TALLINN - Estonian Finance Minister Jur-gen Ligi said in an interview that Estonia did not implement chicanery in order to try to fulfill the euro adoption criteria in 2009, though the government did take into account the peculiarity of statistical rules, reports news agency LETA. He also said that he believes that the Maastricht budgetary criterion for a 3 percent of GDP budget deficit limit was fulfilled last year, but that the exact figure won’t be revealed before the end of February.
Ligi, who became the finance minister in June, said that at first he had a feeling that the government wouldn’t be able to cope with the necessary budget cuts as the decisions would be too painful. At the end of the year there were a lot of both visible and hidden activities that had to be resorted to bring the budget in line: the maximum withdrawal of dividends from state-owned firms, the maximum dividend recovery when Eesti Telekom was sold, for example, in an effort to boost income taxes.
“If Estonia was to be compared with other states, then I can claim that our measures to fulfill the criteria have been very clean,” said Ligi. “Elsewhere all kinds of tricks have been resorted to, and there have been games with currency exchange rates that enabled the fulfillment of the inflation criteria,” he added.
He also announced that it is extremely regrettable that propaganda has been carried out among the Estonian population which doesn’t speak Estonian that the currency exchange rate could be changed, upon introduction of the euro, in an unfavorable direction. “No one in the European Commission is interested in devaluing the exchange rate of the kroon,” promised Ligi.
The IMF insists that Estonia’s current fixed exchange rate is the correct level to use when the country switches to the euro. Estonia hopes to meet the Maastricht criteria this year allowing the country to adopt the euro in 2011.
“Seeking euro adoption at the current fixed exchange rate parity remains the best exchange rate policy for Estonia,” said the IMF after its regular assessment of the economy. Estonia’s kroon is pegged to the European single currency at a rate of 15.6466 to the euro. The IMF said this was a “moderate overvaluation” but this could be solved without changing the rate.
Crisis-hit Estonia, like its struggling neighbors Latvia and Lithuania, is carrying through with an ‘internal devaluation’ where governments and companies slash spending and wages in a drive to boost competitiveness. That is seen as less costly politically and socially than outright currency devaluation, a move used successfully by some countries in previous crises to gain an edge. “While theoretically offering some advantages, a repegging of the kroon at a lower level would be unnecessarily disruptive, both for Estonia and the region,” warned the IMF.
Brussels has said Estonia could get the green light by June for a January 2011 switch to the euro, a move Tallinn says would boost investor confidence. Under the Maastricht Treaty, which created the common currency, countries must meet certain conditions before adopting the euro. These mainly concern inflation, public finances, debt and exchange rate stability.
The ongoing recession, however, is weighing in with obstacles which might again delay the expected euro adoption date. Pro Patria and Res Publica Union (PRU) chairman Mart Laar says that the growing unemployment rate may become an obstacle to join the euro zone next year.
Laar says that firstly, due to the abrupt increase of joblessness, the state budget might fail to collect the planned income tax revenues. A second problem is political, since high unemployment is a factor noticed by Europe. “It is no secret that already they are talking in the European Parliament about the fact that Estonia’s achievements to fulfill the euro criteria are not sustainable because there is high joblessness here. This is used in euro debates as an argument and to question why Estonia should get the euro after all,” said Laar.
Riigikogu finance committee chairman, Reform Party MP Taavi Roivas, said that unemployment is a very serious problem for Estonia but cannot be an obstacle for Estonia joining the euro zone. “We all know that Maastricht criteria do not include the indicator of joblessness. The budget in the sense of its position certainly takes into account the joblessness indicators so that I am certain that joblessness in the euro context will not become a problem,” said Roivas.
Estonia, a country of 1.3 million people, slid into a deep recession in 2008. The government had hoped to adopt the euro in 2007 but put the plan on hold as it worked to fulfill the criteria. Estonia would be the third ex-communist state to switch, after Slovenia and Slovakia.