Today the European Central Bank (ECB) and the European Commission published their regular convergence reports assessing progress made by the ten EU countries outside the euro area towards adopting the euro. The reports analyse the compliance of the countries' economies with the requirements for the introduction of the euro (the Maastricht criteria) along with their legal framework.

"Similarly to the previous regular ECB convergence report, which was published in December 2006, Estonia meets again all the requirements for the adoption of the euro, except for the price stability criterion. Estonia's government budgetary position is considered to be suitable for joining the euro area, since Estonia meets comfortably both of the criteria set to public finances - the general government budget is in surplus and debt remains at a low level. One of Estonia's most important economic policy goals is to introduce the euro as soon as possible, and according to Eesti Pank's spring forecast, the country's inflation rate should reach close to the Maastricht inflation criterion at the end of 2010. In this connection, Estonia must not ease off as regards other Maastricht criteria," commented Andres Lipstok, Governor of Eesti Pank.

According to the ECB's report, Estonia recorded a 12-month average rate of HICP inflation of 8.3% during the reference period from April 2007 to March 2008. The reference value for the period was 3.2%. In 2007, Estonia's general government budget was in a surplus of 2.8% of GDP, whereas the Maastricht criterion states budget deficit must not exceed 3% of GDP. The European Commission expects Estonia to fulfil the budgetary condition also in this year, although the surplus is forecast to decrease to 0.4% of GDP for 2008. According to the criterion, the ratio of gross government debt must not exceed 60% of GDP or it has to be on a declining trend. Estonia’s general government debt ratio fell to 3.4% of GDP in 2007. The debt is forecast to stay at this level in 2008 as well, according to the Commission's spring forecast.

In the reference period, the Estonian kroon remained stable at its central rate of 15.6466 kroons per euro. Thus, Estonia fulfils the Maastricht exchange rate stability criterion. As regards the compliance of legislation, Estonia is ready to join the euro area in this respect. The convergence report says there are no indicators to warrant a negative assessment of the long-term interest rate criterion, since Estonia has no developed bond market in Estonian kroons and the level of government debt is low.

The ECB emphasises that reducing demand-induced inflationary and current account pressures requires, inter alia, tight fiscal policies, saving revenue windfalls and restraining expenditure. The report also states that Estonia should monitor the dynamics of the credit market, as well as the current account deficit and its financing. In the ECB's opinion, wage increases should reflect labour productivity growth and labour market conditions and take into account developments in competitor countries. The report also says that increasing labour market flexibility and improving the skills of the labour force, i.e., the need to invest in education, is an important policy objective.

The Estonian translation of the convergence report is available on the home page of Eesti Pank at
http://www.eestipank.info/pub/et/dokumendid/publikatsioonid/EKP/
The ECB's press release on the convergence report is available on the home page of Eesti Pank at
http://www.eestipank.info/pub/et/yldine/press/pressiteated/EKP_pressiteated/

The ECB and the European Commission prepare convergence reports every two years, assessing a country's convergence to the euro area in terms of economic, political and legislative indicators based on the Maastricht criteria. Such reports provide a basis for the European Commission to submit proposals to the ECOFIN and the European Council listing the member states ready to launch the euro. In 2008, the euro readiness of ten countries was assessed: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia and Sweden.