June 30 (Bloomberg) -- Estonia’s fiscal deficit under European Union terms more than doubled in the first quarter from a year earlier, indicating the Baltic country may be unable to adopt the euro in January 2011.

The deficit, including social security and state and municipal spending, rose to 5.57 billion krooni ($502 million) from 2.06 billion krooni a year earlier, according to data published on the statistics office’s Web site today. The gap corresponds to 2.5 percent of gross domestic product, according to Bloomberg calculations based on the Finance Ministry’s forecast for 2009 GDP.

The first-quarter figure means the government will have to keep the deficit at 0.5 percent of GDP for the rest of the year to meet euro-entry criteria. Finance Minister Jurgen Ligi said this month he sees no improvement in the economy before the third quarter.

“It seems almost impossible to me that the government can keep the 2009 deficit below the Maastricht limit,” said John Andrew, an analyst with the Economist Intelligence Unit in an e- mailed comment. “It will have to revise downward its spending plans even further, and the minority administration will find it difficult to push sufficient cuts through parliament.” EIU sees Estonia’s 2009 budget gap at 3.7 percent of GDP, he said.

Euro Adoption

The minority Cabinet of Prime Minister Andrus Ansip has cut the 2009 budget deficit by 16 billion krooni, or 7.3 percent of GDP, in recent months to avoid depleting state reserves and keep the fiscal deficit at last year’s level of 3 percent of GDP, the same as the EU’s budget-deficit threshold. This would allow Estonia to adopt the euro in January 2011, the government’s main economic goal.

The first-quarter gap was not affected by Estonia’s subsequent budget cuts and the January to March period is seasonally the worst, Ligi was cited as saying today by the Baltic News Service. The government will also discuss additional budget cuts on July 2, Ligi told BNS.

The government needs to trim the budget balance by another 1.5 billion krooni this year to meet the EU criteria, Andres Saarniit, a central bank adviser, was quoted as saying by Postimees newspaper today.

“The Maastricht treaty does allow for a temporary deficit over 3 percent of GDP in exceptional cases -- and it is quite easy to argue that the current state of the global economy is a pretty exceptional case,” EIU’s Andrew said. “However, I am very skeptical that the EU institutions will be willing to be sufficiently flexible in interpreting the rules.”

Bank of France Governor Christian Noyer said on June 25 relaxing entry criteria and allowing other countries to join the 16 nation euro area more easily would risk “unsustainable situations.” It’s in the interest of countries wanting to use the euro “not to enter too quickly,” Noyer said then.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

Last Updated: June 30, 2009 11:57 EDT