Monday, 31 May 2010

Euro introduction: Estonia 2011

Despite the dryness of the official proposals, the adoption of the euro in Estonia is an emotional milestone for this writer, who sits some 80 km from the Estonian capital Tallinn.

Among the new member states of the European Union, the following have adopted the euro currency: Slovenia (2007), Cyprus and Malta (2008) and Slovakia (2009).

Estonia is one of the nine EU member states with a derogation, committed to euro introduction. Estonia is the only one to qualify at this moment. The eurozone seems set to grow to 17 countries from the beginning of 2011.

Two relevant documents have now been published under preparatory acts on the EU’s legal portal Eur-Lex.

Article 140 TFEU

Article 140 of the Treaty on the Functioning of the European Union (TFEU) is the main provision: assessment of the achievement towards economic and monetary union (EMU) and the criteria (paragraph 1), decision making on abrogating the derogation (paragraph 2) and the conversion rate and other measures necessary for euro introduction (paragraph 3).

Convergence reports

The European Central Bank and the European Commission published their convergence reports 12 May 2010.

The Commission’s Convergence Report has now been published on Eur-Lex:

Report from the Commission: Convergence Report 2010 (Prepared in accordance with Article 140(1) of the Treaty); Brussels, 12.5.2010 COM(2010) 238 final

The Convergence Report was accompanied by SEC(2010) 598 final.

Council Decision

The Commission’s proposal is based on Article 140(2) TFEU:

Proposal for a Council Decision on the adoption by Estonia of the euro on 1 January 2011; Brussels, 12.5.2010 COM(2010) 239 final (9 pages)

The procedure number is 2010/0135 (NLE).

The proposal presents a brief history of economic and monetary union before it turns to the convergence criteria with regard to Estonia.

After discussing the facts and criteria, the Commission ends with the following assessment summary:

(13) On the basis of reports presented by the Commission and the ECB on the progress made in the fulfillment by Estonia of its obligations regarding the achievement of economic and monetary union, the Commission concluded that:

(a) In Estonia, national legislation, including the Statute of the national central bank, is compatible with Articles 130 and 131 of the Treaty and the Statute of the ESCB and of the ECB.

(b) Regarding the fulfillment by Estonia of the convergence criteria mentioned in the four indents of Article 140(1) of the Treaty:

– The average inflation rate in Estonia in the year ending March 2010 stood at - 0.7 percent, which is well below the reference value, and it is likely to remain below the reference value in the months ahead;

– Estonia is not the subject of a Council decision on the existence of an excessive deficit, with a budget deficit of 1.7% of GDP in 2009;

– Estonia has been a member of ERM II since 28 June 2004; in the two-year period ending 23 April 2010, the Estonian kroon has not been subject to severe tensions and there has been no deviation from the ERM II central rate since kroon's participation;

РAs a result of Estonia's very low level of gross public debt, no benchmark longterm government bonds or other appropriate securities are available to assess the durability of convergence as reflected in long-term interest rates. While financial market risk perceptions vis-à-vis Estonia increased at the height of the crisis, their development during the reference period, as well as a broader assessment on the durability of convergence, including Estonia's continued prudent policies, would support a positive assessment on Estonia's fulfilment of the long-term interest rate criterion.

(c) In the light of the assessment on legal compatibility and on the fulfilment of the convergence criteria as well as the additional factors, Estonia fulfils the necessary conditions for the adoption of the euro.

This leads to the proposed Council Decision:

Article 1

Estonia fulfils the necessary conditions for the adoption of the euro. The derogation in favour of Estonia referred to in Article 4 of the 2003 Act of Accession is abrogated with effect from 1 January 2011.

Council Regulation

Council Regulation 974/98 of 3 May 1998 on the introduction of the euro has been amended six times, so the link is to the consolidated version of 1 January 2009.

Regulation 974/98 sets out the changeover measures, based on Article 140(3) TFEU.

Since the Commission has proposed euro adoption for Estonia, following a positive decision, the Council will subsequently have to take the other measures necessary for the introduction of the euro in Estonia:

Proposal for a Council Regulation amending Regulation (EC) No 974/98 as regards the introduction of the euro in Estonia; Brussels, 12.5.2010 COM(2010) 240 final (8 pages)

The procedure number is 2010/0136 (NLE).

Estonia's changeover plan sets the same date for the euro adoption date and for the cash changeover date (1 January 2011), while the country has chosen not to have a "phasing-out" period (Article 1).

Article 2 sets the date of entry into force of the Regulation at 1 January 2011.

This leads to the proposed Council Regulation:

Article 1

The Annex to Regulation (EC) No 974/98 shall be amended in accordance with the Annex to this Regulation.

Article 2

This Regulation shall enter into force on 1 January 2011. This Regulation shall be binding in its entirety and directly applicable in all Member States.

Subjective note

Despite their heavy history, the people of Estonia have made enormous strides forward since regaining independence in 1991, although the financial crisis and the economic downturn took a heavy toll. During these conditions, staying on course for euro adoption has required steely nerves from politicians and resilience from the population.

Today, many Finnish firms are established in Estonia and Estonians are the second largest group of foreign citizens in Finland (after Russians). Mobile workers and tourists commute on ferries between the capitals Helsinki and Tallinn, only 80 km from each other.

Finnish and Estonian are related languages, roughly as far from each other as Swedish and Danish.

Professor Seppo Zetterberg dedicated his thorough history book (in Finnish) to those who have endured their history: Viron historia (Suomalaisen Kirjallisuuden Seura SKS, 2007; 810 pages).

The Finnish public broadcasting corporation YLE has shown a popular TV series Viro РTuulten pieksemä maa (roughly: Estonia РA windswept country), a dramatic presentation of people and destinies during the first Republic of Estonia, from the Russian Revolution to the Second World War. The last episode will be shown tomorrow.

The Finnish author Sofi Oksanen, whose mother is Estonian, has dealt with Estonian themes, especially under Soviet occupation. Her book Puhdistus (Purge) became not only the number one bestseller in Finland, but it won critical acclaim as well. Oksanen received the Finlandia Prize, the Runeberg Prize and the Literature Prize of the Nordic Council. The Purge is on its way to become an international bestseller.

My warm welcome to the Estonians joining the eurozone in 2011 and my best wishes for the future.

Ralf Grahn