TALLINN - The Estonian government has reiterated its stance on joining the euro zone, set for January 1, 2011, and has already cut its 2009 budget by 16 billion kroons (1.02 billion euros) in an attempt to keep its deficit under control as the economy shrinks further during this severe recession, reports news agencies Leta-Reuters. The Estonian central bank said on July 29 that the government will need to trim its 2009 budget deficit even further if it hopes to meet the criteria for joining the euro zone.
"Based on the Bank of Estonia's spring economic forecast, and measures [it has] taken by the end of July, the 2009 budget deficit will be close to four percent of GDP," said the Estonian central bank in its annual report concerning the country's preparations for euro adoption. "Based on this, the Bank of Estonia considers that further steps are needed to lower the budget deficit," the bank added.
After parliament passed the last round of cuts to the budget in June, the central bank said the government would need to trim a further 1.5 billion kroons. The deficit ceiling for euro zone membership is three percent of GDP.
The bank said the country will meet the inflation criteria this autumn, and then the key question will be whether the government can manage the state finances. Estonia signed an agreement to join the euro zone as soon as possible as part of its European Union membership. It initially hoped to join the euro zone in 2007, but an economic boom and high energy prices kept its inflation higher than Maastricht rules allow.
Estonia runs a currency board, with the kroon pegged to the euro.
