Estonia aims to curb inflation, adopt euro

ESTONIA: ESTONIA STILL expects to adopt the euro currency in 2011 despite high inflation, which the government will fight with tighter fiscal policies, prime minister Andrus Ansip said yesterday.

Mr Ansip said in an interview he expected Estonia's 2008 economic growth to slow to about 5 per cent from last year's 7.1 per cent, adding the country's budget surplus would grow more slowly this year than in previous years.

"We are still confident we will meet the Maastricht inflation criteria in 2010 and we can join the euro zone in 2011, but not everything is in our hands," he said.

With 1.3 million inhabitants, Estonia has enjoyed rapid economic expansion since it joined the EU in 2004. But accelerating inflation partly due to a lax monetary stance, a currency pegged to the rising euro and high wage growth forced it to delay its euro-zone entry target from 2007.

Talking ahead of an EU summit, Mr Ansip said his government aimed to freeze public expenditure in 2008 to counter inflation.

Estonia now meets the EU's so-called Maastricht criteria for euro entry on budget deficits, public debt and interest rates. However, inflation, at 11.3 per cent in February, is far too high.

To adopt the euro, Estonia's 12-month average inflation must not be more than 1.5 percentage points above the corresponding average in the three EU states with the lowest inflation rates. This level is now about 3 per cent.

Out of 12 EU newcomers, only Slovenia, Cyprus and Malta have joined the euro zone. Lithuania's bid to adopt the currency in 2007 was rejected because the country's inflation was marginally higher than the reference level.

Slovakia hopes to adopt the euro next year.

Bigger EU newcomers, such as Poland and Hungary, don't plan to join the euro zone until after 2010. -

© 2008 Reuters

This article appears in the print edition of the Irish Times