By David Mardiste
TALLINN, Nov 19 (Reuters) - Ireland and other debt-laden euro zone states will need another dose of austerity before investor confidence returns, Estonia's finance minister said, pledging to run tight budgets when his country joins the single currency.
Jurgen Ligi said the prospect of Estonia adopting the euro next year had boosted confidence in the whole Baltic region and expected this to lead to an upsurge in lending by Nordic banks, which he said was vital for growth following a brutal recession.
"A big part of the confidence in all these (euro zone) countries is fiscal policy -- their loan burden and deficit," he told Reuters in an interview on Friday, citing Ireland, Spain and Portugal.
"They have to have more austerity measures to (regain) confidence from the markets."
Estonia cut its budget deficit by 9 percent of gross domestic product (GDP) to make sure it met the euro entry criteria, while budget reserves equal to about 10 percent of GDP were also vital.
"Ireland is talking about its specific situation and Portugal is saying it is not Ireland and Spain is saying it is not Portugal or Ireland," he added.
"The situations are all different, and what is really common is that they need more austerity measures, that is for sure."
A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, EU sources said on Friday, but experts warned a rescue may not be enough to prevent contagion to other euro zone members.
Ligi saw little chance Estonia's budget policy would become looser once it was safely inside the single currency bloc.
"Estonia has learnt a lot and we do not need radical policy changes. We have been keeping a conservative line since the very beginning. We are just much more conservative now in general."
BALTIC COMEBACK
Estonia's southern neighbour Latvia sparked widespread concerns about the Baltic economies in 2008, when it was forced into taking a 7.5 billion euro IMF-led bailout.
Ligi said confidence had been returning to the region, helped by Estonia's qualification for euro zone entry. The three countries' economies have also started to recover from double-digit slumps, the EU's steepest, in 2009.
"We started to get the message through that Estonian finances are in order and we are joining the euro zone and are meeting the Maastricht (entry) criteria," he said.
"This helped the other Baltic states to impose austerity measures, especially in the case of Latvia."
Latvia and the third Baltic state Lithuania are eyeing euro entry in 2014, but both need to chop their budgets further before then.
All three also need the Nordic banks that dominate their financial markets -- led by Swedbank, SEB, Nordea and DnB NOR -- to start lending again after credit levels fell during the crisis as losses on loans granted during an earlier boom mounted.
"It is quite natural that banks become very cautious and the reason for that was that they probably showed too little caution during the boom," he said.
"At the moment, the situation is... more or less balanced. The growth in lending will happen, we are sure."
(Editing by John Stonestreet)