Estonia may join Euro July next year

 Estonia may already this year ask European Commission to value Estonia’s readiness for Euro and the country may be able to join euro from July nest year believes Andrus Ansip, the PM of Estonia, ERR News reports.

Ansip said at the government’s press conference that Estonia may meet Maastricht’s inflation criterion by October this year, when the prices don’t rise. He thinks there’s a possibility that prices start falling.

“The possibility of meeting inflation criterion by October is increasing every day,” he added.

Ansip also believes that this year’s budget deficit does not exceed the criterion.

The PM confirmed that he doesn’t support simplifying euro criterion since it would harm euro’s reliability.

“Estonia wants to meet all criteria and then join euro,” Ansip said.

Source: BBN

IMF commends Estonia’s economic policy

As a result of the annual discussions of Estonia’s economic situation and outlooks (the so-called Article IV consultations) at the IMF, the fund commended Estonia’s economic policy steps taken so far and the decisive measures applied in strengthening crisis management frameworks.

“One of the most significant points of the report is that the IMF reaffirmed once again our currency board arrangement and the fixed exchange rate of the kroon serve as the pillars of the country’s monetary policy and financial stability. This system will be maintained until Estonia joins the euro area,” said Governor of Eesti Pank Andres Lipstok.

“The IMF emphasises that against the background of prospective EMU accession, it is important to meet the Maastricht fiscal criterion. The IMF encourages the authorities to achieve a fiscal surplus over the medium term. Eesti Pank has also urged the government to obtain this goal, both earlier and in its latest economic policy statement, and this objective needs to be taken into account in the preparation of the budget for 2010 and for the next years,” he added.

Lipstok stressed that the IMF underscored the importance of improving regional collaboration through the coordination of supervisory activities and exchange of information. “Thus the IMF welcomes the recent precautionary liquidity provision arrangement concluded between the Estonian and Swedish central bank. In addition to the strong liquidity position and the integration of our banking sector with European and Scandinavian banking groups, this arrangement serves as an additional guarantee in ensuring financial stability and restoring confidence,” Governor of Eesti Pank said.

According to Lipstok, the Estonian government and the central bank take the IMF’s recommendations with utmost seriousness.

“In the ongoing global turmoil, Estonia is able to rely on the fiscal buffers accumulated in more favourable times, as well as on the strong banking sector and efficient financial supervision. The continuously stable financial environment and measures enhancing the flexibility and credibility of the economy help us cope with the economic downswing,” Lipstok said. Therefore, he added, it should be highlighted the IMF supports Estonia’s new Employment Contract Law adopted at the beginning of 2009, since it raises flexibility in the labour market and improves the social safety net.

According to the IMF, the fast convergence of the Estonian economy towards average EU levels and the integration with the European single market are praiseworthy. Although the global economic and financial crisis means the country is facing several challenges, Estonia’s economic vulnerabilities have markedly decreased. Price hikes have inhibited and the current account deficit is narrowing, making Estonia less dependent on external financing.

The report is based on thorough and valuable discussions held with the IMF on 7-9 May and 9-15 December 2008 within the framework of the annual Article IV consultations in the course of which the IMF staff met with country officials and private sector representatives.

The International Monetary Fund’s report is available on their home page as well as on the web page of Eesti Pank.

Source: Bank of Estonia

Estonia among the first to exit crisis

Deputy Governor of Eesti Pank Märtner Ross stressed at the meeting on March 11 held at the Estonian embassy in Finland that the primary risk factors of the Estonian economy have receded markedly and the vulnerabilities referred to in recent months by some analysts are based either on outdated data or superficial analyses.

“Estonia’s economic growth is no longer dependent on continuous external financing and Estonia’s current account is regaining balance. The need for external financing is fully covered by the inflow of resources from EU structural funds. The rumours about Estonia having a short-term external debt which has to be quickly repaid are not true. Such claims are based on data misinterpretation,” explained Ross.

The central bank Deputy Governor emphasised the Estonian banking sector, which is integrated with Nordic banking groups, is reliable and stable. “The Estonian banking sector has no longer the need to borrow funds from their parent banks; our banks are now able to finance themselves on account of local depositors. The Estonian banking system is well-capitalised and if loan losses grow, this will not pose a threat to the credibility of banks. The banks’ capital buffers, which are largely the result of previous years’ high profitability, are more than sufficient to cover all the risks both this and next years,” said Ross.

When talking about the prospective euro adoption, Ross said that Estonia is very likely to meet all the Maastricht criteria at the end of this year, thus it is possible the country may change over to the euro in 2011.

As regards Estonia’s economic growth, Ross admitted the global crisis has had a strong impact on the situation and growth outlooks of the country’s economy. “At the same time it has to be taken into account that Estonia entered the economic adjustment period already earlier and the current external environment shock has affected the entire region relatively evenly. Estonia’s economy and labour market have proved to be flexible and able to adjust to the changing environment. The very strong macroeconomic framework, fixed-exchange rate currency board system and flexible economy help Estonia maintain strong medium-term growth outlooks. There is no doubt we have the prerequisites for being among the first ones exiting the economic crisis and the adoption of the euro would strongly contribute to this,” Ross said.

Andrus Säälik, Head of the Macroeconomic Policy Department of the Ministry of Finance, who also participated in the meeting, confirmed that Estonia’s objective is to keep the general government budget deficit below 3% of GDP. “The government’s medium-term goal is to restore a budget surplus,” said Säälik.

The meeting held at the Estonian embassy in Finland was attended by Märten Ross, Deputy Governor of Eesti Pank, Tanel Ross, Head of the International and Public Relations Department of Eesti Pank and Andrus Säälik, Head of the Macroeconomic Policy Department of the Ministry of Finance. The event attracted a lot of interest and there were around 30 participants from Finland, including both journalists and economic analysts from the Bank of Finland, Danske Capital and research institutions. Johnny Akerholm, President of the Nordic Investment Bank, also participated in the meeting.

The presentation of Märten Ross (in Finnish) is available on the web site of Eesti Pank.

Source: Bank of Estonia