Mike Collier in Riga -

As the gin-swilling habituees of any exclusive club in Mayfair will tell you, there are two ways to become a member: the official way, and the real way. The official way involves paying a fee, filling out an application form and agreeing to abide by the rules - a largely irrelevant exercise that exists to comply with legal requirements dreamed up by the frightful people who aren't members. The second way is the real way, but is undefined; it requires you to be recommended by Binky Blinkinthorpe, means you can expect to incur hefty bar bills for the first six months of membership and above all else requires total deference to the senior members, however tedious they are.

On paper, the European Central Bank and European Commission operate the first membership policy for European Monetary Union (EMU), but there's a rising fear in the Baltic states that it could soon operate more as an old schoolboy network: and their ties aren't yet the right colour.

Above their station

Certainly the Baltics may have seemed a little nouveau riche in recent years with their credit booms and property bubbles, but they've also shown they are willing to knuckle down to a regime of cold showers and fiscal consolidation of a sort whose mere mention causes Greeks to take to the streets. "The Baltic States fare particularly well in this regard. Aggressive reforms... mean that both labour and product markets are relatively flexible. Even so, Latvia has struggled to undergo an 'internal devaluation' over the past year or so," says Capital Economics' Neil Shearing.

The three countries, led by Estonia, are launching a charm offensive to defend their right to cash in their kroons, lats and litas for euros faster than you can say "members only". "It seems likely that the Eurozone's core countries will adopt a more cautious approach to EMU expansion. At the very least, the Maastricht Criteria may be enforced more strictly. But we would not rule out a complete revision to the entry criteria," says Shearing. "Political resistance to EMU expansion within the Eurozone's core is likely to mount as events in Greece continue to unfold."

"The upshot is that although it now seems likely that Estonia will scrape into the single currency at the start of next year, the crisis in Greece has dealt a huge blow to the prospects for a further rapid expansion of the Eurozone thereafter," he concludes.

Danske Bank's Lars Christensen agrees. "The current EMU members still pay lip service to an EMU enlargement, but it is not unreasonable to expect that they think they have their hands full for the foreseeable future with Greece and the other PIIGS, and not be inclined to accept new members - certainly not ones with large economic imbalances," he says, referring to the rather insulting acronym of Portugal, Ireland, Iceland, Greece and Spain.

Any toughening of Maastricht could spell disaster for Estonia's so-near-yet-so-far attempt to join the Eurozone next year. Prime Minister Andrus Ansip went on the record to warn against tinkering with Maastricht at the recent Helsinki meeting of EU leaders. "We are not asking for exceptions. We simply hope that no one starts establishing new criteria for Estonia," he told the Financial Times.

He's stayed on message since, even using a speech on February 23 that was ostensibly about the 92nd anniversary of the Estonian state to ram home Estonia's right to the euro. "Joining the Eurozone will increase our trustworthiness. Our labour costs remain a third to a quarter that of Finland or Sweden. Estonia's current account balance is in surplus," listed Ansip, adding in low levels of government debt and a budget deficit lower than in most Eurozone countries. "All this means that while other states will be repaying their burdensome loans, we can focus on new growth. Once the European economy starts rising again, we will start from the front row."

Both Latvia and Lithuania have followed Estonia's lead by committing themselves to 2014 as their definite target date for euro membership after years of vaguely saying "as soon as possible." They are also particularly keen to woo the major ratings agencies.

If anyone wonders why so much store is being set by what the ratings agencies think, the answer came at a special seminar on why Latvia needs the euro hosted by the Latvian central bank in Riga on February 22. A presentation by the bank's Elmars Zakulis plotted the Eurzone progress of Slovenia, Slovakia and Malta, showing that ratings upgrades had anticipated a positive decision on euro adoption by around six months. Get the ratings agencies onside and the rest will follow. That's good news for Estonia, which recently won thumbs up from both Fitch Ratings and Standard & Poor's.

Until Jean-Claude Trichet hands over Estonia's membership card and lapel badge, fears will remain that the Baltics may have been putting themselves through the wringer for no reason, as Danske Bank's Christensen points out. "We do see a real risk that the effects of the ongoing austerity policy may produce debt/GDP levels that will break the allowed EMU convergence criterion of 60%, in which case a country will have gone through a lot of pain with nothing else to show than a far worse fiscal position and be forced to the brink of devaluation anyway," says Christensen. "That is yet another unattractive prospect that could make near-term devaluation and abandonment of EMU plans look like a better plan for some policymakers."

With a general election due on October 2 this year, that looks like a particular risk for Latvia. Failure to make it into the Eurozone in 2011 would likely also spell doom for Estonian PM Ansip at the next elections in March 2011. "One of the great ironies of EMU convergence has proven to be the fact that those countries who went down the road of prematurely 'converging' to a full EMU membership, by tying themselves too close to the project in allowing the debt in their nations to be largely denominated in euros, are the ones suffering the most right now," Christensen notes.