The euphoria over Estonias likely entry into the
eurozone next year has been dampened by the countrys
expected commitment to the EU financial stabilization fund, its
finance minister has said.
Its going to be difficult to justify to
the public why we have to pay into this EU fund when we
were one of the few fiscally prudent countries in the
region, Jurgen Ligi told Emerging
The country is on track for 2011 eurozone entry after the
European Commission announced on Wednesday that the country had
fulfilled all the necessary convergence criteria .
However, membership of the eurozone will require the country
to contribute to E500 billion stabilization fund. Eurozone
leaders announced this support package on Monday to arrest the
panic sweeping the region over high levels of government debt
in Western Europe.
Ligi said the country supported the creation of the aid
package, created in the wake of the Greek debt crisis, and
wanted to see stability and solidarity in the
region. However, the money will be quite a lot for a
small country like Estonia.
Market reports suggest the Estonias European aid
package could cost E880 million or 13.8 billion kroons. Ligi
said that euroarea states contributed according to their stake
in European Central Bank share capital, with Estonias
share standing at 0.17%. However, it is unclear how much this
would finally amount to since some of shareholding consists of
Asked when Western European policy-makers would clarify
Estonias expected contribution, Ligi said: Western
finance ministers are understandably distracted by their own
crisis that they have not had time to think about
The UK, which is not part of the eurozone, has ruled
out putting money into the EU fund while Poland which is
outside the single-currency bloc has signalled its
desire to contribute.
Estonias inflation rose to 2.9% year-on-year, which
has raised doubts over the stability of low inflation in the
country. The European Central Bank in its convergence report on
Wednesday said the countrys low inflation over the past
year was the result of temporary factors due the
decline of real GDP of 14% last year and urged vigilance on
Euro applicants needed to keep inflation within 1.5% of the
12-month average inflation rate of the three EU nations with
the best results for annual price growth. Lars
Christensen, senior analyst at Danske Bank, said: Even
though Estonia gets a green light on euro entry from the EC,
the concerns of the ECB will nonetheless need to be addressed.
Under normal conditions politicians will follow EC
recommendation. But, currently we are not in a
Ligi said the euro leaders had no reason to
shoot down the European Commissions recommendation that
Estonia should enter the eurozone next year. He said that
in the short to medium-term inflationary pressures will
be low due weak growth. But in the long-term growth in
Estonia will be higher than the eurozone average as the income
levels converge with Western Europe.