INTERVIEW-Estonia Finmin confident of joining euro in 2011

By David Mardiste

TALLINN, Dec 1 (Reuters) - Estonian Finance Minister Jurgen Ligi said on Tuesday he was confident the Baltic country would join the euro currency zone in 2011.

In late November, the European Union's top monetary policy commissioner, Joaquin Almunia, tipped Estonia as the 17th country to join the single currency area.

Estonia's 1.3 million people could start using the euro from Jan. 1, 2011 if the country meets the entry criteria next May.

"I would say I am 100 percent confident, but of course, it does not only depend on my confidence. The decision will be made by the European Union," Ligi told Reuters in an interview.

The government has been fighting contracting revenues after the global financial crisis tipped Estonia into its deepest recession since the end of communism two decades ago.

The economy is seen contracting 14.5 percent this year.

Despite this, the government has cut more than 16 billion kroons ($1.5 billion) from spending this year. This should enable it to meet the membership criteria of a budget deficit at or below three percent of gross domestic product (GDP).

Ligi said Estonia had the lowest government debt burden in the EU and would be one the few member states able to meet the deficit requirement during the financial crisis.

Germany, France, Spain, the Netherlands and Portugal are among the euro zone members in breach of the Maastricht rules.

LOCAL GOVERNMENT THREAT

Estonia met the Maastricht inflation criteria in November and price pressures would remain subdued in 2010, Ligi said.

The main threat to its euro zone entry is the size of budget deficits run by local government which could push the general government deficit over the EU ceiling.

Both the Estonian central bank and the International Monetary Fund have said the country needs to have a wider safety margin in its budget.

"It is more a technical problem, the amount of that debt is not so big," he said, adding that the central government has taken steps and changed laws to curb local government borrowing.

"But we can't tell in advance what exactly the deficit numbers will be."

Estonia in August forecast the general government sector deficit at 2.9 percent of GDP in 2010.

Ligi said Estonia, whose plans to join the euro zone in 2007 were scuppered by soaring inflation, was working to strengthen next year's budget ahead of a final reading this month.

An improving economy should also boost euro zone membership hopes, he said, adding that he expected the steep decline of the last year to end in the fourth quarter.

"GDP will be on the zero level in the fourth quarter quarter-on-quarter," he said.

He said Estonia's currency would remain at its present fixed rate of 15.6466 kroons to the euro until adoption in 2011. "It is clear that the foreign exchange rate will not change," he said

Estonia has had its currency pegged to the euro since 1999. Before then, it was pegged to the German mark.

The European Commission, the EU's executive arm, is due to take a decision on euro zone hopefuls in June 2010.

Estonia's statistics office will release data on the general government sector budget position at the end of March 2010.

(Reporting by David Mardiste; Editing by Victoria Main) ((david.mardiste@thomsonreuters.com, Reuters Messaging: david.mardiste.reuters.com@reuters.net)) ($1=10.407 Estonian Kroon)