Wednesday, June 6, 2012

Controversy in Estonia

This small country has gotten a lot of press lately.

Yesterday, an article in the Global Post described how Estonia's economy has boomed, and their public deficits nearly disappeared, following some harsh but effective austerity measures:
While spending cuts have triggered strikes, social unrest and the toppling of governments in countries from Ireland to Greece, Estonians have endured some of the harshest austerity measures with barely a murmur. They even re-elected the politicians that imposed them.
“It was very difficult, but we managed it,” explains Economy Minister Juhan Parts.
“Everybody had to give a little bit. Salaries paid out of the budget were all cut, but we cut ministers’ salaries by 20 percent and the average civil servants’ by 10 percent,” Parts told GlobalPost.
“In normal times cutting the salaries of civil servants, of policemen etc. is extremely unpopular, but I think the people showed a good understanding that if you do not have revenues, you have to cut costs,” adds Parts, who served as prime minister from 2003-2004.
As well as slashing public sector wages, the government responded to the 2008 crisis by raising the pension age, making it harder to claim health benefits and reducing job protection — all measures that have been met with anger when proposed in Western Europe.
Today, Paul Krugman responded with an unenthusiastic description of Estonia's recent performance. Then Estonian President Toomas Hendrik Ilves expressed his own displeasure with Krugman's remarks, via the presidential Twitter channel (which has seen a recent jump in followers). Commentators wait with bated breath to see if the exchange will continue.

I suspect the Estonian tourism and emigration bureaus have been receiving some inquiries lately too.

Estonia's Cold War history has left them with one of the lower income levels in the Euro-zone, but also a can-do spirit which will probably see them through Europe's unfolding fiscal mess.

Their President also wrote a recent publication with the Hoover Institute, "I'll Gladly Pay You Tuesday", which is worth reading. An excerpt I particularly liked:
To justify oppressing their subjugated subjects and their own privileged lives, communists spoke constantly of the Radiant Future as a political project . . . capable of giving hope of a better future. This radiant future, this hope, alas, was always receding. It wasn’t the communists’ fault, though, that it didn’t arrive; it was the fault of communism’s “five enemies”: the four seasons, and international imperialism. Or saboteurs. Or bourgeois remnants. Following the same (il)logic, it is today we, the East Europeans, who are to blame for the borrowing policies of some older member states.

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