TALLINN - In a spate of public addresses, Estonia's political leaders and chief financial institutions have stressed the importance of adopting the euro to safeguard the economy.
Despite Estonia technically entering recession in August, politicians have been hesitant to concede the global financial crisis' ramifications on the national economy. The continuing downturn, however, has now prompted the government to rethink its position.
Among the most noteworthy of those to voice concern is President Toomas Hendrik Ilves, who said the financial crisis is now on Estonia's heels.
"The transitions of financial crisis are about to come to the world economy. Last month's forecasts are not valid anymore. Signs of a cooling economy follow us at every step. Estonia needs an aim. Euro is our next goal. It acknowledges Estonia's choices to us and helps to keep away the heaviest threats," Ilves said.
The key players in the finance sector have unanimously echoed these sentiments, saying that the economic framework of the EU 's and more specifically the adoption of the euro 's will be vital in stabilizing the economy.
The Ministry of Finance told The Baltic Times that joining the eurozone is vitally important given the current circumstances, and would crucially negate the possibility of currency devaluation.
"Joining the eurozone will stabilize uncertainties as this stops theoretical possibilities for kroon devaluation and thus makes Estonia more trustworthy and attractive for foreign investors. Estonian vulnerability to foreign shocks will be reduced when we are part of a larger currency union," the ministry said.
"We must be sure that in the coming year we meet the euro convergence criteria and in 2009 we must seek to make additional spending cuts of around 1 percent of GDP to those already in the 2009 budget," Finance Minister Ivari Padar said in a statement.
According to Estonia's central bank, Eesti Pank, adopting the euro is a particularly pertinent solution, as the economic downturn actually provides a new opportunity to meet the Maastricht inflation criterion for adopting the euro.
According to on of the bank's economists, Martin Lindpere, adopting the euro is also likely to breathe new life into the economy.
"This step will support growth potential in our economy. I believe that changing over to the euro will also provide a stimulus helping start a new growth cycle. The euro will definitely become a milestone for the Estonian economy," Lindpere told The Baltic Times.
The string of announcements followed deepening economic woes after Moody's ratings agency downgraded Estonia's outlook amidst diminishing foreign investment and rising unemployment.
On Nov. 7, the ratings agency Moody's Investors Service downgraded Estonia's outlook to negative. The report stated that despite being well capitalized due to the banking sector's Nordic integration, Estonia's financial security cannot withstand a prolonged recession 's a prospect that seems increasingly likely.
To compound economic worries, fresh statistics have revealed a 68.3 percent rise in unemployment over the last year. The Tallinn bourse, meanwhile, continues to flounder as foreign investment steadily dries up.
In a bid to speed up the currency convergence Prime Minister Andrus Ansip announced on Nov. 6 that he plans to form a workgroup to determine the best way to achieve the Maastricht criteria.
The group, led by Ansip, is set to include the Minister of Finance, the Minister of Economic Affairs, the president of the Eesti Pank, the president of the Estonian chamber of commerce and the chairpersons of the coalition parties.
The major obstacle now is achieving the budget regulations laid down by the Maastricht criteria, meaning the government is likely to make heavy cutbacks if a serious attempt at eurozone admission is to be made.