* Cbank says Estonia close to meeting euro adoption goals
* Government must keep up budget deficit cap efforts
* Economy to shrink 14 pct this year, growth seen in 2010 (Adds quotes, background)
By David Mardiste
TALLINN, Oct 21 (Reuters) - Estonia could adopt the euro in 2011 after meeting the adoption criteria next spring, the central bank said on Wednesday, adding it forecasts a bigger-than-expected 14 percent GDP drop this year and low growth in 2010.
It reduced its 2009 gross domestic product (GDP) drop forecast to 14.2 percent from 12.3 percent. The economy would return to growth in 2010 at a meagre 1.4 percent, though this was better than the previously forecast 0.2 percent.
Like neighbours Latvia and Lithuania, Estonia has been hit hard by the global recession and a slump in domestic demand. Thanks to saving money during the boom years, its budget position is much better, though it has run up deficits.
"It is possible for Estonia to meet all the Maastricht criteria and to adopt the euro in 2011," the bank said.
In separate slides, it added: "We are close to meeting all the Maastricht criteria in spring 2010."
Its forecasts are similar to those from the Finance Ministry, which foresees a 14.5 percent GDP contraction this year and a drop of 2.0 percent in 2010.
Estonia has its kroon currency pegged to the euro and has denied speculation it might have to devalue due to the crisis.
The central bank said the main doubt for the euro remained the public sector budget deficit, which under European Union rules cannot exceed 3 percent of gross domestic product (GDP).
The bank forecast a deficit at just that level this year, before easing slightly to 2.8 percent of GDP in 2010.
"Fulfilling the budget criterion might be slightly complicated, but hopefully we will be able to make the last effort - the government must implement the measures they have promised," the bank added.
It saw the main risks as the widening deficits of local governments and shortfalls in the receipt of non-tax revenue.
"Thus efforts must be continued to keep this and next year's fiscal deficit below 3 percent of GDP."
A build up of confidence due to the outlook for adopting the euro and the easing of the crisis would allow the central bank to ease its tough reserve requirements of 15 percent in the second quarter of next year, it added.
Top banks in Estonia are now from the Nordic states, led by
Swedbank
Estonia's preservation of its euro hopes despite the depth of the downturn is in sharp contrast to Latvia and Lithuania.
Latvia expects a public sector budget deficit of 10 percent of GDP this year and 8.5 percent in 2010. Lithuania foresees a deficit of 9.5 percent of GDP this year and next. (Reporting by David Mardiste, editing by Mike Peacock and Andy Bruce)