* FRANKFURT Estonia on Thursday abandoned efforts to adopt Europe's common currency by next January, admitting it could not meet the strict inflation target required of new members.
But the Estonian prime minister, Andrus Ansip, promised a strong effort to ensure that the tiny Baltic nation, a star among economic performer among the former communist countries, will be ready to join in 2008.
"Our new E-day is now January 1, 2008," Ansip said in Tallinn, according to Agence-France Press.
The decision makes Slovenia the only new EU member likely to join the 12-nation euro zone in 2007. The tiny Balkan country already has begun extensive preparations for introducing euro bills and coins.
Adopting the euro requires a review by the European Central Bank, which determines whether a nation has met tough rules on inflation and budget deficits, among other criteria, and then approval by the European Union. Applicants also must keep their currencies in a managed exchange rate system, called ERM-II, for 30 months beforehand.
Estonia, Lithuania and Slovenia entered the system in mid-2004, shortly after joining the EU, so they are the only possible candidates from the 10 new entrants for entry in 2007.
Lithuania, however, is struggling to convince other EU members that it should be allowed to join in 2007 even though its inflation rate, which hit 2.7 percent in March, is higher than entry rules would allow.
The criterion is a formula based on rates in the three existing euro-zone countries with the lowest inflation.
Lithuania has said it wants a discussion of the issue at the Vienna EU summit in June, and is in effect arguing for a political decision to get in, said Giedre Balcytyte, a spokeswoman for the Lithuanian Finance Ministry.
"The differences are so small that we think Lithuania ought to qualify for the euro," she said.
Other countries in eastern Europe, notably ....
....... Poland, Hungary and the Czech Republic, are still struggling to reduce ballooning budget deficits, and their entry into the euro zone is at least four years off, most economists believe.
Estonia was a favorite to swap its currency, the kroon, for the euro in 2007 as recently as late 2004, when the ECB issued its first report on expanding the euro zone. Blazing growth - Estonia's economy is set to grow by 8.1 percent this year - seemed to go hand-in-hand with low inflation and sound public finances.
But rising energy prices ultimately derailed Estonia's bid, as its inflation rate crept up to 4.1 percent in 2005.
The rate is likely to hit 3.6 percent this year, but will decline to 3 percent in 2007, the central bank has said.
"The Baltic states still have a very strong energy intensity to their economies, and they are growing strongly," said Lars Vogel, a researcher with HSH Nordbank in Hamburg. "Together with higher energy prices, that's a cocktail for higher inflation."
Iceland warms to currency.
Iceland, whose currency is the world's worst performer this year, may seek to join the European Union's common currency, Prime Minister Halldor Asgrimsson said Thursday, Bloomberg News reported.
"This is something we are considering and will be under discussion in the next years to come," Asgrimsson said by telephone from Reykjavik. "It's clear it's not easy to run a small economy and small currency in a big market."
The krona has dropped 20 percent this year against the euro and 15 percent against the dollar as speculative investors fled the country's markets worried the economy might overheat.
Iceland would have to join the EU first to adopt the euro as its currency.
Asgrimsson said entry was possible in five to 10 years, "if we see a solution to the fisheries problem."
Iceland opposes the bloc's common fisheries policy, which regulates the amounts caught and the methods used.