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ECB may be the bigger problem for Estonia

  • 2009-12-17
  • From wire reports

Danske Bank chief analyst Lars Christensen believes that the European Central Bank is doing everything it can to keep Estonia from adopting the euro in either 2011 or 2012, as it watches and worries over the current state of the euro area, reports news agency LETA. He says that there are currently “big problems” with some euro area members including Greece, Spain and Portugal, countries who have not fulfilled the criteria after getting the euro, and have let their budget deficits grow. The European Commission and ECB, he claims, doubt if the new member states would observe the criteria once they, too, are in the euro area. Estonian Development Fund economic expert Heido Vitsur says that the main concern of the ECB now is how the 9 - 10 EU member states, where the economies are still falling, can get their economies on the growth path again. He argues that devaluation does not threaten Estonia.

Vitsur says that in political discussions concerning economics and financial issues, it is “natural that all central banks discuss whether to change interest rates, to let money become cheaper or more expensive.” He stressed that commercial banks and financial analysts from many countries have discussed the need for devaluation of the Estonian currency, already for the past year.

“This is a normal discussion and it shows what is economically and emotionally acceptable. But Estonia avoids that [discussion] and this is why every expression of [an] opinion is an emotional shock for Estonia,” said Vitsur. He added that “If we have to worry about anything, then we should worry about the fact that in the third quarter, compared to the second quarter, the level of Estonia’s economy fell by 3 percent and the fourth quarter hasn’t given a clear growth signal.” Vitsur said that this is the only real concern and that this will determine what will happen with Estonia over the next five years.

Estonia may not be able to fulfill the Maastricht criteria by 2011 anyway, pronounces Christensen. These criteria have to be fulfilled, but the main obstacle is the so-called ‘soft criteria,’ which concern economic stability, for example. Therefore, even if Estonia fulfills the Maastricht criteria by 2011, ‘soft criteria’ might still be used to make Estonia wait longer before allowing it to adopt the euro. Christensen said that the ECB does not want to see the euro area expand before the euro area’s own problems have been solved.