Green light to Estonia’s Euro-accession amidst tumult in the Eurozone

In Esto­nia, as in the oth­er Euro­pean coun­tries, the Greek cri­sis caused con­cerns about the sta­bil­i­ty of the Euro, and raised dif­fi­cult ques­tions about sol­i­dar­i­ty in the EU. But high­est on Estonia’s agen­da was the ques­tion of how the Greek cri­sis would impact Estonia’s own bid to join the Euro. Just as Euro­pean lead­ers decid­ed on a mas­sive emer­gency res­cue pack­age to halt a fes­ter­ing sov­er­eign debt cri­sis, Esto­nia eager­ly wait­ed for the Euro­pean Commission’s con­ver­gence report. Hav­ing fol­lowed a strict aus­ter­i­ty pro­gramme since the begin­ning of the eco­nom­ic cri­sis (pub­lic spend­ing in 2009 was a dras­tic 12 per­cent less than in 2008), Esto­nia was able to keep its bud­get deficit in 2009 at 1.7 per­cent despite a 15 per­cent drop in Gross Domes­tic Prod­uct (GDP). The coun­try is the least indebt­ed nation in the EU (its debt stood at 7.2 per­cent of GDP in 2009, well below the Euro­zone aver­age of 60 per­cent), and the eco­nom­ic cri­sis had helped bring down infla­tion. Hav­ing met all three Maas­tricht cri­te­ria, Esto­nia believed it was ready to adopt the Euro, but many feared that unprece­dent­ed tur­bu­lence in the Euro­zone might bring the expan­sion of the sin­gle cur­ren­cy area to a halt, or lead to the intro­duc­tion of new cri­te­ria. These fears were fed by reports that Jür­gen Stark, a mem­ber of the Gov­ern­ing Board of the Euro­pean Cen­tral Bank, believed Esto­nia was not pre­pared to join the Euro­zone, despite meet­ing the Maas­tricht cri­te­ria, and favoured the intro­duc­tion of addi­tion­al cri­te­ria such as GDP per capi­ta.11Mikk Salu: Euroopa Keskpank kahtleb, kas Eesti ikka on eurokõl­b­lik, Eesti Päe­vale­ht, 16.04.2010.

For Esto­nia, the prospect of pol­i­tics inter­fer­ing with its acces­sion to the Euro­zone, just as years of pru­dent poli­cies and hard work were expect­ed to pay off, was a frus­trat­ing pos­si­bil­i­ty. In the eyes of the Eston­ian pub­lic, the EU’s deci­sion on Estonia’s Euro-eli­gi­bil­i­ty con­sti­tut­ed anoth­er test of the EU’s abil­i­ty and will­ing­ness to apply the same stan­dards to old and new, large and small mem­ber states. “We don’t think we have to con­vince some­body that Esto­nia is not Greece,” said Prime Min­is­ter Andrus Ansip.22David Mardiste: We’re not Greece, says pre­mier of euro hope­ful Esto­nia, 23.04.2010, avail­able at: http://www.forexpros.com/news/financial-news/interview-we%27re-not-greece,-says-premier-of-euro-hopeful-estonia-132549 (last access: 01.06.2010). In an arti­cle that appeared in The Econ­o­mist, Edward Lucas argued that mak­ing Esto­nia wait would send a “per­verse mes­sage”: “Esto­nia is almost the only coun­try in the whole EU that actu­al­ly meets the com­mon currency’s rules. All those that use the Euro have gai­ly breached the deficit and debt lim­its. The grit shown by Eston­ian politi­cians and the pub­lic in shrink­ing spend­ing, rais­ing tax­es and cut­ting wages has been exem­plary. Pun­ish­ing Esto­nia, which obeyed the rules, while bail­ing out Greece, which has breached them fla­grant­ly, would do lit­tle for the Euro’s cred­i­bil­i­ty with gov­ern­ments and investors alike.”33Edward Lucas: Euro not bust, The Econ­o­mist, 13.05.2010.

On 12 May 2010, the Euro­pean Com­mis­sion announced that Esto­nia has ful­filled the Maas­tricht cri­te­ria on infla­tion, debt, and the bud­get deficit, and no tech­ni­cal or finan­cial bar­ri­ers stand in the way of the coun­try adopt­ing the Euro on 1 Jan­u­ary 2011. Pro­vid­ed that the final polit­i­cal deci­sion fol­lows in mid-July, Esto­nia will be the third post-com­mu­nist coun­try to adopt the com­mon cur­ren­cy after Slove­nia and Slovakia.

