* Estonia becomes 17th euro zone member
* Brushes off euro crisis, sees benefits from entry
* Bigger eastern European states more cautious
(Adds PM quote, Krugman, background)
By David Mardiste
TALLINN, Jan 1 (Reuters) - Estonia joined the euro zone as
its newest member on Saturday, but the currency club's deepening
crisis is likely to put off bigger eastern European entrants
from joining for up to a decade.
The small Baltic state of 1.3 million became the 17th euro
zone country at midnight, beginning a switch from the kroon, and
was the first former Soviet state to adopt the euro.
Prime Minister Andrus Ansip was the first to take euros out
of a specially installed cash machine outside a theatre where a
ball had been held to celebrate the switchover and the new year.
"It is a small step for the euro zone and a big step for
Estonia," he said, holding the notes.
"We are proud to be a euro zone member state."
Estonia sees changing to the euro as marking the end of its
struggles since a 2009 recession lopped 14 percent off its
output. It hopes to entice investors by removing any fears of
devaluation and make borrowing more secure for its people, many
of whose mortgages are already in euros.
It also caps a drive for integration with the West, away
from the influence of Russia, that began with the collapse of
the Soviet Union in 1991.
With a similar history, neighbours Latvia and Lithuania hope
to adopt the euro in 2014 and have also had their currencies
pegged to the euro for years.
The kroon will be converted at the rate of 15.6466 at which
the currency was pegged to the euro. They will circulate
together as legal tender for two weeks.
An anti-euro campaign kept up its rhetoric, saying in a
statement Estonia was "getting the last ticket for the Titanic".
Nobel laureate economist Paul Krugman said in a blog that
the switch was a symbol of Estonia's transformation from a
Soviet province to a good European citizen, but that the cost
had been high for the economy.
"So, congratulations to Estonia -- but condolences too. This
wasn't the glittering euro entrance you were promised," he
wrote.
EASTERN SCEPTICS
Poland, Hungary and other eastern European EU states are all
sceptical towards joining the euro. They have all promised to
join the euro zone one day but want to see how the debt problems
of Ireland, Greece, Spain and Portugal are solved.
They also fear that losing flexibility exchange rates will
make them less competitive and less able to withstand financial
ructions. The debt crisis has also undermined the idea that
being a euro zone member guarantees lower borrowing costs.
Polish central bank governor Marek Belka repeated his
scepticism to tabloid newspaper Super Express, saying Poland
would join when there was "order" in the euro zone. "In the euro
zone there are dramatic things happening, so why rush?" he said.
Czech Prime Minister Petr Necas has said the euro would not
be to the country's advantage for a long time. Economists say
the larger eastern EU nations may now not join before 2019-2020.
Chancellor Angela Merkel, however, reiterated Germany's
commitment to the single currency in a new year address.
"The euro is the foundation of our prosperity," she said.
"Germany needs Europe and our common currency ... We Germans
assume our responsibility, even when it is sometimes very hard."
French President Nicolas Sarkozy said: "Don't believe, dear
compatriots, those who suggest that we should leave the euro ...
The end of the euro would be the end of Europe," he said in a
televised New Year address.
POOR, BUT IN GOOD SHAPE
Estonia will be the currency club's poorest member but its
debt and deficit levels -- the cause of the crisis for some
current euro zone members -- are among the lowest in the bloc.
Ansip's centre-right government has slashed spending and
hiked some taxes to ensure the budget deficit stayed low.
Ansip told a news conference Estonia had its eye on the euro
zone's woes, but was sure Greece and Ireland would cope.
In economic terms, the single currency bloc will barely
notice the addition -- Estonia's GDP is just 0.2 percent of the
current euro zone's 8.9 trillion euros.
Euro membership could help the Nordic banks, now the major
players in the Baltic region, led by Swedbank <SWEDa.ST> and
SEB. <SEBa.ST>
All three Baltic nations went through Soviet, Nazi and then
Soviet occupation again, so becoming part of Western economic
and security structures has been of prime importance. They
joined NATO and a self-confident European Union in 2004.
(Additional reporting by Patrick Lannin in Stockholm; Editing
by Patrick Graham, Lin Noueihed and Padraic Cassidy)
