PARIS (MNI) – The outlook for inflation in Estonia will not be an
obstacle to its entry into the European Monetary Union next year, ECB
Governing Council member Ewald Nowotny said Monday.

Last month, the ECB raised doubts about Estonia’s ability to ensure
price stability over the longer term. In its Convergence Report, the
central bank cautioned: “Over the medium term, maintaining low inflation
rates will be very challenging given the limited room for manoeuvre for
monetary policy.”

On the same day, however, the European Commission issued its own
converge report in which it said Estonia had fulfilled the requirements
for Eurozone entry and recommended its candidacy be accepted.

Estonia is slated to adopt the single currency on January 1, but
the recent crisis surrounding the more peripheral members of the euro
area has cast a shadow over the policy of ongoing EMU enlargement.

Nowotny, speaking to reporters on the sidelines of a conference
here, noted that in its report the ECB had looked “at the criteria as
they are in the EU treaty.” From the ECB’s view there’s an issue of “the
sustainability of the Maastricht criteria…not just a one-shot affair,”
Nowotny, who heads the Austrian National Bank, stressed.

However, “I personally do think that the experience as we have seen
it would be in favor with regard to the aspect of sustainability,
especially with regard to the inflation rate,” he said.

If Estonia does becomes the 17th member of the Eurozone, there will
be a “need for close cooperation with [the] government and close
observation,” Nowotny added.

The head of foreign economic analysis at Austria’s central bank,
Doris Ritzberger-Gruenwald, who also attended the conference, said it
would be unwise to change the rules of the game for Estonia in the wake
of the financial crisis.

Suspending the accession process for Estonia could give the
impression of institutional “chaos” to which the reaction of financial
markets might be “worse,” Ritzberger-Gruenwald told Market News
International. Maintaining the accession process, by contrast, could be
a “signal of stability,” for the markets. However, she acknowledged that
views on this issue differed among the national central banks of the
Eurosystem.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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