Verbatim report of proceedings

Monday, 14 June 2010 - Strasbourg

23. Adoption by Estonia of the euro on 1 January 2011 (debate)

  President. − The next item is the report by Edward Scicluna, on behalf of the Committee on Economic and Monetary Affairs, on adoption by Estonia of the euro on 1 January 2011 (COM(2010)0239 – 2010/0135(NLE)) (A7-0182/2010).

  Edward Scicluna, rapporteur. − Madam President, I am pleased to be able to present this report endorsing Estonia’s application to join the eurozone.

It is very significant that a small, but highly determined, EU Member State comes knocking on the eurozone’s door during such difficult times. It says a lot about the country and it says a lot about the euro and the eurozone as well.

The reason why Estonia should join the eurozone is straightforward. Estonia has met the Maastricht criteria laid down in the treaties. More importantly, we need to keep in mind that these achievements were reached during the worst global financial, economic and social crisis we have seen in our lifetimes. Such achievements, it must be said, are the result of determined, credible and sustained efforts by successive Estonian governments and the Estonian people. Moreover, despite the eurozone’s recent difficulties, public opinion in Estonia is strongly in favour of joining the euro.

As rapporteur, I have been in constant contact with the Commission, the European Central Bank and the Estonian Government and visited Estonia in the middle of May when the Commission and the ECB published their convergence reports. The preparations made by the Estonian Finance Ministry, Parliament and Statistical Office and the Central Bank are a credit to Estonia.

I must raise my concern, however, at the extremely short time that Parliament is being given to present its report following the publication of these convergence reports. I do not think it is appropriate. As has been stated in the past, it demonstrates a lack of respect for Parliament. I admit that there have been some noticeable improvements, as when the Central Bank and the Commission met with the Bureau and gave an oral explanation of progress. However, I sincerely hope that this timetable will not be followed next time a country wishes to join the eurozone.

Although there may be some who say that the eurozone should sort out its problems before taking in new members, in my opinion this would be a short-sighted approach. As members of the eurozone, we are either confident and motivated enough to see our way through the stormy seas the euro is passing through or else we lose our heads in a frenzy and refuse an able and qualified Member State which wants to join the euro and is ready to give a helping hand in the time of need.

In our battle to restore confidence in the eurozone with measures to improve the sustainability of public finances, through tighter statistical governance, my opinion is that Estonia will be a real asset to the eurozone. Its prudent approach to public finances meant that, by the end of 2009, it comfortably had a very low – if not the lowest – government budget deficit in the eurozone. Meanwhile, despite a massive contraction of the economy by nearly 15% in 2009, the fact that it had rebuilt up large surpluses during the good years has meant that its government debt to GDP ratio is, at 7.2%, easily the lowest in the EU and one of the lowest in the world. Put plainly, during the worst economic and social crisis, Estonia has kept its house in order.

This puts Estonia firmly in the group of eurozone countries which are more fiscally disciplined and prepared to take the tough choices to maintain sustainable public finances. It also carries significant political symbolism. Estonia’s application to join is a significant symbol to its neighbours that joining the euro should be an attractive option for those countries which prepare themselves well.

Finally, this is not to say that an easy economic path ahead lies ahead for Estonia. Unemployment is extremely high, for one thing, and the inflation risk for the future is also not very good. Therefore the Government needs to maintain vigilance over prices, especially during the changeover period.

Therefore I commend this report to this House.

  Olli Rehn, Member of the Commission. − Madam President, first of all I would like to thank Mr Edward Scicluna for his very balanced and substantive report on Estonia’s convergence and entry into the euro area.

I also want to congratulate our Estonian friends on reaching this important milestone.

I appreciate the overwhelming support for Estonia’s euro adoption given by Parliament’s ECON committee on 2 June. It is indeed crucial in bringing the Commission proposal further and eventually introducing the Euro in Estonia on 1 January next year.

We all know that the convergence assessment and the decision on Estonia’s adoption of the euro will take place against the background of one of the most difficult times for the euro area – if not the most difficult time – since its creation.

