No. 13




Does Eastern Europe have to review its plans for the euro?

  • Kalev Kukk

    Adviser to the Prime Minister, Tallinn University, Contract Associate Professor of Human Geography

The rapid accession of Estonia, Latvia and Lithuania with the euro zone has become more and more questionable in the eyes of experts.

Even though the forecasts as of spring 2006 promise some improvement in the necessary conditions for complying with inflation criteria, allowing Estonia to become a member of the euro zone in 2008, there is absolutely no guarantee that is the way it will work out. According to economic theory as well as many of Europe’s leading monetary experts, a high level of inflation is inevitable in small developing countries with open economies like Estonia’s who have long since pegged their currency to the euro. In spite of this, Estonia cannot under any circumstances remove from the agenda its aim of joining the euro zone as quickly as possible. At the same time we cannot continue ad infinitum with such one-off pro-euro decisions such as postponing a hike in the excise taxes. We should have instead considered concentrating the excise rises in 2004 and 2005, but hindsight is always perfect. In any case, Estonia will have to continue a conservative monetary policy, a budget that aspires to a surplus.

Full article in Estonian