she said. "The euro is the basis of our prosperity."

Estonia's leaders and many economists believe the country's economy, which contracted a staggering 14 percent in 2009, will benefit with the euro, though the country still has painful structural reforms to implement before reaching western European living standards.

"The euro will definitely support Estonia's trade," Ansip told reporters Friday, adding that 70 percent of the country's trade takes place with EU members.

Still, polls indicate that more than one-third of the nation is against the changeover.

"I think it's bad for our economy. Prices have been rising and will keep going up," said Kaire Raitme, 20, who was selling spiced roasted almonds in Tallinn's medieval historical center.

Estonia will be the poorest member of the euro zone, a cause for concern for many Estonians who fear they will have to cough up scarce resources to help other member countries that failed to maintain fiscal discipline.

Celebrations included open-air concerts in subzero weather and for foreign dignitaries a gala concert in the national opera house featuring the music of U.S. composer George Gershwin.

The Finance Ministry said banks and information systems were prepared to cope with the changeover as hundreds of ATM machines were being loaded with euro notes.

Selected bank branches and post offices were to stay open over the weekend to accommodate the switch, but police urged citizens not to rush about with large amounts of cash due to robbery risks.

After Slovenia and Slovakia, Estonia is the third East European country using the euro. Seven other countries in the region — Poland, Romania, Hungary, Czech Republic, Bulgaria, Lithuania and Latvia — also are required to phase in the euro as part of European Union membership, though there is no deadline to do so.

Latvia and Lithuania, Estonia's Baltic neighbors, are enthusiastic supporters of the euro and could become the club's newest members in 2014.