What happens in economic policy in Estonia?

Updated: 02.07.2010

Estonia's role in the economic policy of the European Union will increase after becoming a member of the euro area. Estonia will also participate in making decisions on fiscal policy of the EU, including setting key interest rates in the euro area. Until now Estonia has, so to speak, automatically introduced the euro area interest rates through the fixed exchange rate of the Estonian kroon. Euro area membership also involves a rise in Estonia's credibility for foreign investors. The risk of the kroon devaluation will disappear all along, the businesses will no longer need to invest in exchange risk hedging, and travelling will be more convenient.

Twelve out of the twenty-five EU Member States belong to the euro area. Current developments have shown that the impact of non-euro area countries on the economic policy of the EU is smaller than that of those within the euro area. Currently, after the last round of the EU enlargement, there are thirteen countries among the Member States that do not belong to the euro area - that is they outnumber the members of the euro area. Arising from the Treaty on European Union, the new members have an obligation to join the euro area. Eight of them have joined the exchange rate mechanism II (ERM II). During their participation in the ERM II these countries have to conform to the Maastricht criteria, which is a prerequisite in order to become a member of the euro area.

Ministry of Finance
After becoming a full member of the EMU and the introduction of the euro, representatives of the Ministry of Finance will be participating in the work of the so-called Eurogroup. The Eurogroup is a smaller circle of ECOFIN that includes all the ministers of economic and financial affairs of the EU Member States (members of the euro area), which does not make formal decisions, but agrees upon the most important issues before ECOFIN meetings. Estonia is a member of the European Union, but currently Estonian representatives do not have the opportunity to take part in the Eurogroup meetings. The Minister of Finance of Estonia participates in ECOFIN meetings.

Eesti Pank
Governor of Eesti Pank will also start taking part in the formulation of monetary policy in the euro area by participating in the work of the Governing Council, the main decision-making body of the European Central Bank (ECB). Currently, after Estonia's accession to the EU Eesti Pank takes part in the activities of the General Council of the ECB, the so-called transitional council, which consists of the heads of national central banks of all EU Member States.

In the Eurosystem Eesti Pank will continue to perform its traditional tasks of a central bank. The objective of the national central banks of the euro area is to ensure price stability and to this end they carry out the single monetary policy of the euro area. Eesti Pank will be participating in making monetary policy decisions, for example fixing interest rates, where Governor of Eesti Pank will have an equal say with the heads of e.g. German or Italian central banks. Eesti Pank analyses economic indicators of Estonia and other countries in order to make decisions on monetary policy issues. The bank also has a key role in international relations with other national central banks and international organisations (IMF, rating agencies). Eesti Pank takes part in the joint management of reserves and development of settlement systems.
Eesti Pank will continue to ensure smooth operation of the settlement systems so that customers' transfers between banks are fast and efficient, will foster financial stability, and draft Estonia's balance of payments. Eesti Pank will also continue to regulate currency circulation. The euro cash (banknotes and coins) in Estonia will be provided by Eesti Pank.