Speaking at the Pärnu Management Conference “Kannapööre“ (U-turn), Prime Minister Andrus Ansip said that he believes that Estonia does not need a u-turn. We have the firm goal of joining the Eurozone and keeping our competitive and employment oriented tax policy. Also, Estonia’s birth rate is finally starting to improve again and our life expectancy is on the rise.
“You must not demolish a country during a crisis,” said Prime Minister Ansip, saying that Estonia’s strength has lied in its perseverance and consistency. “A conservative budget policy and keeping our finances in order definitely have been good for Estonia. It is a sign of the reliability of the business environment, which already is bringing new investments to Estonia,” he added. “Yes, economic development is cyclic in its nature and every upturn is followed by a downturn. But more importantly at the moment – every downturn is again followed by an upturn,” noted the Prime Minister.
Speaking at the Pärnu Management Conference today, Prime Minister Andrus Ansip assured that the government aims with its financial policy to adopt the euro on first occasion and to keep the kroon as strong as possible until then. The Prime Minister said that the budget deficit of the government sector must not exceed three per-cent of our GDP neither in this year nor in 2010.
According to the spring forecast of the European Commission, Estonia has one of the lowest budget deficits in the European Union. The estimated average budget deficit of the Member States will be at around eight per-cent of their GDP.
The loan burden of Estonia’s government sector is the lowest in the European Union and it is likely that Estonia will also come out of the global recession with the lowest loan burden. In 2008, Estonia’s government sector had a loan burden of 4.8 per-cent of the country’s GDP; for the current year, it will increase to eight and estimates for the coming year place our loan burden at eleven per-cent. At the same time, most EU Member States have a loan burden ratio of 25 to 100 per-cent of their GDP. “At the moment, the government’s financial position is very strong and it is amongst the strongest in the EU,” said Ansip, referring to the assessment of the European Commission that was published just a few days ago, according to which Estonia’s long-term financial reliability ranks along with Finland, Sweden, Denmark and Bulgaria amongst the highest.
According to Ansip, Estonia will most likely meet the requirements of the Maastricht inflation criterion, which is required for adopting the euro, already in the next month. “Estonia will have no problems regarding the stability of the exchange rate, the loan burden of the government sector or the interest criterion,” he assured. The European Commission and the Central Bank will prepare regular Convergence Reports in spring 2010. In case of a positive result, the decisions regarding the adoption of the euro will be made in the June of the next year and the euro would then be adopted at the beginning of 2011.
Ansip noted in his report that the GDP volumes of the European states are generally back to the level that they were in 2005-2006. “Countries that experienced bigger economic growth are now experiencing a bigger downturn, but generally, our economies are all back in the years 2005 to 2006,” he said. According to him, Estonia’s GDP is on the level of spring 2005, Finland’s is in the autumn of the same year, and Sweden is back in Christmas four years ago.
When speaking of the future, the Prime Minister noted that the government makes plans to eliminate the budget deficit and start decreasing the loan burden again. The Prime Minister also thinks that the country’s financial resistance has to be secured for the future, mostly by building up reserves. When speaking about the tax policy, he assured that the focus has to remain on decreasing the tax burden of the labour force and on keeping a competitive tax policy that is aimed at economic growth and employment.