Is Estonia able to fill its euro-goal by 2011?
Time:
16.10.2009 12:00 - 14:00This and other your questions were answered by Jürgen Ligi, Minister of Finance, on October 16.
traveler
Give me at least 3 reasons why the Euro being adopted in Estonia as the only currency makes any difference to the unemployment rate and standard of living already in Estonia.
There’s only one reason that truly matters – trust. Estonian investments suffer, especially now, because we’re lumped together with the most instable economies in the region. Also our currency system, that serves us so well, isn’t understandable for outside viewers.
Perspicacious
Have you analyzed Slovakia's economy since they joined the Euro in January this year? Especially from the standpoint of the big international companies who have pulled out of there recently. Do you think it proves that getting the Euro does NOT help FDI?
I don’t think so. Our monetary systems are different. Slovakia adapted euro at time which doesn’t allow comparing level of investments. Estonia has currency board; we don’t have a single advantage of national currency, only the weakness that its strength is not known.
ameeriklane
It seems that the main item preventing Euro accession is debt-to-GDP ratio. The predictions we've seen so far is that it will be very close or at exactly the limit (3%). However, while debt is mostly under control of the government, GDP is not. How conservative is the estimate of GDP for 2009? If the actual number is lower than the estimate, this could bring the debt-to-GDP ratio over the 3% limit.
Your estimation is accurate, but we also think our forecast is accurate. This year’s 13.6 pct decline is similar to what two bigger commercial banks offered and it’s 1.3 pct bigger fall than offered by the central bank. We can’t control GDP, but we can control incomes and spending and all the aces are not on the table yet.
ameeriklane
We have heard from various politicians that joining the Euro will bring in FDI because it reduces currency risk (EEK devaluation). Why is this the case? If a company needs to take loans for a factory or for equipment, those loans are already in EUR. If a company plans to export their products, then they are probably exporting to countries using the EUR or some other non-EEK currency. If a company has employees in Estonia, they are paid in EEK, but the worst case is the cost (in EUR) would actually go down in the case of devaluation. So why should we think that there are so many foreign investors waiting to invest, but are holding back because there is no Euro?
This is exactly the point that the company does so… when it is hearing bad news from our region, it unfortunately hesitates and statistically it reflects in smaller economic activity and investments. Loans with more reasonable interest are offered in Euros and exchange rate on repayment is not sure. Risk ratings of countries, which have already joined euro, are also better. That all costs and has influence, no matter how few or many entrepreneurs, we think, are on hold. Estonia is a small economy and changes are much depending on faith and reputation.
ameeriklane
If Estonia does not meet all the Euro accession criteria at the end of this year, what are the risks of unilateral Euro adoption? (In other words, everyone just starts using Euros without asking the European Central Bank.) I realize the ECB may frown on this, but are there real risks? It may risk having a "seat at the table" for ECB discussions, but I suspect most decisions made by the ECB are based on the preferences of large Euro countries like Germany and France.
I was convinced that rules must be obeyed and money can’t be embezzled years before joining EU. Now EU rules are mandatory. Whatever the risks of unfair game would be, of them loss of dignity would be enough for me.
manufacturer
what is the plan B in case EURO adoption won't be possible within lets say next 2 years?
We still must meet Maastricht criteria and consolidating budget has been inevitable and also part of plans B, C and D. We would try to go on with that formal step; it was even part of our EU accession treaty.
Nick Cotton
Why do you feel that joining the Eurozone will solve all of your problems?
Why do you think I think like that? That’s just one measure to create trust and make way for economic transactions. There are enough problems in the economy to which euro doesn’t address. We deal with them most of our time.
LeftEstoniaforgood
Instead of trying to dodge the issues with a hopeless bolt for the Euro, what concrete plans does the government have to deal with the rising tied of property reposessions? Being as the key to this issue is the primary reason why foreign investors have all left, and the uncompetitive Euro-EEK conversion rate is the main reason why Estonia is unable either to export or get new investment started to create exporting firms, when will the government take the neccessary decisions both to drop the exchange rate peg, to tackle the bust and overcapacity in the housing market, as well as bringing back transport and infrastructure prices to pre 2005 levels? Total immobilism is NOT an option. Adopting the Euro will NOT do anything but raise prices (yet again) as happened in France and Germany on the day it happened. (I was there at the time). Why does the current government believe adopting the Euro will solve any of these problems when in the case of Ireland and Spain has clearly WORSENED the property crisis in both countries leaving not a single option available to deal with it. Does it not have any other policy option left on the table so it cant show total intellectual bankrupcy?
Perhaps I could understand your picture of Estonia better, if it was phrased more compact. I currently don’t understand what’s hopeless and what’s the matter with our exchange rate and why you think investors leave Estonia. Currently big part of investments comes from companies with foreign ownership reinvesting their profit. Estonia became important capital exporter at some point, because our market’s too small when company expands. Imbalances, which you believe exist, have disappeared in the crisis. Our prices are at pre-boom level and current account is in surplus. The government has and is taking measures, for which the need became clear during the boom. What we can’t do, is restoring situation on the export markets..
John Stewart Wilson
Small countries and territories....Singapore, Hong Kong, and Luxembourg.... all innovate constantly as the world economy and best practices change, and those governments work hand-in-hand with local and foreign investors to change laws regularly to make the economies much more competitive and, thus, attractive for international investment. Why should my firm, or any foreign investor for that matter, continue to invest into Estonia when the government clearly has no long-term or even medium-term industrial policy or vision for the country? The Euro alone is not going to bring FDI to Estonia in the absence of a comprehensive and creative economic vision for the country from within the government (business has it already).
Our business culture and environment and regulations are appraised most of the time. Our worst indicator, labour market regulation, has recently been reformed. The taxes are low and we’ve even been trendsetters in that field. Our education system is very competitive. Similarities have been found between Estonia, Singapore and Hong Kong and we have used their experiences. But it would be na?ve to think that their industrial policy would be on EU market. Luxembourg is different from Estonia as well for it’s resources and geographical and political context. I’d be interested in listening to Your vision, mine is free competition, supporting innovation, export ability and, besides all that, certain knowledge that in international division of labour we have small pieces in which we do not dictate, but must move to more profitable part of value chain. Estonia has considered being an innovative country. If Your complaints don’t come of lack of innovation and vision, then please find an opportunity and specify, how we could help You with investing.
scheileke
Not a question, a statement: Estonia will not go into the Eurozone, untill they learned from their mistakes. And this I doubt very much. Too much fundamental wrong decisions are made, for example: instead to wait for more investments to Estonia, there are more ways how to make (in the long term) money and how to grow it. I understand, that the legacy of the Soviet Union still exists, and Estonian people never learned the way of capitalism, never learned the responsibility, because the big brother took everything out of their hands. But I believe, in 15, 20 years from now, Estonia will maybe develope in a good way.
Thank you for your good faith. Hopefully you have some piece of advice and facts about our alleged mistakes in your next statement. My current knowledge is that we’ve done fewer mistakes than most of the others, give us some time to improve.