andres sutt : macroeconomic co - ordination and fiscal policy in the expanding eurozone statement by mr andres sutt, deputy governor of eesti pank ( bank of estonia ), at the conference “ thinking euconomy - wirtschaftspolitik europaisch denken ”, berlin, 3 may 2006. * * * the enlargement of the european union with the clear message that all countries without an opt - out clause will, in the future, be also members of the emu, is a most welcome and forward - looking approach in view of an ongoing globalisation and integration processes in the world. eventually, the adoption of the single currency by all member states provides clear benefits for the union as a whole. from the macroeconomic point of view it would support further economic integration and higher growth rates by fostering trade and investments. therefore, euro area enlargement will provide tangible benefits for all european citizens over time. the main policy challenge for both the current and prospective euro area members is to ensure that the best use is made of the monetary stability provided by the framework of the european system of central banks ( escb ). from the perspective of the new member states, the issue at stake is how to maintain the economic structure supportive for sustained growth and rapid real convergence. strong fiscal stance is instrumental in this regard. convergence programs of the new member states should include ambitious medium term objectives to ensure that not only the maastricht criteria are met, but most importantly, the emergence of excessive deficit situations is avoided and the risks of taking recourse to exchange rate adjustments after joining the erm2 ( and, eventually, the euro area ) are minimized. the well functioning single market for all goods and services, including infrastructure networks, as well as pursuing the national reform programmes in the context of the reinforced lisbon agenda is the other pillar for the success of the euro area and for the new member states in particular. estonia has been a de facto member of the euro area since the inception of its independent currency in 1992. fixing the local currency to d - mark, and later to the euro meant that the monetary policy decisions were not made in estonia. estonia's currency board regime implies prudent fiscal stance that has been largely adhered to since 1992, resulting in our general government having accumulated a relatively large net asset position of around 10 percent of gdp. a solid budgetary position and early deregulation of product and capital markets implies that estonia has been

of the estonian banking sector is currently above 22 %. the capitalisation of the subsidiaries of the banks operating in estonia is absolutely sufficient to cope with loan losses markedly bigger than the current estimated 2 % level without including additional capital. the credibility of the banks operating in estonia is thus not threatened by a possible increase in the share of so - called bad loans in the loan portfolio in the course of this year compared to the current 5. 2 %. the integration of the banking system with the scandinavian and european markets, which is one of the most important factors supporting stabilisation, is another issue. the banking groups operating in estonia are able to manage capital and liquidity in a flexible way at group level. the integration of the banking system consists in the readiness of banking groups to promptly channel money flows to various subsidiaries and branches according to need. the integration of banking is supported by cooperation in the nordic - baltic region. i am convinced the daily information exchange and cooperation agreements of our region set an example of ensuring financial stability for the entire european union. in the final months of 2008, sweden initiated support schemes, which have had a very positive impact on banking groups as a whole, i. e., national support measures have been implemented from group level also on subsidiaries and branches. in this context, estonia has in the eu actively supported the principle that the implementation of rescue packages must not discriminate against other member states. 2009 economic policy priorities in estonia now i would like to say a few words about the current monetary and economic policy situation and the most important priorities for 2009. by now it is clear that the estonian enterprises and households have thoroughly changed their behaviour and expectations over the past half a year. in this respect, a big part of the adjustment process has already taken place and estonia's primary macro vulnerabilities have considerably decreased. the current account, i. e., the difference between investment and savings, has practically balanced and the financing of the economy's current expenditure is ensured by current income. in addition, estonia has no problems with financing its external debt. companies and people in estonia have taken serious steps to pave way for getting through the global crisis and recovering growth. therefore, the state needs to implement some important macro - level objectives to support the recovery of economic growth. here i mean, above all, the readiness to join the euro area as well as medium - term and long - term stability of fiscal policy. in the current situation, accession to the euro area