Today the European Central Bank and the European Commission published their regular convergence reports on the EU countries outside the euro area. The reports analyse the compliance of the countries’ economies with the requirements for the introduction of the euro (the Maastricht criteria) along with their legal framework.
“As expected, the ECB’s convergence report and the European Commission’s report show that Estonia meets all the criteria for entry to the euro area. As a result, Commission submitted a proposal for Estonia’s accession to the euro area. Although it is not a final decision, the proposal is a great acknowledgement for us. Estonia has taken another long step in the accession process. The final decision regarding the introduction of the euro will presumably be taken at the ECOFIN meeting scheduled for 13 July. After that we will be able to use the indicative mood when speaking about the adoption of the euro,” commented governor of Eesti Pank Andres Lipstok.
“Estonia met all the criteria save the price stability one also in the course of the two previous assessments. This time Estonia was among the three countries whose inflation rate was used to calculate the value of the Maastricht price stability criterion,” he added.
“It must be noted that different from the majority of European countries and owing to measures adopted by the government, Estonia has managed to keep its fiscal deficit below 3% of GDP allowed by the respective criterion,” Lipstok said.
According to the European Commission’s Spring Forecast, Estonia will meet the fiscal criterion also in the next years, though the Commission is of the opinion that the deficit will increase to 2.4% of GDP. “The ongoing fiscal deficit shows that this is no time to rest on laurels, vice versa the government must achieve the objective they have set and turn the budget into surplus. This means retrenchment must continue,” he stressed. The European Central Bank emphasises that Estonia must continue to conduct economic policies geared towards ensuring economic growth and sustainable price stability.
According to the respective Maastricht criterion, government debt may account for up to 60% of GDP or it has to be on a downward trend. In Estonia, the indicator was 2.7% of GDP last year. The Commission’s forecast expects government debt to grow only somewhat – to 9.6% of GDP.
In the reference period from April 2009 to March 2010, the Estonian kroon remained stable at its central rate of 15.6466 kroons per euro. Thus, Estonia fulfils the Maastricht exchange rate stability criterion. On 22 April 2010 the Estonian Parliament adopted the Act on the introduction of the euro, which means Estonia’s legal framework is also in compliance with the requirements to be met to adopt the euro. Convergence is also assessed on the basis of long-term debt securities, but the indicator could not be considered in the case of Estonia, since the country’s financial system is characterised by the absence of a well-developed market for long-term debt securities denominated in Estonian kroons, which reflects the low level of government debt.
The ECB’s convergence report is available here.
The ECB’s press release on the convergence report is available here.
The ECB and the European Commission prepare convergence reports every two years, assessing a country’s convergence to the euro area in terms of economic, political and legislative indicators based on the Maastricht criteria. These reports provide a basis for the European Commission to submit proposals to the ECOFIN and the European Council listing the Member States ready to launch the euro. The 2010 convergence reports assessed the euro readiness of nine European Union Member States: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Sweden.