In this respect this positive assessment on Estonia is an especially important signal, showing that the EMU framework is fully functional. It also underscores that, in the convergence assessment, Member States are examined on the basis of their own performance, on their own merits and with full respect to the principle of equal treatment.

The positive assessment on Estonia is also a strong positive signal for the markets as well as for the non-euro area Member States at this current juncture.

Let me stress that Estonia would enter the euro area from a very strong position with credible policies, one of the strongest fiscal positions and by far the lowest debt level in the EU, as Mr Scicluna illustrated. While the average in the European Union is currently around 75% public debt, Estonia has a debt level of 7.2%, which is of course a huge difference from the average. While not immune to the crisis, the Estonian economy has also shown its ability to operate and adjust under a fixed exchange rate regime for close to two decades since 1992. Therefore euro adoption itself is not expected to be a major shock to financing conditions as financial deepening is already well advanced.

Of course, euro adoption will not be the end of the road; quite the contrary. Should Estonia adopt the euro next year, it will be key to maintain policy discipline and fully gear fiscal, structural and prudential policies towards a successful performance within the euro area.

I welcome the willingness of the Estonian authorities to reassure euro-area and EU partners through a formal letter stating their firm commitment to stability-oriented policies and setting out policy priorities accordingly.

In parallel, there is a pressing need to strengthen economic governance in Europe. The Commission’s recent proposals aim at both substantial deepening of economic governance in Europe and prudent widening of the euro area on the basis of the countries’ own merits.

That is the way to build up a stronger and more effective economic and monetary union.

To conclude, after this week’s consultation with the European Parliament, the issue will be followed by a discussion in the European Council later this week. Should all go as planned, we expect to have all relevant legal acts adopted by the ECOFIN Council on 13 July, thus giving Estonia sufficient time to prepare for the changeover and for the adoption of the euro on 1 January next year.

So, once more, many thanks for your support for the proposal, and my warmest congratulations to the Estonian people!

  Gay Mitchell, on behalf of the PPE Group. – Madam President, may I thank the rapporteur for a very fine report. I can support him in the general thrust of his comments and also in the concerns that he raises.

Can I say in particular that we are able to admit Estonia to the euro area because of sacrifices made by the Estonian people and the leadership given by the Estonian Government and Parliament. This leadership goes beyond simply putting their house in order and making the sacrifices that go with that. While some of us are licking our wounds, being very uncertain about the future and wondering about the eurozone, here is this small country showing the way. It is a beacon not just for the other countries in that region that aspire to join the European Union, but a beacon for the whole of Europe to reinforce our confidence at this difficult time which will pass.

I would like to remind the House while I am on my feet that, during the first 10 years of the euro, 16 million jobs were created within the European area – many more jobs than were created at the same time in the United States. This really is therefore an endorsement of the whole project at a time when it needs endorsement by a courageous parliament, courageous government and courageous people. I welcome Estonia and I think they are doing the right thing.

The experience from my country – another small country – has been almost entirely beneficial. Think about where small countries would otherwise be. Where would we be if we did not have the European Central Bank and the Commission and the fellowship of the eurozone ministers in these difficult times? We would be truly lost.

Two points I want to raise concern the issue of boom-bust cycles, which has to be addressed and does need to be monitored, and that of asset inflation. I was raising this with the President of the European Central Bank for two years before it became popular to talk about it. The Commission and the ECB have to somehow come to terms with how low inflation and low interest rates also give asset inflation. There has to be some way of dealing with that.

I am glad to support the general thrust of the rapporteur’s report.

  Ivari Padar, on behalf of the S&D Group. – (ET) Ladies and gentlemen, the day after tomorrow we will be voting together on the report of the European Parliament supporting Estonia’s accession to the euro area. Then it will be a little less than a month before the Council’s official decision. For Estonia, joining the euro area is the next transitional milestone in the European Union’s integration process, and accession is a natural part of the wise budgetary policy that has been practised in Estonia over a number of years. As early as the start of the economic crisis, our society realised that the challenges arising from the crisis required a completely new approach and a rethinking of many of the policies that had been pursued up to that point. Specifically, this meant several budget cuts in 2008 and 2009.

