Estonian economy beyond the Euro: questions abound

Qual­i­fy­ing for the Euro amidst the eco­nom­ic tumult11See the Eston­ian chap­ter on the Euro­pean eco­nom­ic pol­i­cy and the finan­cial and eco­nom­ic cri­sis (chap­ter 3). is an extra­or­di­nary achieve­ment, and in the over­all Euro­pean con­text, Eston­ian bud­get and pub­lic debt fig­ures are indeed “sheer mag­ic.”22Rain­er Kat­tel: Should Greece Fol­low Estonia’s Exam­ple?, 21.04.2010, avail­able at: http://www.networkideas.org/news/apr2010/news21_Rainer_Kattel.htm (last access: 01.06.2010). As a “poster child for aus­ter­i­ty,” Esto­nia could pay all its pub­lic debts and still have reserves left over. Equal­ly notable is the sto­icism of the Eston­ian peo­ple in endur­ing the government’s dras­tic spend­ing cuts and falling real wages. There have been no major protests or riots – in fact, the government’s pop­u­lar­i­ty has been on the rise since sum­mer 2009. The Commission’s pos­i­tive deci­sion on Estonia’s Euro-eli­gi­bil­i­ty lends addi­tion­al “post hoc” legit­i­ma­cy to the government’s aus­ter­i­ty mea­sures, and is like­ly to boost sup­port for gov­ern­ment par­ties in the March 2011 gen­er­al elections.

How­ev­er, there are few rea­sons for eupho­ria. In 2009, Estonia’s GDP fell by near­ly 15 per­cent, and unem­ploy­ment now approach­es 20 per­cent. Opin­ions diverge on how quick­ly the econ­o­my will recov­er and how acces­sion to the Euro­zone will affect eco­nom­ic per­for­mance and the labour mar­ket sit­u­a­tion. The Organ­i­sa­tion for Eco­nom­ic Co-oper­a­tion and Devel­op­ment (OECD) (which invit­ed Esto­nia to join the organ­i­sa­tion in May 2010) has issued an opti­mistic fore­cast, pre­dict­ing 5 per­cent eco­nom­ic growth in 2011. The expec­ta­tion of mod­er­ate growth seems to be wide­ly shared, and sev­er­al ana­lysts claim the cri­sis helped to improve the struc­ture of the econ­o­my. How­ev­er, more crit­i­cal voic­es sug­gest that a com­bi­na­tion of an over­val­ued cur­ren­cy, lag­ging pro­duc­tiv­i­ty, and weak domes­tic demand will result in ane­mic growth, long-term high unem­ploy­ment, grow­ing social prob­lems, and pos­si­bly, waves of emi­gra­tion.33Ibid.

In May 2010, pub­lic debate on the Euro quick­ly shift­ed from the ques­tion “Will Esto­nia qual­i­fy?” to “How will the Euro affect the econ­o­my?”. The main mes­sage in the Eston­ian media is that the Euro is no panacea. How­ev­er, Euro­zone acces­sion is expect­ed to cement macro­eco­nom­ic sta­bil­i­ty, increase investor con­fi­dence, facil­i­tate trade and pos­i­tive­ly dis­tin­guish Esto­nia from its neighbours.

    Footnotes

  • 1See the Eston­ian chap­ter on the Euro­pean eco­nom­ic pol­i­cy and the finan­cial and eco­nom­ic cri­sis (chap­ter 3).
  • 2Rain­er Kat­tel: Should Greece Fol­low Estonia’s Exam­ple?, 21.04.2010, avail­able at: http://www.networkideas.org/news/apr2010/news21_Rainer_Kattel.htm (last access: 01.06.2010).
  • 3Ibid.

The reports focus on a report­ing peri­od from Decem­ber 2009 until May 2010. This sur­vey was con­duct­ed on the basis of a ques­tion­naire that has been elab­o­rat­ed in March and April 2010. Most of the 31 reports were deliv­ered in May 2010.

The EU-27 Watch No. 9 receives sig­nif­i­cant fund­ing from the Otto Wolff-Foun­da­tion, Cologne, in the frame­work of the ‘Dia­log Europa der Otto Wolff-Stiftung’, and finan­cial sup­port from the Euro­pean Com­mis­sion. The Euro­pean Com­mis­sion is not respon­si­ble for any use that may be made of the infor­ma­tion con­tained therein.