A New Year. For Estonia, a new currency.

Yesterday, Estonia became the 17th country to adopt the euro as its currency. Given all the recent turmoil, they may regret the decision before this year is over. We have previously written about the troubles facing the EU and its common currency and since it was one of the biggest stories of 2010 we decided to start this year with an update. (click here for previous post) A Reuters article discusses the reasons why Estonia joined and why other Eastern European countries have not joined. (Click here for article)

Meanwhile, in Slovakia, some are regretting adopting the euro and the Associated Press is reporting that leaders in that country are exploring their options with respect to leaving the common currency. The advantages of the euro once outweighed the disadvantages, but if member countries are forced into bailouts of fiscally irresponsible countries the costs may exceed the benefits. (Click here for article)

We have expressed our thoughts on the future of the euro, and now, a UK based think tank has given the euro a 1 in 5 chance of surviving in its current form in 2020. The prediction is based on the unwillingness of the PIIGS to curtail spending and raise taxes to get their fiscal houses in order. The FANGs (my new acronym for France, Austria, Netherlands and Germany) may not be willing to undertake anymore bailouts for fear of putting their own budgets at risk. (Click here for article)

Of course, German Chancellor Angela Merkel and French President Nicolas Sarkozy in separate New Year's addresses have reiterated their support for the euro. (Click here for German article, and click here for French article). This is to be expected. If either of the two leaders even hinted that they may pull out of the euro and revert to the franc and deutschemark or to a northern european currency, the value of the euro would plummet as speculator sold the currency en masse. The demise of the euro will occur with no warning. One morning we will wake up and it will be a fait accompli.

It will be an interesting year, and a story we will continue to follow.