Estonian Producer Prices Gained Most in 15 Months

Estonian producer prices, a gauge of consumer inflation, increased in April at the fastest pace in 15 months in the country that may become the euro-area’s latest member next year.

The cost of goods leaving factories and mines rose an annual 2.4 percent, the most since January 2009, compared with 1.2 percent in March, the Tallinn-based statistics office said on its Web site today. Prices rose 0.9 percent on the month, the highest since October 2008.

Estonian companies are trying to pass on higher fuel and raw material costs to their customers, while growing export demand also pushes up domestic prices.

“The figures point toward further inflationary pressure in the months to come from the production side,” said Annika Lindblad, a Helsinki-based analyst with Nordea AB, in an e- mailed response to questions. Still, “price pressure from production could fade during the second half as the effect from higher energy prices declines.”

The European Commission said on May 10 Estonia’s progress in reducing inflation is “sustainable” and the nation is ready to become the 17th euro region member in January. Still, inflation accelerated in April to the fastest pace in 14 months and the European Central Bank said on May 12 Estonia may struggle to keep inflation under control.

The prices of metal products rose 2.3 percent from March for an annual increase of “more than” 6 percent, the Economy Ministry said in an e-mailed statement. Prices for wood and dairy products rose an annual 4.9 percent, it said.

Energy prices rose an annual 2.7 percent after the Baltic country’s electricity market was opened up last month for corporate consumers, pushing electricity costs up by more than a third.

By Ott Ummelas - businessweek.com
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Estonia cleared to join euro zone next year

The European Commission today gave Estonia the green light to become the 17th country to switch to the shared euro currency as of January 1, 2011.

'Estonia has achieved a high degree of sustainable economic convergence and is ready to adopt the euro on 1 January 2011,' European Union commissioner for economic and budgetary affairs Olli Rehn said.

'To ensure that the adoption of the euro is a success, Estonia must pursue its efforts to maintain a prudent fiscal policy stance,' Rehn said. He urged Tallinn to 'remain vigilant and react early and decisively' if problems emerge.

The euro's future remains uncertain in the eyes of some analysts despite the €750 billion economic stabilisation programme for euro zone countries announced on Monday.

Rehn said today's decision on Estonia 'is also a strong signal about the euro area' which 'underpins the role of the euro as medium-term policy anchor' for the bloc as a whole.

The opinion of the European Union's executive arm must be endorsed by its fellow EU nations. If they give the green light, then the euro zone will next year have its first Baltic member and its third ex-communist state.

In order to qualify, candidate nations must respect several criteria - keeping national debt and deficits under control as well as inflation, with limited fluctuations on foreign exchange markets and on interest rate levels.

According to the latest EU estimates, Estonia will post a public deficit amounting to 2.4% of gross domestic product this year and debt of 9.6% of GDP - levels which most of Europe can only dream of. The euro zone average public or budget deficit this year will be 6.6%, with debt at 84.7%, well above limits of 3% and 60%, respectively.

The European Central Bank pointedly warned Estonia today that it could struggle to keep inflation under control if it joins the euro zone.

Estonia, with its 1.3 million inhabitants, had initially hoped to join the euro club in 2007 but was prevented from doing so by high inflation rates at the time. The country shifted rapidly from a communist command economy to the free market after breaking from the crumbling Soviet bloc in 1991 and its economy began to grow quickly, especially after joining the European Union in 2004.

Hit by the global crisis in 2008, Estonia's government slashed public spending to confront the crisis and maintain its drive to switch from the national currency, the kroon, to the euro.

The government has said Estonia has cleared all the EU's hurdles for adopting the euro.

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The endeavour to euro has lost at least 30000 jobs

The budget cuts carried out in order to fulfil the Maastricht criteria have brought Estonia at least 30-40000 additional jobs losses, thinks the professor of external economy of University Tartu, Janno Reiljan.

He really hopes that Estonia will be allowed to join the eurozone next year. “Because Estonia has been through a lot [because of the euro],” he justified. “These cuts have brought us at least 30-40000 additional job losses. These cuts in the health care system and education system has stagnated the developments or even degenerated them.”

“If all of these efforts will be for nothing, it will be a horrific blow for Estonia actually,” he said. “Therefore I really hope that the European Commission recognises the great importance of the decision [for Estonia to join the eurozone] to the spiritual and mental state of the Estonian society.”

The euro will not bring investments

However, Reiljan does not think that getting euro would directly give something to Estonia. “All these talks about the investors coming here are quite incompetent, because there is nothing to fear for an exporting investor and those who have wanted to enter our markets, have entered them a long time ago and are making big profits out of it,” he explained.

The main benefit of joining the euro for Estonia, is in Reiljan’s opinion that we will be getting rid of our rigid monetary system. A currency committee is in his opinion the most rigid monetary system that has ever been developed in the world.

After joining the eurozone, Estonia will not have its own monetary system, Reiljan mentioned. “All the games of a national central bank, these are just a joke,” he continued. “The we will have the European Central Bank, who coordinates everything and arises a question, what for do the member countries have these 27 high-salary offices, if they do not perform any function.”

The eurozone is a ‘good weather system’

The future of the currently problem-central eurozone depends on what is going to happen in the economy, in Reiljan’s opinion. “The euro zone is a good weather system,” he said. “If things go well in the economy, it is possible that the problems will be solved and there will be a chance to move on. However, if things are bad in the economy, /…/, the problems are going to be big and we do not know, what will happen.”

“If the EU wants to be the EU, then the question is not about fulfilling single obligations, it is about fulfilling all,” Reiljan answered to the question, what should be done about the countries, who are insolently violating the budget deficit criteria, like Greece.  “The member countries of EU have signed several charters , for example the social charter, which should be fulfilled,” he reminded.

“In Estonia we try to beat others with our income tax system and our social obligations we either fulfil marginally or we do not and again we cause others competition problems,” Reiljan mentioned. “In these conditions we do not have much to say, if others are violating the rules even directly.”

Strong as always

“It is hard to say to a stronger one ,” he added. “How would you go saying the Germans or French that dear friends, you do not fulfil the rules. Politely speaking, we would not be let in the door.”

“The problem of EU is that in order to fulfil all the obligations taken, EU should really be the United States of Europe or the Union of European Boards,” Reiljan said.

After the market was opened, the major countries as well have lost interest in the rhetoric of Europe. “They needed the markets to be open, so their powerful companies could get into the free market with their merchandise, so they would have the power and money, and they will manage excellently in this world,” Reiljan thought.

“EU is a better solution than having everyone scrabble around by themselves, however it is far from ideal,” he recognised. “To look at certain questions and fields, then the stronger always get their way with the weaker as they always have.”

Source http://estonianfreepress.com/2010/05/janno-reiljan-%e2%80%93~

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