Sustainability of the Estonian macroeconomic performance in the light of the EU membership

For the new member states of the EU, the question of choosing the optimal macroeconomic policy mix is rather complicated as these countries are all in the dynamic movement towards joining the European Economic and Monetary Union (EMU). This implies a considerable change in macroeconomic policy environment. Many of the countries have to change their macroeconomic framework in order to meet the strict criteria set in the Maastricht Treaty and the accompanying legislative acts. Although currency board arrangements and sound government finances have helped to stabilise the Estonian economy during the transition, the aim of the current paper is to evaluate the sustainability of the Estonian macroeconomic policy in the light of the future developments, especially participation in the EMU. The analysis is based on the comparative performance of Estonia with the EU-15 and the former accession countries. It gives an overview of the nominal convergence according to the rules laid down by EC Treaty on EMU convergence criteria. In the context of real convergence the set of criteria provided by the theory of Optimum Currency Areas are analysed, as these are expected to be fulfilled in order to guarantee sustainability and success of the region participating in the monetary union. The paper highlights the dilemmas to be faced between the nominal criteria and real expected performance of the acceding country using the example of Estonia.