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Estonia to Run Budget Deficit Due Worsening European Economy

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04/26/2012 | 06:20pm CEST

Estonia, the euro zone's newest member, said Thursday it will run a budget deficit in 2012 as a worsening European economy curbs revenues.

The shortfall will be 0.5% of gross domestic product this year, the government said in a budget strategy approved at its weekly meeting in the capital Tallinn. The plan foresees a surplus of 0.1% of GDP in 2013 with annual increases to a 1% surplus in 2016.

Estonia became the 17th member of the euro zone on Jan. 1, 2011, amid the region's sovereign debt crisis that has seen Greece, Portugal and Ireland bailed out by the European Union and International Monetary Fund. The currency zone's economy contracted 0.3% in the fourth quarter as governments raised taxes and cut spending.

The EU economy will stagnate this year, the European Commission said in February. Already the U.K., Greece, Italy, Portugal, Ireland, Belgium, Denmark, The Netherlands, Czech Republic and Slovenia are in recession, defined as two consecutive quarters of economic contraction.

Finance Minister Juergen Ligi told a news conference the crisis in Europe meant Estonia won't meet earlier expectations of budget surplus this year. The country had a surplus of 1% of GDP last year and public debt of 6%, among the lowest among the 27-member European Union.

The ministry cut this month its estimate for 2012 economic growth, to 1.7% from a previous 3% forecast.

Finance Ministry: http://www.fin.ee

-By Liis Kangsepp, Dow Jones Newswires; +46 8 545 131 01; djnews.stockholm@dowjones.com

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