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talkpoliticsDear fellow economic laics experts, because we've been talking about Greece lately I'm going to try to make a short comparison between a couple of European economies, and see the differences how they're coping with the crisis.
First, the Greeks. Apparently, they're still living in some kind of illusion, as if failing to fathom the depth of the dire predicament in which they've put themselves. There was an incredible post some time ago which pretty much summed up the reasons for this situation, so I'm not going to delve into that. What matters now is that it is not going to end soon and the Greeks are doomed to a prolonged suffering. Because when you don't take adequate measures while it's early enough, once you've entered the down spiral, it gets very hard, almost impossible to get away.
Sure, this has its good sides too. The situation could finally give a lesson to the Greeks and help them go through a cleansing moment. It could make them realize their errors and besides, it could serve as a warning to neighboring countries in similar conditions (like my country, Bulgaria) to understand that it is very important to be extremely careful with the way you're dealing with budget deficits and populist promises.
Now, let's look at a much smaller country. Estonia is an example of the exact opposite to the Greek policy. They took early measures, and they didn't just cut their budget deficit; they didn't allow the creation of a huge budget deficit in the first place. Some important reforms were done just in time (in the pension system, in the health care system, etc). In result the investor's pessimism changed to cautious optimism and the macro-economic forecasts for the country were upgraded significantly. The interest of foreign investors reached record highs, the stocks marked a nearly 45% growth for 6 months, export is rapidly increasing, and the country is on the fast lane toward entering the Euro zone. The interest rates are falling (soon after the abrupt rise at the beginning of the crisis). That is not to say that there still aren't risks, but the Estonian government has demonstrated that they can take the necessary measures when urgently necessary.
And lastly, Bulgaria. It's an example of a country in an unclear position, hanging somewhere in the middle between a responsible and stable economy and a spiraling down economy of the Greek type. In 2009, Bulgaria was looked at as another Estonia, but then it started behaving like Greece. Presently there has been some re-realization and some steps back to fiscal responsibility. We're firmly "somewhere in the middle" for the time being, but you may notice that the term itself implies "in the undetermined middle", rather than the "golden middle", and that's not very nice.
Still, there are some good news lately. The government recently adopted its new convergence program. Hopes are that it'll start to be implemented, along with all reforms included. Add the fact that the country has been within a Currency Board for more than a decade, and things are looking comfortably stable. The prime minister keeps saying that we're not safe from following Greece's fate, but that'd only happen if we do some really stupid mistakes, and he doesn't look likely to do that.
All the above would help the country to enter the ERMII mechanism and to avoid the rather unpleasant procedure in case of hyper-deficit like the one in Greece. The good thing is that, despite being the poorest country in the EU (and with the lowest living standard), and despite the corruption and misappropriation of EU funds, on the other hand Bulgaria has actually displayed an admirable amount of fiscal responsibility and stability, which makes it attractive for foreign investors.
Still, what deters them from stepping in more actively is the level of corruption and some problems with the regulative business framework, i.e. we need some improvements in the legislation regarding finance, economy, and labor. That would be of greatest help to the investors and entrepreneurs and credit lenders to change their current negative attitude to the country, and more investment would trigger a serious economic growth in this volatile moment.
First, the Greeks. Apparently, they're still living in some kind of illusion, as if failing to fathom the depth of the dire predicament in which they've put themselves. There was an incredible post some time ago which pretty much summed up the reasons for this situation, so I'm not going to delve into that. What matters now is that it is not going to end soon and the Greeks are doomed to a prolonged suffering. Because when you don't take adequate measures while it's early enough, once you've entered the down spiral, it gets very hard, almost impossible to get away.
Sure, this has its good sides too. The situation could finally give a lesson to the Greeks and help them go through a cleansing moment. It could make them realize their errors and besides, it could serve as a warning to neighboring countries in similar conditions (like my country, Bulgaria) to understand that it is very important to be extremely careful with the way you're dealing with budget deficits and populist promises.
Now, let's look at a much smaller country. Estonia is an example of the exact opposite to the Greek policy. They took early measures, and they didn't just cut their budget deficit; they didn't allow the creation of a huge budget deficit in the first place. Some important reforms were done just in time (in the pension system, in the health care system, etc). In result the investor's pessimism changed to cautious optimism and the macro-economic forecasts for the country were upgraded significantly. The interest of foreign investors reached record highs, the stocks marked a nearly 45% growth for 6 months, export is rapidly increasing, and the country is on the fast lane toward entering the Euro zone. The interest rates are falling (soon after the abrupt rise at the beginning of the crisis). That is not to say that there still aren't risks, but the Estonian government has demonstrated that they can take the necessary measures when urgently necessary.
And lastly, Bulgaria. It's an example of a country in an unclear position, hanging somewhere in the middle between a responsible and stable economy and a spiraling down economy of the Greek type. In 2009, Bulgaria was looked at as another Estonia, but then it started behaving like Greece. Presently there has been some re-realization and some steps back to fiscal responsibility. We're firmly "somewhere in the middle" for the time being, but you may notice that the term itself implies "in the undetermined middle", rather than the "golden middle", and that's not very nice.
Still, there are some good news lately. The government recently adopted its new convergence program. Hopes are that it'll start to be implemented, along with all reforms included. Add the fact that the country has been within a Currency Board for more than a decade, and things are looking comfortably stable. The prime minister keeps saying that we're not safe from following Greece's fate, but that'd only happen if we do some really stupid mistakes, and he doesn't look likely to do that.
All the above would help the country to enter the ERMII mechanism and to avoid the rather unpleasant procedure in case of hyper-deficit like the one in Greece. The good thing is that, despite being the poorest country in the EU (and with the lowest living standard), and despite the corruption and misappropriation of EU funds, on the other hand Bulgaria has actually displayed an admirable amount of fiscal responsibility and stability, which makes it attractive for foreign investors.
Still, what deters them from stepping in more actively is the level of corruption and some problems with the regulative business framework, i.e. we need some improvements in the legislation regarding finance, economy, and labor. That would be of greatest help to the investors and entrepreneurs and credit lenders to change their current negative attitude to the country, and more investment would trigger a serious economic growth in this volatile moment.
