MÄRTEN ROSS: The adoption of the euro is a natural development for the Estonian economy

Today, 26 March, Deputy Governor of Eesti Pank MÄRTEN ROSS gave a presentation at the Accountants' Tax Conference 2008. He explained the causes and nature of inflation, saying that the inability to meet the inflation criterion is Estonia’s main problem in changing over to the euro.

"Since Estonia is a Member State of the European Union and the fundamental principles of the Estonian and euro-area economic policy are very similar, the changeover to the euro is to be taken as a natural development for Estonia," said Mr Ross. “In the economic sense, due to the fixed exchange rate, we have been members of the euro area for nearly 16 years already," said the Deputy Governor.

"The only reason we cannot join the euro area is Estonia's high inflation level. Owing to the peg of the kroon, goods prices in Estonia are under control, but the main factor influencing inflation has been the rapid wage growth, which has primarily raised the prices of services. Thus, our relatively high inflation rate reflects Estonia's catch-up with the developed countries," explained Mr Ross.

The Deputy Governor of Eesti Pank claimed that a slowdown in economic growth would improve Estonia's chances of meeting the inflation criterion, but according to the autumn forecast, it is unlikely we can introduce the euro before 2011.

"Keeping in mind the primary goal of changing over to the euro, it is important that Estonia fulfil the fiscal criterion also in the future," said Mr Ross. The Deputy Governor stressed that the economic downturn may cause temporary balance problems and therefore it is essential Estonia continue to pursue conservative fiscal policy. "Meanwhile, a balanced budget is necessary both for controlling inflation and supporting private investments, because the budget surplus has been the main supporter of Estonia's credibility in the eyes of investors and the rest of the world," said the Deputy Governor.