Rahandusministri kohtumine Läti ajakirjanikega (ENG)

Meeting with Latvian journalists

Jürgen LigiMinister of Finance

Why euro for Estonia?

• Confidence booster• Fixed exchange rate from 1992– Stable currency a cornerstone of

economy– had to be supported by strong fiscal

policy• Open and flexible economy • Transparency and high governance

standards• Small currency vulnerable during

turbulence

Estonia’s euro accession

• Fiscal deficit 1.7 per cent of GDP as of 2009

• Public debt at 7 per cent of GDP as of 2009 (the EU average around 80 per cent)

• 12-month average inflation rate -0,7 per cent (March 2010)

• Fixed rate of exchange for 18 years

• On June 8, 2010 ECOFIN ministers recommended to accept Estonia to the euro area; formal decision by ECOFIN in July 13

• January 1, 2011 – changeover date

Euro has helped our economy to recover more sharply

2001

2001Q2

2001Q3

2001Q4

2002

2002Q2

2002Q3

2002Q4

2003

2003Q2

2003Q3

2003Q4

2004

2004Q2

2004Q3

2004Q4

2005

2005Q2

2005Q3

2005Q4

2006

2006Q2

2006Q3

2006Q4

2007

2007Q2

2007Q3

2007Q4

2008

2008Q2

2008Q3

2008Q4

2009

2009Q2

2009Q3

2009Q4

2010

2010Q2

2010Q3

2010Q4

2011

2011Q2

2011Q3

2011Q4

2012

2012Q2

2012Q3

60

70

80

90

100

110

120

130

140

GDP

Private consumption

Investment

2005=100

Economic growth dynamics%, y.o.y

2005

Q2

Q3

Q4

2006

Q2

Q3

Q4

2007

Q2

Q3

Q4

2008

Q2

Q3

Q4

2009

2009Q2

2009Q3

2009Q4

2010

2010Q2

2010Q3

2010Q4

2011

2011Q2

2011Q3

2011Q4

2012

2012Q2

2012Q3

2012Q4

-20

-15

-10

-5

0

5

10

15

20

Es-tonia

Latvia

Export was the main economic growth driver in Estonia during 2010-2011

%, y.o.y

2005

Q2

Q3

Q4

2006

Q2

Q3

Q4

2007

Q2

Q3

Q4

2008

Q2

Q3

Q4

2009

2009Q2

2009Q3

2009Q4

2010

2010Q2

2010Q3

2010Q4

2011

2011Q2

2011Q3

2011Q4

2012

2012Q2

2012Q3

2012Q4

-40

-30

-20

-10

0

10

20

30

40

Estonia

Latvia

EU27

Unemployment rates have fallen below EU average

20

30

40

50

60

70

0

5

10

15

20

25

61.0

9.3

Employment rate

Unemployment rate (rs)

% %

Euro changeover caused the CPI of Estonia to rise by 0.2–0.3 percentage points

%, y.o.y

2005 2006 2007 2008 2009 2010 2011 2012

-4

0

4

8

12

16

Es-tonia

Latvia

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 9m

-4

0

4

8

12

16

20

Es-tonia

Latvia

Lithua-nia

% of GDP

*FDI inflow into Estonia without financial sector was 5.9% of GDP in 2011

Euro increased the interest to invest in Estonian economy

FDI inflows in Baltics

Sovereign ratings were increased by rating agencies

• S&P has increased the Estonian credit rating to AA-, which is the highest rating ever for Estonia

Country S&P rating

Austria AA+

Belgium AA

Estonia AA-

Czech Republic AA-

Slovak Republic A

Slovenia A

Poland A-

Malta A-

Latvia BBB

Lithuania BBB

Estonian credit rating dynamics

1997234567891011121998234567891011121999234567891011122000234567891011122001234567891011122002234567891011122003234567891011122004234567891011122005234567891011122006234567891011122007234567891011122008234567891011122009234567891011122010234567891011122011234567891011122012234567891011

3

4

5

6

7

8

9

10

BBB+

A-

A

AA-

BBB

BBB+

A-

A

A+

Baa1

A1

S & P Fitch Moody's

General Government deficit/surplus

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-10

-8

-6

-4

-2

0

2

4

6

8

10

1.1

-3.4

-4.4

EstoniaLatviaEU27

% %

General Government gross debt

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

10

20

30

40

50

60

70

80

90

100

6.1

42.2

82.5

EstoniaLatviaEU27

% %

Lessons for Latvia?

• Focus on the implementation of criteria has been the right approach

• But reforms are not made because of euro – they’re needed anyway

• Public support will increase together with awareness– Estonian support moved from ca 50% to ca 65%

in 1 year

• Euro area is now institutionally much stronger than in 2011