Tough enough*
11/1/11 23:00![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
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talkpoliticsI'm talking about Estonia. That tiny, tiny country which is so famous for its super-hot chicks.
Did you notice it? :-)
See, if there's one person who deserves to head the European Central Bank this summer, his name should be Andres Lipstok. Probably the name doesn't speak anything to you. Lipstok is the chairman of the Bank of Estonia, and the Estonian "kroon" is surely not the most famous currency in the world. But on the other hand, Estonia which became the 17th and newest member of the Euro zone just a few days ago, is showing fiscal indexes that are depressingly positive. And that, at times of a world crisis. Even in comparison to such excellent students like Luxembourg and Finland. Add the fact that the tiny Baltic country follows a strictly ultra-conservative fiscal policy of a very balanced budget which even Germany would feel jealous about, and Lipstok suddenly looks like the best option for the European Central Bank.
But this was hardly of any importance for the Estonians while they were celebrating their entry to the Euro zone on January 1 - they did it with their typical Nordic modesty. "No problem, it [the Euro] will weigh just a little more in our pockets" were the headlines in some of their newspapers. Yeah, the Euro coins are a little heavier, but that's not the point. Their shyness is not just a consequence of the famous Scandinavian moderateness, as much as it's a certain feeling of uncertainty about the future of the Euro which is in crisis. It went through its most disastrous year in history and at the moment the odds for its survival are roughly 50/50. Estonia adopting the Euro at this moment might be compared to buying the last available ticket for the Titanic, according to some cynics. But the Estonian finance minister Jürgen Ligi had a typically laconic response to this, using a similar nautical metaphor: "You have to understand, we don't have a whole fleet at our disposal. There's just one boat left".
Indeed, the cute tiny Baltic country didn't have so many alternatives. Besides, they already paid a rather steep price for entering the Euro zone, but on the other hand staying outside of it would be a suicide at this point. For countries like mine (Bulgaria), who've been also trying to get on board, there's one lesson sticking out of the whole story: the sea might turn out to be stormy, boarding the boat is much more difficult now than it used to be, the ticket is very expensive, and the conditions on board are much worse than before. But despite all that, it's safer there, compared to swimming on your own among sharks, especially if you're a tiny vulnerable country. So it's way better to be a passenger, particularly an exemplary one like Estonia. You could still sink along with the rest, but chances are that you won't.
Estonia is not the first East European country in the Euro zone, but unlike the serene Slovenia and the lucky Slovakia (which seems to have been accepted just in order to avoid the confusion between the similarly sounding names), there are many more challenges ahead of the Baltic "tiger". Their success should be a good lesson for us too, since we're also tied to the Euro via a currency board, and now that Tallinn is entering the Euro club, they're leaving all the predictions for an imminent devaluation behind their back.
Like any other country with a currency board and high inflation, Estonia was under constant pressure and criticism that it was gradually losing competitiveness - the higher rise of the salary expenses, in principle, was supposed to make their production uncompetitive on the foreign markets. This, according to the orthodox economics theories, would bring a drop in their production and a deep crisis at some point. And, since Estonia tends to be constantly pointed with fingers as an example, it's always very closely surveyed, and its critics were not just some obscure analysts from the research institutes of the various banks, no. Those were no one else but the well-known Paul Krugman himself, a Nobel laureate in economics and a columnist at the NYT! And Nouriel Roubini, one of the very few economists who predicted the Big Recession. They all claimed that instead of aspiring for the Euro, Tallinn should start devaluing its currency. On December 31st last year Krugman wrote in his NYT blog that changing the kroon was a symbol of Estonia's transformation from a Soviet province to a good European citizen, but still its economy had paid a very tough price for that. "So, congratulations to Estonia — but condolences too. This wasn’t the glittering euro entrance you were promised.".
Indeed, Estonia's path wasn't sprinkled with rose petals. The Baltic tiger was brought to its knees by the global crisis which coincided with the bursting of the estates balloon in the country which shook the banking system dangerously (I could sense this even here in BG, as my job is to sell estates to foreigners, and the Estonians completely disappeared from the estates market just overnight). But instead of resorting to the temptation to devalue their currency, Estonia kept a firm course toward the Euro, and in order to meet the criteria for admission, they took some brutal measures. The result was an economic shrinking by 14% in 2009 and staggering unemployment. Despite that, unlike the other two of the Baltic trio (Latvia and Lithuania), Estonia managed to evade the involvement of the IMF, and the street riots.
It now appears that all the advices for devaluing the kroon had been coming mainly from economists who had little idea about the specifics of the country. See, Estonia almost lacks any valuable resources, so they import almost everything. So if the kroon was devalued, this would make the imports more expensive, and this would then reflect on the exports. Besides, any rumors about devaluation tends to scare off the investors so that would've been a totally unwise decision, which they're now grateful to their rulers for not taking.