The Greek cri­sis and its impact on the Euro pro­vid­ed ample ammu­ni­tion to domes­tic skep­tics, who com­pared Estonia’s prospec­tive Euro­zone acces­sion to board­ing a sink­ing ship. How­ev­er, their calls had lit­tle res­o­nance, as pub­lic sup­port for the EU remains high, and the les­son Esto­ni­ans seem to have drawn from the hard times is that they would be worse off with­out the Euro­pean Union.

The Eston­ian gov­ern­ment approves of the EU’s res­cue pack­age for Greece and wel­comes the cre­ation of the Euro­pean Sta­bil­i­sa­tion Mech­a­nism. Accord­ing to Finance Min­is­ter Jür­gen Ligi, these deci­sions “sent an impor­tant mes­sage to the mar­kets” at a dif­fi­cult moment.44Min­istry of Finance: Euroopa Liidu rahan­dus­min­istrid lep­pisid kokku üht­ses finantsstabi­il­suse mehhanis­mis, press release, 10.05.2010, avail­able at: http://www.fin.ee/index.php?id=105199 (last access: 01.06.2010). Prime Min­is­ter Andrus Ansip con­firmed that Esto­nia is ready to buy Greek gov­ern­ment bonds and to par­tic­i­pate in the wider bailout: “If it will be decid­ed that EU mem­bers out­side the Euro­zone can also par­tic­i­pate, then yes, I’m for big­ger sol­i­dar­i­ty inside the Euro­pean Union and we nev­er know when we could be ask­ing for help.”55Baltic Busi­ness News: Ansip: Esto­nia is ready to buy Greek gov­ern­ment bonds, avail­able at: http://www.balticbusinessnews.com/article/2010/05/13/Ansip_Estonia_is_ready_to_buy_Greek_government_bonds (last access: 13.05.2010).

Sev­er­al ana­lysts have sug­gest­ed that the Greek cri­sis could even­tu­al­ly be for the good, because it forced mem­ber state gov­ern­ments and EU insti­tu­tions to final­ly face the mul­ti­ple prob­lems with the Sta­bil­i­ty and Growth Pact.66Vil­lu Zir­nask: Miks Kree­ka kri­is võib lõpuks olla hea, Eesti Päe­vale­ht, 20.05.2010. The Eston­ian gov­ern­ment has for a long time empha­sised the impor­tance of strength­en­ing the pact. In par­tic­u­lar, this involves ensur­ing the sus­tain­abil­i­ty of pub­lic finances, increas­ing the effi­cien­cy of gov­ern­ment expen­di­ture, and improv­ing the qual­i­ty of pub­lic rev­enue. Accord­ing to the government’s EU pol­i­cy strat­e­gy doc­u­ment for 2007–2011, “[s]trong fis­cal dis­ci­pline, estab­lish­ment of medi­um-term bud­getary goals that are more ambi­tious than cur­rent goals, and strength­en­ing the pre­ven­tive part of the Sta­bil­i­ty and Growth Pact, both through increased respon­si­bil­i­ty of the mem­ber states as well as by devel­op­ing a cor­re­spond­ing ana­lyt­i­cal frame­work, are impor­tant for achiev­ing these goals.”77State Chan­cellery of Esto­nia Estonia’s Euro­pean Union Pol­i­cy 2007–2011, avail­able at: http://www.riigikantselei.ee/failid/ELPOL_2007_2011_EN.pdf (last access: 01.06.2010). Thus, the Eston­ian gov­ern­ment will cer­tain­ly stand behind pro­pos­als aimed at strength­en­ing fis­cal dis­ci­pline and intro­duc­ing tighter mon­i­tor­ing and per­ma­nent cri­sis pre­ven­tion mech­a­nisms. Indeed, the gov­ern­ment appears to bask in assess­ments prais­ing Esto­nia as “a mod­el of the fis­cal dis­ci­pline that the EU now wants to bring to the entire Euro area.”88Ott Umme­las: EU’s Least-Indebt­ed State Is Mod­el After Greek Cri­sis, avail­able at: http://www.businessweek.com/news/2010–05-11/eu-s-least-indebted-state-is-model-after-greek-crisis-update2-.html (last access: 01.06.2010).

