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Estonia embraces euros

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Ints Kalnins / Reuters

(Read caption) A plate at a Christmas market in Tallinn, Estonia, displays price tags in Estonian kroonas and in euros, Dec. 31. On January 1, Estonia will join the Euro zone.

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Defying the predictions of a collapse or a break-up, the euro area will tomorrow expand with its 17th official member (in addition, a number of smaller countries like Andorra, Monaco, San Marino and Kosovo use the euro without being formal members): Estonia.

This will have almost no effect in terms of macroeconomic policy since Estonia has pegged its currency to the euro (or the D-mark before 1999) since June 1992, which means that they have already adopted the monetary policy of the ECB (or the Bundesbank before 1999) since then. The difference will be mainly symbolic, but it will also mean that transaction costs will be removed and the credibility of the elimination of exchange rate risks will be strengthened.

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