Accession means that the efforts made in recent years were correct, and the developments of recent years have also shown how important it is to have credible statistics and to avoid double standards. I am sure that Estonia will continue its very appropriate, transparent and reasonable fiscal policy in the future. We have realised that, in a small country with an open economy, there is no other option. Estonia’s accession is a positive sign to the whole of Europe. We have faith in the single currency as a reassuring light at the end of the tunnel in the complicated economic situation we face in Europe today.

I believe that once Estonia has joined, the euro area will have a member which understands the rules of the game, and which will be useful in strengthening monetary union and the single currency. For my part, I wish to thank colleagues, namely the rapporteur, Edward Scicluna, and the shadow rapporteurs for their substantial work. I would like to assure you that Estonia is ready to join the euro area. Thank you.

  Wolf Klinz, on behalf of the ALDE Group. – (DE) Madam President, I am delighted to be able to welcome Estonia as the 17th member of the euro area from 1 January 2011. Our Baltic neighbour, as previous speakers have already said, is actually one of the very few countries that meet the Maastricht criteria, and indeed with enthusiasm!

In the current climate, we can be certain that the Commission, Eurostat and the European Central Bank have looked very closely at everything and made no allowances in their evaluation of the figures. The Council will also take its decision without any political benefit.

Ten years after its introduction, the euro is, as we all know, currently facing its greatest test and challenge. It is testimony to an enormous degree of commitment, an unbelievable will and an extraordinary amount of effort that Estonia has succeeded in actually meeting the accession criteria under these circumstances. I believe that it is also evidence of the fact that it wants to meet these criteria as laid down in the Treaty. Estonia knows that, as a Member of the European Union, it is also obliged one day to become a member of the euro area and the fact that it wants to do that so quickly makes me, personally, very happy. It shows that there are still countries that have real confidence in this European project.

It is fortunate that the Estonian Government did not have to put this accession decision to the people in a referendum, as we are well aware that citizens are to some extent very concerned. If they follow the media, they will view the euro as a soft currency and the euro area as a transfer union, and they are scared that the introduction of the euro will lead to large price increases. Slovenia and Germany are examples of this, and in Germany it is not without reason that the expensive euro has been referred to using the play on words as the ‘Teuro’ (‘der teure Euro’ – expensive euro). The fact, then, that all of this is just perceived inflation, as the European Central Bank says, is surely something of an understatement.

As a member of the euro area, Estonia will also have to deal with the problems facing the single currency and thus also sign up to the euro area rescue plan. What impact that might have on the budget, we do not know. I would like to ask the Commission to provide some clarity in this regard. I hope Estonia continues its excellent development and I hope that its achievements, particularly with regard to budgetary discipline and combating inflation, will prove to be sustainable in future, too.

  Kay Swinburne, on behalf of the ECR Group. – Madam President, I would like to thank the rapporteur, Mr Scicluna, for his clear and comprehensive report. We fully support his conclusions. During this time of unprecedented economic turmoil across the globe following the financial crisis of 2008-09, it is a testament to the financial skill and fiscal discipline of the Estonian Government that they have qualified for euro entry.

Their ability to keep their public deficit in check despite the high pressures of unemployment is to be applauded. It is my opinion that, if any Member State meets the stringent criteria for euro entry and if it is their wish to join the Eurozone even at this turbulent time, then it is ultimately a decision for their constituents and I wish them well in their chosen journey.

  Andrew Henry William Brons (NI). – Madam President, many think that congratulations should be given to Estonia; I offer the Estonian people my commiserations. The value of a country’s currency must reflect the relative demand for its exported and imported goods and services, as well as other monetary movements, and must change according to need. A country tied to a currency value that does not reflect the needs of its economy will find that any economic problems are aggravated.

The United Kingdom found this when we were members of the predecessor of the euro, the Exchange Rate Mechanism. We found ourselves locked not only into a single currency value, but also into a recession from which we escaped only when we left the ERM.

