View Full Version : FT: Estonia’s recovery defies economists and academics

08-12-2010, 05:24 PM
FT: Estonia’s recovery defies economists and academics (http://balticbusinessnews.com/article/2010/08/02/FT_Estonia_s_recovery_defies_economists_and_academ ics)

Estonia that in July formally received confirmation from the EU that it will be admitted to the eurozone at the beginning of next year is stubbornly failing to comply with the predictions of currency crises, is already seeing a resumption of growth and a fall in its real cost of capital, John Dizard writes in today's FT.com.

The internal devaluation policy, which means cuts in nominal costs such as wages and rents, was very hard on the population, but appears to have worked ahead of even the Estonian government’s schedule, writes Dizard.

Unemployment, while still high, peaked in the first quarter of this year. Optimistic locals point to the decline of “registered unemployed” from nearly 14 per cent of the workforce to just over 11.5 per cent in the past three months. Those are not, however, seasonally adjusted numbers, and it seems likely that sustainable declines in unemployment will be hard won. Private sector wages have stabilised after last year’s cuts of around one-fifth of pay packets. Manufacturing and service export growth is beginning to partially offset the collapse of the building sector.

The other Baltic states are not recovering as quickly as Estonia, though Lithuania seems to be doing better than Latvia. The differences among these small states have useful lessons for the southern Europeans.