Estonia’s posi­tion on the Europe 2020 Strat­e­gy is that it should focus on iden­ti­cal goals as the cur­rent Lis­bon Strat­e­gy, i.e. on growth and jobs, tak­ing also into con­sid­er­a­tion the need to reduce the impact of eco­nom­ic activ­i­ties on the envi­ron­ment. To ensure more effec­tive imple­men­ta­tion than was the case with the Lis­bon Strat­e­gy, imple­men­ta­tion mech­a­nisms must be strength­ened and more pow­er giv­en to the Euro­pean Com­mis­sion, both in ini­ti­at­ing leg­is­la­tion and in mon­i­tor­ing and assess­ing the imple­men­ta­tion of the strat­e­gy. The pri­or­i­ties of the new strat­e­gy should be duly tak­en into account in the elab­o­ra­tion of the next EU finan­cial per­spec­tive. The Europe 2020 Strat­e­gy should focus on a lim­it­ed num­ber of pri­or­i­ty areas that have the great­est poten­tial to improve EU’s com­pet­i­tive­ness. Main pri­or­i­ty areas for Esto­nia are fur­ther devel­op­ment of the inter­nal mar­ket, mobil­i­ty and infor­ma­tion soci­ety, R&D and inno­va­tion, edu­ca­tion, cre­ation of jobs, social cohe­sion, and pro­mo­tion of the eco-effi­cient econ­o­my.99State Chan­cellery of Esto­nia: Aims of the Eston­ian Gov­ern­ment Dur­ing the Span­ish Pres­i­den­cy, avail­able at: http://www.riigikantselei.ee/failid/EE_priorities_EN.pdf (last access: 01.06.2010). Prime Min­is­ter Ansip has expressed sat­is­fac­tion with the fact that pro­pos­als by Pres­i­dent of the Euro­pean Coun­cil Her­man Van Rompuy broad­ly coin­cide with Estonia’s vision of the strategy’s foun­da­tions.1010Eston­ian Gov­ern­ment: Euroopa Liidu tipp­ko­h­tu­misel aru­tati järgnevate aas­tate majan­dus­poli­itikat, press release, 11.02.2010, avail­able at: http://www.valitsus.ee/?id=9916 (last access: 01.06.2010).

    Footnotes

  • 1Mikk Salu: Euroopa Keskpank kahtleb, kas Eesti ikka on eurokõl­b­lik, Eesti Päe­vale­ht, 16.04.2010.
  • 2David Mardiste: We’re not Greece, says pre­mier of euro hope­ful Esto­nia, 23.04.2010, avail­able at: http://www.forexpros.com/news/financial-news/interview-we%27re-not-greece,-says-premier-of-euro-hopeful-estonia-132549 (last access: 01.06.2010).
  • 3Edward Lucas: Euro not bust, The Econ­o­mist, 13.05.2010.
  • 4Min­istry of Finance: Euroopa Liidu rahan­dus­min­istrid lep­pisid kokku üht­ses finantsstabi­il­suse mehhanis­mis, press release, 10.05.2010, avail­able at: http://www.fin.ee/index.php?id=105199 (last access: 01.06.2010).
  • 5Baltic Busi­ness News: Ansip: Esto­nia is ready to buy Greek gov­ern­ment bonds, avail­able at: http://www.balticbusinessnews.com/article/2010/05/13/Ansip_Estonia_is_ready_to_buy_Greek_government_bonds (last access: 13.05.2010).
  • 6Vil­lu Zir­nask: Miks Kree­ka kri­is võib lõpuks olla hea, Eesti Päe­vale­ht, 20.05.2010.
  • 7State Chan­cellery of Esto­nia Estonia’s Euro­pean Union Pol­i­cy 2007–2011, avail­able at: http://www.riigikantselei.ee/failid/ELPOL_2007_2011_EN.pdf (last access: 01.06.2010).
  • 8Ott Umme­las: EU’s Least-Indebt­ed State Is Mod­el After Greek Cri­sis, avail­able at: http://www.businessweek.com/news/2010–05-11/eu-s-least-indebted-state-is-model-after-greek-crisis-update2-.html (last access: 01.06.2010).
  • 9State Chan­cellery of Esto­nia: Aims of the Eston­ian Gov­ern­ment Dur­ing the Span­ish Pres­i­den­cy, avail­able at: http://www.riigikantselei.ee/failid/EE_priorities_EN.pdf (last access: 01.06.2010).
  • 10Eston­ian Gov­ern­ment: Euroopa Liidu tipp­ko­h­tu­misel aru­tati järgnevate aas­tate majan­dus­poli­itikat, press release, 11.02.2010, avail­able at: http://www.valitsus.ee/?id=9916 (last access: 01.06.2010).

The reports focus on a report­ing peri­od from Decem­ber 2009 until May 2010. This sur­vey was con­duct­ed on the basis of a ques­tion­naire that has been elab­o­rat­ed in March and April 2010. Most of the 31 reports were deliv­ered in May 2010.

The EU-27 Watch No. 9 receives sig­nif­i­cant fund­ing from the Otto Wolff-Foun­da­tion, Cologne, in the frame­work of the ‘Dia­log Europa der Otto Wolff-Stiftung’, and finan­cial sup­port from the Euro­pean Com­mis­sion. The Euro­pean Com­mis­sion is not respon­si­ble for any use that may be made of the infor­ma­tion con­tained therein.