The future of euro and the European Union

Under the forecast of the Finance Ministry in 2012, GDP growth was 1,2%, aided by the planned budget cuts.

In brief: European Central Bank warned that it is risky venture, as to keep inflation in the future may become violent.

Last week, the players were discussing how long stretch the euro area. A of the Estonia had received approval for entry into the single European currency in 2011. The European Commission recommends the adoption of Estonia in the eurozone, as the country has fulfilled all necessary conditions for the transition to the euro. The final decision on the adoption of Estonia in the eurozone will be made on July 6.

In March 2009 the Estonian government has chosen to adopt the euro no later than January 1, 2011. During the crisis the country had a serious budget cuts and structural reforms that enabled it to reduce the budget deficit in 2009 to 3.7 billion kroons (237 million euros), or 1,7% of GDP. According to a May 5 forecast of the European Commission, the state budget deficit will amount to Estonia in 2010, 2,4% of GDP. Thus, the economy is to meet the Maastricht criteria, under which budget deficits for the euro changeover should be less than 3% of GDP. If the recommendations of the European Commission will be approved by EU countries, Estonia will be the 17 countries of the eurozone and the first of the Baltic States, referred to the single European currency. This decision suggests that the euro zone is not going to fall apart, but it may take some time before the EU decides to new members. Decision on the adoption of Estonia in the EU could not have taken place. Just last week, Commissioner for economic and monetary policy Olli Rehn said that the issue with Estonia “remains open”. Estonia, like the other eight countries in Central and Eastern Europe, which together with Sweden should join the EU, has managed to meet all stringent requirements. Refuse Estonia’s membership would be cruel. For Estonia, it is a worthy reward for what she has experienced extremely heavy recession. In particular, after joining the EU would disappear risk associated with the difference of exchange rates in the sector of private lending. That was a major problem of Western banks during the crisis. However, we can expect difficulties in terms of monetary policy: rates in the euro area are so low that they can not cope with inflation after the accession of Estonia. At one point, membership in the EU it can be costly when it comes to bail out regional neighbors in trouble, just as they now come to the rescue Greece.

The refusal of Estonia’s membership could be a bad omen for the rest of the candidates to break political ties and prevent convergence. But these countries still have a long way. Projected agency Fitch Ratings, the following will be Lithuania in 2014, although the situation in that country’s economy raises concerns. The Lithuanian government has lowered the forecast economic growth of the republic in 2011 against a background of falling domestic demand and rising concerns over the possible negative effects of the European budget and the debt crisis on the economy. According to the forecast of the Ministry of Finance, the growth of GDP in 2011 amounted to 2,8%, which is 0,4% lower than stated in the February forecast. The growth of production in the II quarter of this year is expected in the range of 4-5%, while year-end figure should reach 1,6%. The main obstacle to the expansion of the national economy Lithuanians see a slowdown in Europe, as well as the reduction in export volumes in the “Old World”, which accounts for 65% of total Lithuanian exports. In Lithuania, followed by Bulgaria, Hungary, Latvia, Poland and Romania – in 2015, and the Czech Republic in 2016. But given the situation in Greece, the selection of candidates will be even tougher.

Ukrainian Globalist
2010-05-13 21:40, Economics.

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