The Scicluna report congratulates Estonia on replacing current and capital account deficits with current and capital account surpluses. This appears to be good news, but there are dangers on the horizon. This surplus might result in the Commission and the European Central Bank setting the kroon-euro rate at too high a level. If Estonia then suffered a decline in the value of its exports relative to imports, a recession and balance of payments deficit would follow from which it would not be able to escape. Estonia will lose its monetary and fiscal sovereignty, and therefore political sovereignty, which is ironic for a country that only 19 years ago escaped from the clutches of the Soviet Union.

  Arturs Krišjānis Kariņš (PPE). – (LV) Madam President, when it comes to football, we fans expect things to happen logically. We expect the team with the best discipline and the greatest commitment to win the World Cup. This sort of logic should also be applied in the event of euro area enlargement. Budget discipline and the implementation of reforms must be rewarded by admission to the euro area. During the world economic upswing from 2005 to 2008, the majority of European states spent a good deal more money than they could afford; they lived beyond their means. They prepared the ground, in fact, for today’s euro crisis. During this time, while others were spending money, our friends in Estonia were somewhat cannier – they were storing up budget surpluses. It is thanks to these surpluses and their budget discipline that the steep economic downturn that they experienced also in 2009 did not bring Estonia to the verge of bankruptcy. Instead, by observing strict discipline, Estonia meets all the Maastricht criteria and it should be admitted to the euro area. The introduction of the euro in Estonia would be good news on three fronts. First, it would be a very important and powerful signal internationally that, in spite of all the difficulties, the euro area continues to expand. Second, it would be a positive signal to all of the Baltic States and the Baltic region that the Baltic States and the region are stable and capable of following pragmatic policies. Third, it would be a very important signal to Latvia and the other euro candidate countries that abiding by the Maastricht criteria will be crowned and rewarded with admission to the euro area. At this time in Europe, the Member States must put their budgets in order, so that their populations and the financial markets can regain their faith in the euro area. To my mind, the admission of Estonia to the euro area will serve as a good example to the governments and societies of other countries of the fact that budget discipline is possible even in very hard times. Thank you for your attention.

  George Sabin Cutaş (S&D). – (RO) At the start of the economic crisis in the European Union, the Baltic countries were among those which were hardest hit. The Baltic tigers became the sick men of Europe following an economic boom lasting several years. Nonetheless, we now have Estonia preparing to join the euro area in record time. However, this country’s accession will strengthen the euro area at a critical juncture. We applaud Estonia’s ambition to adopt the single currency in spite of the crisis which has not left it unscathed. It has been able to tackle it with prompt austerity and fiscal discipline measures. Although they have been hit hard by the crisis, the Baltic countries have enjoyed the advantage of having a low level of public debt, which provided them with greater flexibility in relation to external loans. This is an important point to remember, bearing in mind that Estonia’s public debt to GDP ratio is 7.2%, far below the 60% reference value.

I think that it is now time for us to learn the lessons from the European crisis and from Estonia’s determination and for us to successfully find the happy medium between ambition and prudence. However, as part of this process, we must not ignore the social aspect of migrating to the euro. The experience of States which have previously joined it highlights major risks in terms of price rises. This is why I hope that the Estonian authorities will be able to apply balanced fiscal policies so that its citizens are not obliged to make major sacrifices. In this respect, Mr Scicluna is quite right to draw attention to the risk of inflation.

Last but not least, Estonia’s transition to the euro also has a symbolic aspect. It can serve as a model for countries in Eastern Europe whose enthusiasm has been dampened by the crisis, along with a decline in their real chances of meeting the deadlines for adopting the euro.

  Olle Schmidt (ALDE). – (SV) Madam President, I would like to direct a personal note of praise to Estonia. Europe and the euro are currently facing severe problems. Difficult times separate the wheat from the chaff. Here we can see the difference between those who really believe in Europe and want to contribute to a stronger EU, like Estonia, and those who nervously stand on the sideline waiting to see how things turn out, like my home country Sweden, the President’s home country the United Kingdom, and Denmark.

