Finance ministers will next week endorse Estonia’s application to join the eurozone on 1 January 2011, becoming its 17th member. 

Diplomats said, however, that the ministers are likely to seek commitments from the Estonian government to rein in inflation, which the European Central Bank (ECB) fears is artificially low and may climb sharply in the years ahead. The Treaty of Maastricht requires that any country wishing to join the eurozone should have an inflation rate that is no more than 1.5 percentage points higher than the average of the three countries of the EU with the lowest inflation rates.

In a report published in May, the ECB said it had concerns about the sustainability of inflation convergence in Estonia. It said that markets had a “mixed assessment” of Estonia’s readiness to adopt the single currency.

The European Commission has adopted a more positive assessment of Estonia’s readiness to adopt the euro. It said in its convergence report, published in May, that Estonia’s “flexible markets and prudent policies” meant its inflation outlook was “sustainable”.

The Commission’s latest economic outlook estimates that Estonia’s inflation for the 12 months to March 2010 was 0.7%, within the treaty requirement (which in that month would have been 1%). The Commission projects, however, that inflation in Estonia will rise to 2% in 2011, which would be the fifth highest in the eurozone.

The finance ministers’ endorsement of Estonia’s eurozone entry is expected to be confirmed by EU leaders at a summit on 17 June. Ministers would then adopt a legal decision in July. The European Parliament’s economic and monetary affairs committee yesterday (2 June) gave its non-binding approval for Estonia’s eurozone entry.

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