Euro brings good things to Estonia

TALLINN - In interviews to Xinhua, some Danish experts have said Estonia’s accession to the eurozone may mean something, no matter whether the country really knows this or not, reports news agency LETA. Helge Pedersen, the global chief economist from Nordea Bank, believed that joining the euro is good for general confidence and the markets.

Pedersen told Xinhua that the current trouble in the eurozone would not make investors more cautious about the future of Estonia’s economy and its adoption of the euro, although the country was hit hard by its own financial crisis during 2008-2009.
“The main trade partners of Estonia are Sweden, Finland and Germany, instead of those crisis-hit countries, such as Ireland, Spain, or Italy, so I wouldn’t think that the euro debt problem will have much significant influence on Estonia,” he said.
Katarina Juselius, a professor with the economic department of University of Copenhagen, said: “As always in economics there are two sides of the coin: On the one hand, Estonia has a large foreign debt and a devaluation of the Estonian currency would make this debt harder to pay, which is an argument in favor of joining the euro.”

“On the other hand, if Estonian industry is not sufficiently competitive compared to the euro area, i.e. if their current real exchange rate is not in line with the purchasing power parity of her trading countries, then it shall be very costly for Estonia to join the euro,” she added.
When asked whether joining the eurozone will elevate labor costs in Estonia and reduce the competitiveness of the country’s economy, Petersen said that it is unlikely to happen.

Pedersen believed that Estonia is also unlikely to lose flexibility in implementing its fiscal policy after joining the eurozone.
He also did not believe that the country may have an underlying problem of lacking tools to ease inflation, or high interest rates, when it runs into fiscal difficulties.

Pedersen said that Estonia has a stable policy, a conservative budget policy for quite a long time, and also has made tough reforms to meet the Common Monetary Standard for Europe.
From April 2009 to March 2010, the average rate of HICP (The Harmonized Index of Consumer Prices) inflation in Estonia was negative 0.7 percent, and the general government gross debt was 7.2 percent of GDP, a very low level, according to statistics published by the European central bank in May last year.

Back in the summer when the petition was made to accept Estonia, European Commission President Jose Manuel Barosso said: “It shows that the euro is still an attractive currency. Hopefully, that’s the signal to be sent to the markets.
Estonia... will be one of the more responsible and conservative members of the zone.”
However, both Pedersen and Juselius believed that Estonia is a very small economy, and that it’s not only economic reasons but also political ones that drive Estonia’s joining the euro club at this moment.
For a small country on the periphery of Europe, joining the eurozone means that Estonia edges herself into the top club in Europe, they said.

Second, Estonia’s accession sent a positive message to her East European neighbors who haven’t joined the zone, they believed.
Juselius said “Estonia sends a signal to the market that they are prepared to make economic sacrifices to be able to stay within the euro zone...” It is “also a political signal that Estonia chooses to be associated with the West, whatever the cost,” she said.