Let us for a moment assume that the EU’s forefathers had stood and waited in the same way when it all began: where would Europe be today then? It is in times of crisis that the EU develops and demonstrates its strength to become a more unified and stronger Europe. The euro is the most visible symbol of a united Europe. All credit to Estonia.

  Elena Băsescu (PPE). – (RO) I wish to begin by congratulating Estonia on the particular efforts it has made in meeting the convergence criteria by adopting prudent policies. This will make it the 17th country to adopt the euro. During a difficult period for the European economy when there has been ever-increasing speculation about Member States leaving the euro area, Estonia is demonstrating that it is prepared to switch to the single currency.

This also sends out a strong signal in terms of the euro area’s possible expansion towards the east. The other eight countries featuring in the 2010 convergence report, which also included Romania, have made uneven progress towards adopting the single currency and, at the moment, they do not meet all the criteria for joining the euro area. Finally, I wish to state that any Member State must only adopt the euro at the time when it is fully prepared to do so.

  Zigmantas Balčytis (S&D). – (LT) I would also like to add to today’s congratulations to Estonia’s administration. A few years ago Lithuania was also in the same situation, but the inflation indicator lacked one tenth of a percentage point. In fact every State has its own particular historical past. We have a distinct economic structure and we have different decisions that were taken because of certain issues in the past. What makes Estonia different is that there were probably fewer populistic decisions in the past, a very cautious Central bank policy and many other things. That really is an example to us all, especially the Baltic States, and in a few years we hopefully will also have the same pleasant moment. Once again I would like to congratulate the current Member of the European Parliament and former Finance Minister, who also contributed to this process and I would like to congratulate the entire Estonian Government on the really very successful implementation of certain principles of the economic and monetary union. Good luck.

  Graham Watson (ALDE). – Madam President, the fact that Mr Brons, who spoke earlier in the debate, dribbled out his words and then promptly left speaks volumes for the interest that he and his party really show in this debate.

The interesting point about Estonia’s adhesion to the euro is that it is a vote of confidence in Estonia and a vote of confidence in the euro. The euro has come in for much criticism, especially and predictably in the Anglo-Saxon press. The reality is that without the euro, and without the budgetary discipline shown by countries like Estonia, there would be no hope for any of us.

  Milan Zver (PPE). – (SL) I suppose I would never be able to forgive myself if I passed up this opportunity to congratulate my colleagues from Estonia.

Over the past two decades, Estonia has, in many areas, had one of the best track records of any of the transitional countries.

Let us, for example, recall the excellent tax reforms which they instituted. At a very early stage, as early as the 1990s, they liberalised their economic system in a way that other transitional countries proved unable to equal.

I am convinced that Estonia will be a strong pillar of the euro area, that it will act much more appropriately than many members of the euro area and that it will do its bit for the stability of our common currency.

  Olli Rehn, Member of the Commission. − Madam President, I would like to thank the Honourable Members for their support.

Let me use this opportunity to inform you of the reasons for the tight timetable for adopting the convergence report to which Mr Scicluna referred. The cut-off date for the assessment depends on the availability of the forecast data, which itself depends on the date of the validation of the public finance data by Eurostat. In fact, to give the European Parliament more time, Eurostat agreed to advance the validation of the fiscal data. Still, the production process of the report by the Commission is very tight because we want to ensure a quality product, and squeezing it further would not be feasible without compromising the overall Union-wide assessment of all Member States, not least as regards the excessive deficit procedures and the overall respect of the Stability and Growth Pact, which is the very foundation of the economic and monetary union.

In fact we will use the same raw material tomorrow in the Commission when we take decisions on, in total, 16 excessive deficit procedures – 12 existing and four new excessive deficit procedures for the EU Member States. So it is indeed an overall Europe-wide process and that imposes some limitations on the Commission’s work in this regard.

