Estonia's 2011 euro goal may force new banking laws

Estonia's 2011 euro goal may force new banking laws Tallinn - Estonia remains on course to replace its national currency, the kroon, with the euro in 2011 but may need to loosen its banking regulations before doing so, the Estonian central bank said Wednesday.

In an official economic policy statement covering 2009-11, Eesti Pank said, "It is possible for Estonia to meet all the Maastricht criteria and to adopt the euro in 2011."

However, the bank also identified "several risks associated with meeting the budget criterion," such as the widening deficits of local governments and shortfalls in non-tax revenue.

"Postponement of the adoption of the euro will delay the resumption of the economy. Thus efforts must be continued to keep this and next year's fiscal deficit below 3 per cent of GDP," the bank said.

Euro adoption, which has been identified as the number-one priority of Prime Minister Andrus Ansip's two-party coalition government, would also depend upon maintaining "an investment friendly environment" and developing a more flexible labour market, the bank said.

An additional move more likely to raise eyebrows could be what the bank called "a relaxation of banking regulation."

Like fellow Baltic states Latvia and Lithuania, Estonia is suffering one of the European Union's deepest recessions since a decade of rapid growth, based on easy credit and a real estate bubble, came to an abrupt end with the global credit crunch.

Finance Ministry figures suggest the economy will shrink by 14.5 per cent in 2009 and 2 per cent in 2010.

However, most analysts agree that Estonia is better placed to emerge from recession than its neighbours thanks to reserves from the boom years and its commitment to euro adoption as an exit strategy.(dpa)