Estonia Will Be Next to Join Euro, World Bank Says

[Äike]

Estonia Will Be Next to Join Euro, World Bank Says

Nov. 19 (Bloomberg) -- Estonia is set to become the next euro member as years of fiscal prudence help the former communist state recover faster than neighboring Latvia and Lithuania, a World Bank economist said.

“It’s doing everything it can to keep the deficit within 3 percent of GDP this year,” Thomas Laursen, the World Bank’s country manager for Poland and the Baltics, said in an interview in Warsaw. “Estonia will be the next country to adopt the euro.”

Laursen is adding his voice to a group of analysts predicting Estonia will achieve euro membership by its target date of January 2011. The International Monetary Fund said this week the country is “well on its way” toward adopting the euro in 2011. Nordea Bank AB, the biggest Nordic lender, said on Nov. 17 the Baltic state’s target is a “realistic dream.”

Lowest EU Debt

The country’s debt to GDP ratio will be 7.4 percent in 2009, the lowest in the European Union, and compares with an estimated average in the 27-member bloc of 73 percent this year, the European Commission said on Nov. 3.

Estonia is “doing much better” with regard to its euro- adoption bid “than the other Baltic countries,” Laursen said.

[The Lawspeaker]

Poor bastards.... "facepalms".

[Äike]

Poor bastards.... "facepalms".

I prefer the local currency but could you please explain why the Euro is a bad thing?

[The Lawspeaker]

I prefer the local currency but could you please explain why the Euro is a bad thing?

O.K let me summarise it as briefly as I can:

1. Estonia will see a serious inflation. It wil see it's prices for food and consumer goods rise by a quarter or (in some cases) even double.

2. Estonia will loose it's sovereign right to determine it's own monetary policy thus weakening it's sovereignty and economic power by letting the ECB determine the interest rates.

[Äike]

Looks like this article was spot on. Estonia will join the Eurozone next year. The deficit was handled even more successfully then originally planned. The goal was to get it to within 3%, just 3% would have been enough. Estonia got it to 1.7%. Estonia is doing good and I hope that the euro will improve things even more.

[Bard]

O.K let me summarise it as briefly as I can:

1. Estonia will see a serious inflation. It wil see it's prices for food and consumer goods rise by a quarter or (in some cases) even double.

This is totally true.
In Italy the prices doubled with the come of euro.

[The Lawspeaker]

Same here.. Bread was 1.75 in guilders and is now 1.75 to 2.25 in euro's (2.20 guilders is 1 euro.)
When I was a kid I could get a cheap ice cream for about 1 guilder.. the same ice cream would now cost me about 1.25 euro's

[Lenny]

The EEK was pegged to the Euro anyway. (and Mark before that).

I suppose the actual switch-over means the possibility of devaluation is gone. [I'd vaguely been following the idea that Estonia and some others might remove their exchange-rate pegs and allow their currencies to fall.]

• 1 USD has bought 10-12 EEK in recent times
  ...amid a devaluation to 70% of the original value, that could have changed to
• 1 USD now buying 16-17 EEK

[Euro, being more powerful, would do better: 1 EUR to 20+ (devalued)EEK]

This was intriguing to me : If someone showed up in Tallinn in this scenario with a paltry $10,000USD, all of a sudden she'd have 170,000EEK. You can live well on that: Only the top-10% of income earners in Tallinn earn net wages over 170,000EEK/year.

[Monolith]

Same here.. Bread was 1.75 in guilders and is now 1.75 to 2.25 in euro's (2.20 euro is 1 guilder).
When I was a kid I could get a cheap ice cream for about 1 guilder.. the same ice cream would now cost me about 1.25 euro's

That means the markup went up in your case, which would indicate either a faulty market competition, or very similar expectations of people who sell you goods (i.e. that everyone will increase their prices).

[The Lawspeaker]

That means the markup went up in your case, which would indicate either a faulty market competition, or very similar expectations of people who sell you goods (i.e. that everyone will increase their prices).

... Combined with extraordinary inflation.