Devaluation Risks Have Mitigated

We no longer include a nominal devaluation of the kroon as part of our core macroeconomic scenario for Estonia. The government's success in slashing the budget deficit without encountering major political opposition in 2009, as well as the rapid unwinding of external asymmetries, has sharply mitigated the incentives to devalue. With the country looking increasingly likely to meet the Maastricht criteria for euro entry within the medium term, we hold to our forecast for Estonia to become the seventeenth member of the eurozone by 2012.

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