By Joel Alas
TALLINN - Estonian politicians have begun debating the concept of introducing the euro as a parallel currency alongside the kroon.
The debate was sparked by Taavi Veskimägi, a parliamentarian in the governing coalition party IRL, who said interim measures should be considered as the euro currency zone accession date slips further away.
Veskimägi called for discussion around the idea of allowing the euro to be used as legal tender until Estonia could meet the economic criteria to join the euro zone.
He said businesses would be saved the cost of exchanging money on export sales. Homeowners who have borrowed money from foreign banks in euro terms would be alleviated of the concern of a potential adjustment of the kroon-to-euro peg, he said.
Veskimägi was at pains to point out that his idea was not an official proposal from the government, but a concept for public debate.
Politicians and economists were quick to jump on the idea, with most condemning it as a flawed and dangerous solution to Estonia’s economic challenges.
Prime Minister Andrus Ansip said a dual currency system would be expensive and would not bring any real benefit. Ansip – head of the Reform party, IRL’s coalition partner – said the kroon would remain the only official currency until Estonia joined the euro zone.
Jurgen Ligi, chairman of the parliamentary committee on financial affairs, said he was “skeptical” about a dual system.
“This wouldn’t solve the problems, which are a question of inflation and keeping a conservative budget,” Ligi, also from the Reform party, said.
“This would create problems and would affect the credibility of our state and currency. It would be quite expensive to keep two systems of cash.”
Ligi said he had no doubt the European Commission would have grave problems with Estonia using the euro before meeting its convergence criteria.
“There are certain rules to be kept within the European Union,” Ligi said.
Victor Trasberg, associate professor at the Tartu University Faculty of Economics, said such a move would show a lack of faith in the reliability of the kroon.
“It’s a bad idea. It would be a very negative sign about the economy because it says we don’t trust our own currency,” Trasberg said.
Some countries have tolerated the use of other currencies, but few ever allowed them as legal tender, he said.
“A year ago in Slovenia (which recently joined the euro zone), you could use whatever currency you liked but there was only one official currency. In Estonia today many things are quoted in euro prices, and many businesses trade in euros. We can’t stop it unofficially. But if the government would force such activity by making it official, that’s negative.”
The likelihood of joining the euro currency zone in the next five years diminishes with each new economic forecast. With over 7 percent inflation and no alleviation in sight, Estonia will find it nearly impossible to meet the criteria required to converge its currency with the euro, as set out in the Maastricht treaty.
It is not the first time Estonian politicians have toyed with the idea of using the euro before officially joining the euro zone. Former prime minister and current IRL chairman Mart Laar debated such a concept in the early 2000s, but with a slight twist – he suggested doing away with the kroon altogether and using euros as the only legal tender. The idea never proceeded past the discussion stage.
Euros are already used as an unofficial second currency in tourist restaurants and hotels in Tallinn’s Old Town.