OCT
25
2011

How is Estonia surviving their economic downturn with upgrades and budget surpluses?

(Spiegel) “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.”

“The record for establishing a company, he adds, is only 18 minutes. In other words, the government doesn’t say: Hey, Peral, who do you think you are, starting a company, just like that? No, he says, the state actually encourages entrepreneurship, and says things like: So you have an idea, Peral! Go for it! And then he says that it takes him 20 minutes to prepare his semi-annual tax return, and that when it was time to slash the government budget, Estonia’s cabinet ministers started with their own salaries.”

“.. 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.”

Of course, he says, it’s important to help a society’s losers, the ones who are left behind. It would be wonderful, he adds, to have a fantastic healthcare system and offer social guarantees for every emergency. ‘But you have to have the money. We don’t have it. Our average monthly income is €800. So we have to reflect on what’s important for a society’s development. It’s the top performers, the successful ones. Ideas! Companies! Products! If all you do is administer, nothing comes of it. The state must clear the way for those who want to achieve something. That’s the function of the state.‘ ”

“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.

‘Europe Has Too Many Restrictions’ – “Skype”, Estonia’s Success Story…

“We had no money, so we had to come up with something. We built our concept [Skype] on three pillars: communication in networks, the idea of limitlessness, and the future. We started small and built up from there. The more people participate, the more powerful the network becomes.”

“.. in many European countries we have too many restrictions, prohibitions, lobbyists and people protecting vested rights. Countries must act as simply as people think, using the same principles, ..”

Full Story: Estonia Lives the European Dream (Spiegel)

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