Baltics' early euro-ambitions put to the test

  • 2006-01-25
  • From wire reports
VILNIUS - Lithuania and Estonia's pre-eurozone membership hopes were dealt a blow last week when the EU's monetary commissioner said that the countries' inflationary rate was too high for them to adopt the common currency as of Jan. 1, 2007.

Economy and Monetary Affairs Commissioner Joaquin Almunia said in Brussels on Jan. 20 that "if the decision had to be made today with figures published this morning, neither Estonia nor Lithuania would satisfy this criterion," the Baltic News Service reported, quoting the AFX news agency.

Lithuania and Estonia, together with Slovenia, want to become the first of the EU's 10 new member states to adopt the euro. But after Eurostat reported last week that annual inflation in Estonia amounted to 3.6 percent and 3 percent in Lithuania as of December - significantly higher than the Maastricht criteria - the Baltics' chances of phasing in the euro at the end of this year look slim.

According to reports, the Maastricht indicator, which is based upon average inflation rates of EU member states, was 2.5 percent in December.

"We will make our analysis with respect to these criteria in the convergence report in the middle of the year," Almunia said.

For the last couple years, Lithuania and Estonia have made great strides in battling inflation, but the countries' red-hot economies and rising energy prices have undermined these efforts. "As we had expected, Lithuania failed to meet the Maastricht criterion in December. We now put the probability of it meeting this criterion in the middle of this year at 50-50," said Alge Budryte, chief analyst at SEB Vilniaus Bankas.

In order to comply with the Maastricht inflation criterion, candidate countries (all new EU members are obliged to adopt the euro) must keep its inflation rate within 1.5 percentage points of the three best-performing EU countries.

Reacting to Almunia's statement, the Lithuanian Ministry of Finance said that the country would comply with the Maastricht requirement and whittle down annual inflation to 2.6 percent.

According to ministry estimates, average annual inflation over the latest eight-month period was 2.4 percent, or 0.2 percentage points below the expected Maastricht criterion of 2.6 percent.

The ministry said it had based its estimations on the latest data available by Eurostat, which announced that the lowest average inflation for the last eight-month period was registered in Poland (0.8 percent), Finland (1.1 percent) and Sweden (1.3 percent).

In Tallinn, the Bank of Estonia said it was well aware that Estonia did not qualify for the eurozone under Maastricht regulations. "Let us emphasize that evaluation of the inflation indicator will take place not earlier than in the middle of the year, when Estonia will have been part of ERM-2, or in the waiting room, for the required two years," Bank of Estonia spokesman Jano Toots told the Baltic News Service.

Inflation in Estonia is expected to slow down starting from the second quarter of 2006, Toots said.