Analytics, Banks, Economics, Estonia

The bank doubts that Estonia will be able to keep its budgetary deficit below 3% – the criterion established for the adoption of the euro. Estonia's deficit reached this limit last year already.

According to the analysis, the main problems in the Baltic States are excessive loan burden of the private sector, weak competitiveness and too lenient budgetary policy. The Deutsche Bank estimated that one of the solutions for the current crisis might be re-converting the loans of the private sector that are based on the euro into local currencies – that would make it possible to devalue the national currencies, if necessary, as well as to improve growth options and increase the capacity to service loans.

The bank's analysts are also of the opinion that an alternative is to force Latvia to devalue its currency; this would probably hit the monetary committee systems of Estonia and of Lithuania and would remind the banks operating in the new EU Member States of the risks involved in this region. This in turn would mean another blow to the economic activity and to prices in Central Europe.