Estonia: A model student for EMU entry
Overview:
The Estonian authorities have shown a lot of discipline in keeping the fiscal deficit below 3% of GDP in the last few years despite a sharp economic downturn. They are reaping the benefits now. The country has not only joined the euro area but economic growth is storming along at a remarkable 7% pace. Clearly this is not sustainable. Growth is likely to halve next year as the global economy slows. Estonia also still has some challenges to overcome but it appears to be tackling them. Unemployment is high but is now dropping. External debt is high relative to GDP but successive current account surpluses are helping it to fall fast. Inflation has stabilised although it remains above the euro area average. Estonia’s sound economic policies set a good example for those seeking to join the euro area.