PECOB Portal on Central Eastern
and Balkan Europe
by IECOB & AIS
Università di Bologna  
 
Friday March 29, 2024
 
Testata per la stampa
Business guide

This is an innovative instrument to monitor the region from an economic perspective offering business climate analyses, dossiers, logistics reports and business news

 
 
East, rivista internazionale di geopolitica
 
European Regional Master's Degree in Democracy and Human Rights in South East Europe
Feed RSS with the latest business climate analyses published on PECOB
 

Estonia’s euro adoption: green light from the EU Commission

by Unicredit Research

Abstract

Estonia will be the 17th eurozone member, the third of the ex-communist countries after Slovenia (2007) and Slovakia (2009) to join the common currency, the euro. Indeed, the EU authorities gave a positive assessment on Estonia’s readiness to join the eurozone, despite several macroeconomic and structural risks underlined by the authorities.
The ECB report was more critical than that of the EU Commission, especially on inflation.
Regarding the first months of this year, the Estonian economy contracted by 2.3% yoy in the first quarter of 2010, following a drop of 9.5% in 3Q09 and 15.6% in 4Q09. Estonian unemployment moved to 15.5% in 4Q09 and should remain higher than 15% for the whole 2010. On the positive side, the adjustment in the external accounts was very fast: the current account deficit moved from 18% and 9.4% in 2007 and 2008, to a surplus.
Estonian inflation remains one of the major worries for the European Commision.
Estonian cost competitiveness is the key point. After more than a decade with a fixed exchange rate versus the euro, and following an unprecedented economic crisis in 2008-09, the deterioration in Estonian competitiveness was remarkable: if we take into account only the past five years, the Estonian price level is 25% higher than in 2005, while for most of the eurozone countries it is limited to an increase of 10%. Coherently, the increase in compensations was sensibly higher than in the eurozone, and higher than productivity.
The positive assessment is an important step for Estonia, the Baltics and other Central Eastern European countries. The risk of a different decision was tangible, since Estonia was knocking at eurozone’s door at the worst possible moment, in the midst of turmoil affecting the area following the
Greek troubles. This could have prompted Brussels to further tighten the Maastricht criteria for eurozone entry, possibly stressing the issue of “sustainability” (of public finances, or inflation). However, this is obviously not the case. Estonia, with 1.3mn inhabitants and the second-smallest eurozone economy, is ready to adopt the euro, which it will do from the beginning of 2011.
The country has “clearly” achieved the Maastricht criteria: Estonian debt reached a mere 7.2% of GDP in 2009 (it will remain lower than 10% in 2010, we estimate), the deficit stood at 1.7%, and average inflation was negative (despite it moving significantly upward this year). Estonia is probably the best-placed country in terms of fiscal metrics in Europe.

Original title
: Estonia’s euro adoption: green light from the EU Commission

Mirees

Find content by geopolitical unit

Sponsors