Estonia on course for 2011 euro adoption: IMF

(TALLINN) - Estonia is on course to meet its target of adopting the euro by 2011, despite the Baltic state's deep economic crisis, the International Monetary Fund said Monday.

"As a result of present and past efforts, euro adoption in 2011 appears within reach," the global body said in a statement after a visit to Estonia by IMF experts.

"Following recent budget measures and assuming continued fiscal consolidation efforts, Estonia could meet all Maastricht criteria, while the policy record to date provides assurances for continued stability-oriented policies," it said.

"This is remarkable, as it is being achieved against the background of severe dislocations due to the crisis. Joining the euro zone would remove residual currency and liquidity risks, adding stability to the Estonian economy," it added.

Under the Maastricht Treaty that created European economic and monetary union, countries must meet various obligations and conditions before they can adopt the euro, especially regarding the public finances, debt, and inflation and exchange rate stability.

Estonia had hoped to switch in 2007 to the euro from its national currency, the kroon, which is pegged to the euro. But in 2006 the government changed the date to 2008 in the face of rampant inflation and was later forced to put it on ice until at least 2011.

While the economic crisis has helped rein in inflation, the slump has raised major challenges for public finance as revenues plunge. The Estonian government has slashed spending to try to tackle the crisis.

The IMF warned, however, that adopting the euro was "no panacea."

"It is not certain that joining the euro zone, even if it goes ahead as planned in 2011, would by itself trigger a major change in the pace of recovery of Estonia's economy, although some positive confidence effects can be expected," it said.

Estonia, which shifted rapidly from a communist command economy to the free market after independence from the Soviet bloc in 1991, had enjoyed a reputation as a "tiger" in the European Union, which it joined in 2004.

This country of 1.3 million people boasted growth of 10.4 percent in 2006 and 6.3 percent in 2007. But Estonia fell into recession last year, with its economy shrinking by 3.6 percent, and authorities warn that it could contract by up to 15.3 percent this year.