And we shouldn't under-estimate the fact that Estonia's main motivation for joining the Euro was to cement their position in the pro-Western orbit of EU and to protect themselves from Russia. It was a political decision first and foremost, and secondly, they already paid their steep price for their determination, they made huge sacrifices, and they eventually deserved their place in the Euro zone. And there they'll be the smallest and poorest, and yet the most exemplary member worth researching and pointing with fingers at.
Turns out all their pains were worth it - the deep recession of 2009 is now history; in last year's 3rd quarter, the Estonian economy started its climb back up the hill and showed a remarkable growth and some brilliant indexes, like a midget budget deficit of 1.7% and a public debt of 8% (!) that very very few countries in the Euro zone and the world could boast of.
Estonia will bring their flawless fiscal dossier into the Euro zone, but it's still a bit unclear what particular benefits they'd get from the membership. The usual bonuses that come with the Euro are of course a drastic decrease of the expenses for bank transactions, an improvement in the investment climate, much lower interest rates and a cheaper external financing, and in Tallinn's case - ending of all the speculations about possible devaluation. The foreign investors are already sniffing the lush green pastures and are obtaining a starting position to flock in. But the situation is a bit more specific right now.
For a long time the investors didn't use to make a difference between the separate countries within the Euro zone, so Greece could take loans at the same interest like Germany (and they did - OH they did!) Well, not any more. Initially, Estonia will enjoy its deserved honeymoon, but this time it'll be much shorter than the one the previous newbies used to enjoy. And there'll surely be no free lunch for them. In the long term though, the political benefits for Estonia will be enormous. But the economic ones will be hardly noticeable. But that's at least something.
Meanwhile, the illusion that the Euro is an automatic insurance against political stupidity and a comfortable shield against economic problems, is gone now. The Euro doesn't eliminate the need to do reform in education and the social area, so nothing really changes with a magic wand for Estonia. Granted, the Estonians will probably avoid falling into the trap of the low Euro interest rates which brought the balloon in Spain and the collapse in Greece. Firstly, because they already have enough experience about those things. And secondly, because many things will be changing in the Euro zone from now on.
What will not change any time soon is the number of members. After Estonia's entry, the gates to the Euro club are going to be shut tightly for at least a few years. And when they open again, the conditions on board of the ship will surely be very different from what they are now.
* Tough Enough is the most famous song by a cool Estonian girl band, Vanilla Ninja (they participated twice on the Eurovision, once representing Estonia and once singing for Switzerland).
(no subject)
Date: 11/1/11 21:13 (UTC)maybe they should start exporting hot chicks to improve their trade imbalance...
(no subject)
Date: 11/1/11 21:24 (UTC)(* internet is an integral part of the modern Estonian culture, to the point of being an obsession; hence the first thing Russia did: a cyber-war on Estonia)
(no subject)
Date: 11/1/11 21:40 (UTC)and then they can export some of those jerking nerds to russia... they won't bring much, but it solves one problem.
but seriously, what are the odds that estonia will beecome a productive member of the eurozone?
(no subject)
Date: 11/1/11 21:47 (UTC)Good plan about the chick exports! I've always been fascinated with the poultry industry.
(no subject)
Date: 11/1/11 21:57 (UTC)and are you a leg or a breast man?
(no subject)
Date: 11/1/11 22:11 (UTC)(no subject)
Date: 11/1/11 21:34 (UTC)Also Vanilla Ninja are SO CUTE I WANNA CRY!!!
(no subject)
Date: 11/1/11 21:35 (UTC)(no subject)
Date: 11/1/11 21:39 (UTC)(no subject)
Date: 11/1/11 22:20 (UTC)I was hoping for pictures of the super hot chicks
(no subject)
Date: 11/1/11 22:33 (UTC)(no subject)
Date: 12/1/11 03:21 (UTC)(no subject)
Date: 12/1/11 11:23 (UTC)And despite the hardships our Missis-es are pretty nice. :-P
Told you! You should come visit.
(no subject)
Date: 12/1/11 12:02 (UTC)(no subject)
Date: 12/1/11 12:13 (UTC)(no subject)
Date: 12/1/11 11:35 (UTC)(no subject)
Date: 11/1/11 22:42 (UTC)Vanilla Ninja are awesome by the way. I sometimes see Maarja Kivi, a former member. She often comes to Sthlm.
(no subject)
Date: 12/1/11 13:14 (UTC)(no subject)
Date: 12/1/11 13:44 (UTC)(no subject)
Date: 12/1/11 03:27 (UTC)(actually they could have been Latvian or Lithuanian, that was such a long time ago the memory is faded...I think they call it snility)
Seriously good, informative post as always.
(no subject)
Date: 12/1/11 11:21 (UTC)(no subject)
Date: 12/1/11 03:44 (UTC)(no subject)
Date: 12/1/11 12:33 (UTC)That's the key line, IMO.
Yet another trademark brilliant post btw.