Eesti
0
Estonia to strengthen the euro area
Estonia to strengthen the euro area
I know it seems odd, but while the future of the euro (will / should some euro countries leave the euro area?) is one of the most hotly debated subjects amongst economists, in just a few days time the euro area will actually expand.
When the clock strikes 23:00 in Frankfurt, Brussels and Amsterdam, Estonia will become the 17th member of the euro area (23:00 because in Estonia it is an hour later, so it will be 00:00 local time there). Is that good or bad for the euro area?
Although Estonia is a small country, there are only 1.3 million people living there (in a country that is somewhat larger than the Netherlands, where more over 16 million people live), it becoming a member of the euro area is a good thing.
Not in terms of economy however. Its economy is tiny, with the gross domestic product (GDP) just north of some 20 billion euro. Still though, Estonia has much to offer.
In terms of public finances, there will be some serious reshuffling in the euro area. Estonia will immediately advance to the first place when it comes to the size of public debt in the euro area. Estonia carries a ‘burden’ of some 7 percent of its GDP. For comparison purposes, the strong euro area countries such as Germany and the Netherlands have public debts of some 70 percent of GDP or more. Greece and Italy score well above 100 percent with a country like Belgium not very far behind.
Remarkable
Estonia is also a living proof that economic disasters do not have to lead to enormous budget deficits. Disaster is the correct word, as the economy of this tiny Baltic nation has contracted by some 15 percent in 2009 with 2010 not being much better either. But still its government managed to keep the budget deficit at just a tad over 1 percent of its GDP. A remarkable achievement indeed if there ever was one.
Moreover, it will be something new to the people of Estonia, as their governments have actually achieved budget surpluses in every year since 2002. Again, compare that with Greece, that not only has had budget deficits since 2002 (and before that as well), but has not even been able to keep the deficits below 3 percent of its GDP in any of those years.
But the most important change is the fact that the head of the Estonian central bank will become one of the voting members of the Governing Council of the European Central Bank. Given the fact that Estonia values fighting inflation more than trying to artificially prop up the economy and does not like to fund the government deficits by printing new money, this new board member will be an ally of the German, Dutch and Finish central bankers on the board at the ECB.
Dark side
There is one dark side as well though. In the not too distant past, a large majority of Estonian people actually supported the euro. Now, that support has declined to just some 50 percent.
That reflects the general trend that the popularity of the European currency is declining (fast) in Central and East Europe. If the take the eagerness to join the euro area as a yard stick to measure the value and appeal of the euro area, then there is no other conclusion possible, other that that the value and appeal are falling.
What is not declining is the intensity of the debate on the future of the euro. If anything, that debate is further gaining in strength. In that light: the Estonian krona, that will thus disappear in a few days time, was introduced in the summer of 1992, meaning that it has become 18 a couple of months ago. The euro coins and notes have been around since the beginning of 2002, so 9 years. It will be interesting to see whether the euro will be able to outlive the Estonian (new) krona.
P.S. If you wonder why any country would want to join the euro area in the first place: according to the Treaty on the European Union, ALL member states of the European Union (bar United Kingdom and Denmark) MUST join the euro area as soon as they fulfill the criteria that have been set (on inflation rate, long term interest rates, economic convergence, debt and budget balance).
Reply With Quote
Originally Posted by Loki
That is shit Karl, really! What do you think?? Tiny Estonia can save the Euro?? Estonia is smaller than Latvia! 
Estonia is good and Latvia is hell, blahg blah!! I tell you, you would be in the same situation without help of your big brother Finland, you know?? Finland helps the finno ugric brothers in Estonia with money and economy. But we Latvians have no big brother and we have it more difficult but we are no shit country --- dont give others the wrong impression. THANKS!!
Latvian-German Friendship
Bookmarks