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Bloomberg: Estonia's recession is bottoming out and the economy should contract in the third quarter less than in the previous two quarters, Finance Minister Jurgen Ligi said.

"I see the bottom is near in terms of stabilization, but recovery is another story," he said in an interview in Tallinn today. He also he is "cautious" about predicting an improvement in the current quarter after a record annual contraction of 15.1 percent in the first three months.

Estonia is undergoing its worst recession since 1991, with the economy expected to shrink as much as 15 percent this year, according to the central bank. The government of Prime Minister Andrus Ansip pushed budget changes through Parliament yesterday to help ease the financial crisis and said it would keep the kroon's peg to the euro under the currency board system.

Ligi's comments come after central bank Governor Andres Lipstok said last week that the economy is showing signs of stabilization.

The government's budget-cutting measures may not be enough to keep the fiscal deficit at last year's 3 percent of GDP, the threshold needed to secure euro entry in 2011, Ligi said. He declined to give the size of any further measures needed this year or next.

Estonia has trimmed its fiscal deficit by 16.1 billion krooni ($1.4 billion), or 7.3 percent of GDP, together with austerity measures approved yesterday, the Finance Ministry said in a statement today, leaving the planned central government budget gap at 4.2 billion krooni.

The ministry did not give deficit goals for the social security funds and local government budgets, which are included in EU budget targets.

"There are no taboos," Ligi said, when asked whether pension cuts may be considered in the 2010 budget. Ansip has stated in recent weeks that his minority Cabinet won't cut pensions to ease budget strains, a move urged by the central bank. Pensions make up a quarter of Estonia's budget spending.

The Cabinet wants to "retain the stability" of the tax system, Ligi said.

"There is no point talking about raising income taxes" after Parliament yesterday approved a "sharp" increase in jobless insurance premiums paid by workers and employers to keep rising unemployment from depleting the reserves of unemployment insurance fund, Ligi said.