28.04.2010
Is Estonia another Greece?
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| Editor, news2biz ESTONIA |
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Last October, Lars Christensen, chief analyst and head of emerging markets research at Danske Bank, told news2biz that he considers Estonia's fulfilling the euro convergence criteria by 2011 possible, but immediate adoption of euro rather unlikely. "The big question is not if Estonia would be ready for the euro, but rather if the euro would be ready for Estonia," he said.
His words, a bit mysterious at the time, started to make sense this spring. Now, when Estonia fulfills all the convergence criteria quite comfortably - even that of the governmental sector's deficit, au contraire to many predictions - some politicians have started talking about adding one more criterion, the sustainability of the economy.
In other words, the country must not fulfill the Maastricht criteria while adopting the euro, but be in line with them also 1, 10 or even 100 years later. That additional criterion seems to be justified if one looks at Greece who nearly defaulted only nine years since the fulfilment of the criteria.
Basically, the top heads of the eurozone want to prevent another "Greeces" happening by developing a criterion preventing eurozone entrance to countries who spit on the German "Ordnung". The new criterion may be implemented for Estonia as some signs show. The question for Estonia now is: is it fulfilling that criterion as well?
Last year, Estonia's state budget's expenses were cut from the original EEK 98.7bn to EEK 87.3bn, by 11.5%. At the same time the contributions to pension funds were suspended, the overall taxation burden rose by four percentage points, mainly because of excise taxes on booze and tobacco rising severely on two occasions. I am not even mentioning the recession, a significant hike in the unemployment rates and the increased number of personal defaults due to the collapse of the property market.
It takes less than that to initiate revolt in almost any other country. But Estonians... they withstood quite calmly not only the pressure of the recession, but also the pressure added by the government's ambition to fulfill the convergence criteria. No general strike, no riots in the streets of the capital, no massive emigration.
Hence, one should not wonder why the Estonians react bitterly when they are compared to Greece. What do the Greeks know about suffering? Greece has been occupied in the history, yes, but Estonia's continuos occupation lasted longer. The Greeks also have the great pre-Christ era history to brag about - something that Estonians don't have as they were a disorganised nation of hunter-gatherers at that time, and of course, suffered a lot.
Today, Estonians suffer while paying taxes. Greece's taxation system is not as strict as that of Estonia - well, the Greeks ought to pay taxes, too, but a lot of them don't, and don't get caught either. And so on. As a result, Greece is no match to Estonia in terms of suffering. At least, this is what an average Estonian is inclined to think.
Yet, the Greeks initiate a general strike just after their government tries to cut - not actually cuts, but tries to cut - the state budget by 2%. Thus, the average Estonian man thinks the Greeks are sissies: they aren't men enough to suffer like real men (i.e. the Estonians) do. Furthermore, wasting time on striking and rioting doesn't feed the family.
The average Estonian man has a goal to be equal, or preferably better than his neighbour in terms of living standard and welfare. His family must be fed and dressed at least similarily to the neighbour's family, his TV screen must be as wide and his car as new and fancy as those of his neighbours, etc. To achieve that goal, the average Estonian is ready to work hard, do overtime, receive a low salary (in case the neighbours' pay is as low or lower) and suffer temporary setbacks like unemployment or a cut in wages.
Of course, that pursuit has its price. The Estonians die younger than most Europeans, especially men; they drink more heavily than the rest of Europe, except the beer-laden Czechs (frankly speaking, most Estonian men consider drinking as another form of suffering, building a character of a "real man"). The Estonians' suicide rate is high, and so is the rate of mental breakdown. A lot of men die before they see their goal of being better off than their neighbour - but nobody can say they didn't try hard enough.
This also applies on the national level. Since regaining their national identity in the 19th century, after being occupied for over 500 years by different foreign powers, the Estonians have always felt the need to prove themselves no less than equal to other European nations. The short idependence period before WW II was a constant pursuit of being recognized in Europe as "little Germany" in terms of industry and productivity and as "little France" in terms of culture. Under the Soviet occupation, Estonia seeked to be, and also quite successfully was (thanks to the help of the Finnish TV), the most western-appearing region of the Soviet Union.
Now, after being granted full membership in the EU and NATO, Estonia seems to have only one task left on its "to do" list of achieving its 150-y-o goal of being equal with the crème de la crème of Europe - the adoption of the common currency, the euro.
But those who think the Estonians will stop working hard when they reach that goal, could not be more wrong. As long as the danger remains that some country will pass Estonia in its development, and as long as there are nations who have fancier cars and wider TV screens, the Estonians are on the move. They cannot lie down and rest like the Greeks did after being accepted in the eurozone - as long as there is something to achieve with some amount of suffering.
So, the answer to the original question - is Estonia's economy sustainable enough to be accepted into the eurozone without fearing that it might need financial help to stand afloat afterwards - is "yes". Of course, no country can stand yearly budget cuts of 11.5% for an extended period of time. But a nation tolerating coolly such a cut while going through an annual GDP drop of 14.5%, can for sure absorb more hits just to prove their economy's worthiness. The limit of Estonians' suffering is yet to be reached.
In the beginning of April, the Greek street vendors rioted as the Greek government wanted them to give their clients receipts, making them subjects of the VAT. This particular piece of news was shown in all Estonian TV news programs - although not in the major news section as one might expect, but in the end of the program, where funny bits from all around the world are usually gathered, like baking the world's largest pizza or yet another public faux pas of some celebrity. That emphasis pretty much tells the story.