Estonia and Lithuania distinctive among EU entrants

    By Meelis Kitsing
    Financial Times. Published: May 7 2004 5:00 |
    Last Updated: May 7 2004 5:00

    From Mr Meelis Kitsing.

    Sir, Your editorial "Euro attractions" concludes with the
    recommendation that the European Union must facilitate fluctuation
    margins of 15 per cent for the currencies of new member states in the
    exchange rate mechanism. While this recommendation is good for the new
    member states with floating exchange rates, it would be irrational for
    countries with the currency board.

    Your editorial gives Estonia as a positive example by indicating that a
    budget surplus of 2.6 per cent of gross domestic product and gross debt
    of 5.4 per cent of GDP makes this small country very different from the
    Czech Republic, Hungary and Poland.

    However, you do not mention that Estonia has utilised a currency board
    since 1992. Obviously, it would not make sense for Estonia to move from
    the currency board to a limited float in the exchange rate mechanism.
    Hence, it is somewhat questionable whether Estonia could act as a
    beacon for countries such as the Czech Republic, Hungary and Poland in
    their transition to the eurozone.

    Meelis Kitsing, Arlington, MA 02474 US

    From Prof Steve H. Hanke.

    Sir, Your editorial "Euro attractions" (May 5) states that "on the
    first working day after the European Union's historic enlargement to 25
    member states, the European Commission reported that Estonia and
    Lithuania would take the first formal step towards joining the single
    currency before August". You also note that both were "limbering up to
    enter the euro anteroom" and that, given their fiscal positions, "they
    appear well suited to be pathfinders in the . . . business of joining
    the euro".

    Of the 10 new member countries, you fail to mention what makes Estonia
    and Lithuania unique, however. In the monetary sphere, both have
    central banks that mimic currency boards. In consequence, they have
    been informally in the anteroom since euro notes and coins entered into
    circulation, rendering any limbering up exercises a mere formality.
    Indeed, their unsurprising fiscal prudence has resulted from the hard-
    budget constraints imposed by their monetary regimes.

    Steve H. Hanke, Johns Hopkins University, Baltimore, MD 21218, US

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