In any case, I appreciate your pragmatism and I might say that I met members of the ECON Committee on 13 April to have an informal advance dialogue on the convergence prospects for Estonia. I would also like to add that the Commission is ready to inform the Parliament at any time regarding the economic and fiscal situation in Estonia. It is clear that Estonia must stay vigilant to ensure the stability of its public finances and macroeconomic development, and the Commission will certainly monitor this very vigilantly.

Finally, I count on having Estonia as an ally in pursuing fiscal discipline in terms of exercising peer pressure in the Eurogroup. We need allies to that end, and I count on Estonia in that regard. We need to work together in order to ensure the sustainability of public finances and thus sustainable growth and job creation in Europe.

I think it was Mr Brons who referred to Estonia supposedly losing its recently regained independence and its freedom. Maybe I should respond to Mr Brons by saying that perhaps it would be relevant to mention the reasoning followed by my grandfather when he voted ‘yes’ in the referendum in Finland on Finland’s EU membership, some 15 years ago. He said to me that he spent five years on the front to defend his country looking to the East, but since then he had always looked to the West.

  Edward Scicluna, rapporteur. − Madam President, thank you for your explanation, Mr Rehn. I understand the timetable is such. My concern was that Parliament’s role could not be seen as trivialising, which I am sure the Commission had borne in mind.

To conclude, I would like to thank my fellow shadow rapporteurs for their useful advice and meaningful amendments, which I fully supported and inserted in the report. I would especially mention my fellow MEP Mr Ivar Padar, the former Estonian Minister of Finance, as well as the current Minister, Mr Jürgen Ligi, for their very frank and open explanations given every time I needed their help.

I wish the Estonian people well. They have so far succeeded in proving the critics wrong. I now invite them to continue on the spot and keep full vigilance over their economy, especially its competitiveness, to ensure that their success will continue in the future as eurozone members.

I therefore commend this report to the House. Estonia’s application deserves our support and I hope that, when Parliament votes on Wednesday, a convincing majority will give the Estonians the credit they deserve and demonstrate that the eurozone is very much alive.

  President. − The debate is closed.

The vote will take place on Wednesday 16 June 2010.

Written statements (Rule 149)

  Ian Hudghton (Verts/ALE), in writing. – President, in these difficult economic times it easy to overlook how far Europe has come in recent years. Just twenty years ago, Estonia was part of the Soviet Union; today it stands ready to join the Euro zone. We must not underestimate the difficulties which all of Europe - whether in or out of the single currency - faces. Nevertheless, Estonia faces the challenges as an independent nation within the EU and will accordingly be a key player in finding the solutions. I look forward to Scottish independence when the people of Scotland will also have a full role to play in Europe's future.

  Kristiina Ojuland (ALDE), in writing. – (ET) I thank the rapporteur, Edward Scicluna, for drafting the report supporting Estonia’s accession to the euro area. I am very pleased that Estonia’s efforts to meet the Maastricht criteria have been duly recognised, and I hope that colleagues will support the report in Wednesday’s vote. The adoption of the euro in Estonia on 1 January next year will take place at a crucial time for the entire euro area. The global economic and financial crisis exposed those Member States which have systematically evaded the jointly agreed criteria, and which have thereby jeopardised the other Member States’ economies. This crisis is extremely enlightening, and it is especially important that all the Member States in the euro area, as well as the European Central Bank, are diligent in making sure that the Maastricht criteria are always fulfilled. The criteria become essentially meaningless if Member States are allowed to deviate from them and get a free ride at others’ expense. Although a precedent has been created, we cannot rely on rescue packages to compensate for the irresponsible economic and financial policy decisions of Member States. The Estonian Government has had to make several difficult, but necessary decisions in order to stabilise the national budget and stop the economic decline. Estonia’s imminent accession to the euro area is testament to the fact that the government’s action has borne fruit. I hope that the other Member States are also ready to adopt measures which will guarantee European economic and financial sustainability and competitiveness, taking into account the structural changes taking place in the global economy. Estonia’s accession to the euro area sends an important and reassuring signal and gives us reason to believe that the single currency, with its recent trend of decline, will soon stabilise.