There is no free in liberty.


Saturday, October 22, 2011

Ask Not What Keyes Can do For You, But What Austerity Can Do For Your Nation...


 Skype and Sensibility:

In the middle of this year, two rating agencies, Standard & Poor's and Fitch, upgraded Estonia's credit rating. The country had a budget surplus of €115 million in the first two quarters, and it is expected to virtually balance its budget for the entire year. Government debt is about 6.6 percent of the gross domestic product, as compared with 120 percent in Italy, 160 percent in Greece and 80 percent in Germany. In the first two quarters of 2011, the Estonian economy grew at an annualized rate of 8 percent.

"But when we had finally escaped from Soviet socialism, we were sick and tired of government centralism. We wanted precisely the opposite in all respects: We wanted a transparent state. A country that isn't constantly intervening, nationalizing businesses, placing a bureaucracy above everything and imposing rules on people in every respect."


"I don't want to pass judgment on Germany or Greece. All I can say is that Estonia is contributing its part of the bailout fund, even though our average income is smaller than that of the Greeks. And that, by the way, is a bitter pill to swallow for many Estonians."


Estonia finally joined the euro zone this January. The euro had always been the country's declared goal. In the last few years, starting in 2008, the Estonians had fought their way through the worst economic crisis they had ever seen, triggered by the global financial crisis and the bursting of the local real estate bubble. The economy shrank by 14 percent in 2009.

Then three things happened. First, the government announced a harsh austerity program. The government bureaucracy was thinned out, healthcare and social services were cut back, and even the streetlights in Tallinn were switched off at 3:30 in the morning. Businesses reduced wages by up to 40 percent, with the promise they would be increased as soon as the economy improved. The government did not pump borrowed funds into the economic cycle. Instead, it did what economists call internal devaluation.

The second -- and oddest -- development here was that the Estonians stoically accepted these measures. There was no unrest and no protests.

The third thing that happened was the positive outcome of this blood, sweat and tears strategy. Last year, Estonia easily satisfied the Maastricht criteria. In fact, its government finances were sounder than anywhere else in the European Union.

The US was once an Estonia, but unfortunately according to Nixon we are all Keynesians now.


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