ESTONIA: EC supports Estonia's euro bid, ECB concerned about inflation
12.05.2010, 15:27The European Commission gave its support today, on 12 May, to Estonia's adoption of the common currency euro as of 1 January next year. At the same time, the European Central Bank pointed out in its assessment, also published today, that Estonia may struggle to keep the inflation in check.
In its 2010 Convergence Report, issued today, the EC has assessed progress with convergence in countries with derogation from euro area membership. According to the report, eight out of nine member states do not yet meet all the conditions for euro adoption - except Estonia.
"Today we are clear that Estonia meets the conditions," said Jose Manuel Barroso, the president of the EC to journalists in Brussels today.
"We have recommended Estonia for its long-standing commitment to prudent policies," added Olli Rehn, the Commissioner for Economic and Monetary Affairs.
According to Mr Barroso, the commossion's assession of the Estonia's case was no different than those of the previous countries applying to join the eurozone. "The same strict objective criteria were applied to Estonia," he notes.
"The only hesitation we had was that the signature of Siim Kallas now disappears from the bank-notes," added Mr Rehn, tongue in cheek. Namely, all Estonian bank-notes are signed by Mr Kallas, then president of Estonia's central bank, now a member of the European Commission.
ECB: Watch inflation
The European Central Bank also published its Convergence Report today, assessing the euro applicants. The report expresses concern over Estonia's ability to keep inflation in check.
It points out that while over the reference period from April 2009 to March 2010 the 12-month average rate of HICP inflation in Estonia was -0.7%, or well below the reference value of 1.0% for the criterion on price stability, the 12-month average rate of HICP inflation is expected to increase in the coming months. "Maintaining low inflation rates will be very challenging," the report claims.
Meanwhile, excessive deficit is not an issue: in the reference year 2009 Estonia's general government budget balance showed a deficit of 1.7% of GDP, well below the reference value. The general government gross debt-to-GDP ratio was 7.2% of GDP, far below the 60% reference value.
The ECB report emphasises that to ensure sustainable convergence, Estonia - who only has limited monetary policy maneuvering space under the currency board arrangement - needs to use other economic policies to keep the country on track.
The Council of EU finance ministers (ECOFIN) will take the final decision on the adoption of the euro in Estonia in July, after the European Parliament has given its opinion and the EU Heads of State and Government have discussed the subject at their summit meeting in June.