Nr. 12-2011 Published monthly by:
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Hüvasti Eesti Kroon, tere Euro? (Eng: Goodbye Estonian Kroon, hello Euro?)

- We estimate that Estonia will meet all the Maastricht criteria by the regular assessment due in spring 2010, said Eesti Pank – the Estonian Central Bank, in a December 2009 report commenting the potential adoption of the euro in January 2011.

Read more
> Here we are. What's next?
> Closing the books 2009, outlook 2010
- Estonia's external balance has improved, companies have rapidly cut labour costs because of the pronounced contraction in demand, and the moderate decline in prices has contributed to competitiveness.

Commenting on Estonia's compliance with the Maastricht criteria, the Eesti Pank report continued:

- Estonia is likely to meet the inflation criterion at the end of 2009

- The Estonian interest rate level and the low government debt level allow concluding that Estonia is fulfilling the interest rate criterion.

- The European Central Bank also gave a positive assessment, based on a general analysis of the financial environment.

- Estonia has fulfilled its (unilateral) commitment to maintain the rate of the kroon against the euro within the 0% fluctuation band.

- Based on the 2009 autumn forecast of Eesti Pank, Estonia is likely to maintain the budget deficit at a lower level than 3% of GDP both in 2009 and 2010.


Though a long row of economical analysts now support the likeliness of Estonia joining the euro zone in January 2011, uncertainties remain. Eesti Pank addressed one of them:

- Estonia is likely to maintain the budget deficit at a lower level than 3% of GDP both in 2009 and 2010. Since the safety margin is small, Eesti Pank deems it necessary to take further additional measures in the coming months to reduce the deficit. The medium-term objective is to achieve a surplus in an upward phase of the economic cycle and restore the reserves. Strong fiscal policy helps preserve Estonia's economic credibility and supports the future outlook of the economy.

On the international scene uncertainties were addressed as well:

- Though the January 2011 currency switch appears within reach, Estonia must focus on luring investment, closing tax loopholes and boosting revenue to ease the recession and win approval to adopt the euro, said IMF in their year's end staff report.

According to Eurostat, Estonia's unemployment rate in the third quarter 2009 was 15.2%, the third highest in EU after Spain and Latvia. Mart Laar, Chairman of the Pro Patria and Res Publica Union (IRL) – one part of Estonia's current Government coalition - addressed the issue in a January 10th TV interview:

- A further sharp rise in unemployment could make budget revenues fall short of the target and this could become an obstacle for Estonia securing its place in the euro zone.

Voices against Estonia adopting the euro are also heard. Raivo Sormunen, an analyst in Estonia's business magazine Äripäev, said in his column that joining the euro zone could be a bad deal and turned his eyes towards Sweden:

- We are entering the euro club in the hope that it will lead us to prosperity. We are all rejoicing, but what about dangers? We may well be entering an exclusive club that is facing a collapse. So, what to do? My answer; continue with the kroon, but not the Estonian kroon, but the Swedish krona since without the Swedes and their capital our position would not have been possible.

Speculations on Estonia's possibilities to join the euro zone in January 2011 will intensify the coming months. The European Commission's Joaquin Almunia recently said that he has "with happiness" noted the Estonian Government's efforts for adopting the euro, but he doesn't want to make any statement on the country's possibilities to do so. Instead he referred to the upcoming reviews on the issue by the European Commission and the European Central Bank due in May this year.

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