Estonia has won EU praise for its prudent economic management
The Baltic republic of Estonia, a country of 1.3 million people, is on course to adopt the euro in January 2011, the European Commission says.
The recommendation still requires the approval of all 27 EU member states, 16 of which are in the eurozone.
The Commission assessed the potential of nine EU countries to adopt the euro, and found that "Estonia stands out... fulfilling the criteria clearly".
Crucially, Estonia's public finances were found to be in a healthy state.
The other eight countries included much bigger ex-communist neighbours in Eastern Europe, such as Poland and Hungary.
The EU Commissioner for Economic and Monetary Affairs, Olli Rehn, said the assessment provided "a strong signal about the euro area".
The euro has come under huge pressure in money markets in recent months, amid fears that Greece's budget crisis could undermine other eurozone countries laden with big deficits.
The eurozone, helped by the IMF, has set up a 110bn-euro (£95bn) rescue package for Greece, along with a 750bn-euro fund to assist any eurozone countries in trouble.
The Commission said Estonia's deficit and debt were well within the acceptable limits set by the Maastricht Treaty that launched the single currency.
The deficit was 1.7% of total output (GDP) in 2009, despite a 15% drop in GDP.
Estonia's government debt stood at 7.2% of GDP in 2009 - well below the eurozone average of 60%.
The Commission's assessment covered: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Sweden. Every two years the Commission judges whether their economic conditions meet the strict Maastricht criteria.
Since the EU's big eastward enlargement in 2004, two former communist bloc countries have joined the eurozone - Slovenia in 2007 and Slovakia in 2009. Cyprus and Malta adopted the euro in 2008.