EU financial leaders laud Estonia as example fiscal restraint for euro area members

EU financial bosses praise Estonia

TALLINN, Estonia — European Union officials praised Estonia’s budget discipline and said its quick spending crackdown in response to the economic crisis could serve as an example to the wider euro area — a currency bloc it will join in January.

Estonia will become the 17th member of the eurozone and the first from the former Soviet Union. And though it will be the bloc’s poorest country, its government has earned respect for tough financial measures.

European Central Bank President Jean-Claude Trichet and EU Economy Commissioner Olli Rehn said Monday they were “very impressed” by Estonia’s fiscal performance, which will distinguish the Baltic state as having the lowest level of debt among all euro area members.

As Estonia’s Finance Minister Jurgen Ligi told journalists, “Rehn told us that we should export our fiscal policy.”

Estonia, a tiny state of only 1.3 million people, saved money during robust growth years, so that by the time the recent crisis hit in 2008 the country had saved nearly 5 percent of gross domestic product, according to Prime Minister Andrus Ansip.

“The Estonian experience may encourage some euro area countries to tackle the pressing need for adjustment that they currently face,” Trichet told a conference in Tallinn.

The euro, which began with 11 members in 1999 and is now the primary currency for 330 million Europeans, is facing its most serious crisis due to members violating rules on deficit and debt levels. Greece had to be rescued from looming bankrupty with an international loan package from the EU and the International Monetary Fund.

Italy, for example, had debt last year equal to 115 percent of GDP — compared to the 60 percent maximum agreed upon by euro members — and Greece had a whopping 13.6 percent deficit in 2009 though euro rules call for no more than 3 percent.

Still, Estonia will enter the eurozone as its poorest member. Unemployment remains very high at 18 percent, according to Eurostat, while joblessness in the euro area is 10 percent.

Experts say that the country’s main challenge will be to sustain a high level of growth in order to reach the average EU standard of living.

Trichet, who was in Tallinn to kick off a promotional campaign prior to the January currency transition, said that Estonia’s inclusion in the zone shows that the euro “is not a closed shop” and is open to all willing to meet the tough requirements.

Euro adoption is widely regarded as a success in Estonia, which split from the Soviet Union in 1991 and has integrated its tech-savvy economy with Europe.