Sunday, January 02, 2011

Yay, I'm a Pundit! and other €-linkery

Courtesy of Kris Rikken, I've been quoted in the British press. Beyond that, the Economist's Charlemagne has a pretty good write-up of the motivations and implications of Estonia's Euro accession. For those who might not have read it before, here's my distilled Euro analysis. The first-day coverage of the switch in the Estonian press has been humorous to track, though not particularly interesting to read: half a dozen full-page articles about everything pretty much running smoothly and nothing going wrong.

Oh, and Happy N€w Y€ar!

10 comments:

Temesta said...

Funny that the argument that membership of the eurozone would strengten Estonia's integration in the West and thus protect it from a resurgent Russia wasn't important during the boom times when Ansip didn't want to take measures to lower inflation to meet the Maastricht criteria, but instead chose to stick to high growth rates.

Flasher T said...

Oh, the argument was always important. Remember, Estonia very nearly joined years ago - we literally just missed the Maastricht cutoff by half a percent.

Stemming inflation is really fucking difficult. It's the kind of macroeconomic manipulation that requires you to change a whole lot of fundamental parameters - basically, the only way to stop inflation was to stop growth altogether. In the mid-2000s, that would have required some sort of drastic legislative steps to stop the influx of foreign capital, both as direct investment and as cheap bank loans. Even if that were possible to do, it would have been quite difficult to re-start the capital influx, because the investors would no longer trust Estonia to play by its own rules.

The global economic crisis resulted in a short window where growth in Estonia stopped, consumer confidence dropped, and retailers actually cut their prices. It only lasted for one year - 2010 already had inflation above the Maastricht cutoff, because of the restarted economic growth and increasing oil prices - and it was in that one year that Estonia wrangled itself into the Eurozone. Like Jürgen Ligi admitted in a recent interview, Estonia never desperately needed the Euro for economic reasons - but it was a hell of an excuse for austerity.

Temesta said...

"Stemming inflation is really fucking difficult. It's the kind of macroeconomic manipulation that requires you to change a whole lot of fundamental parameters - basically, the only way to stop inflation was to stop growth altogether. In the mid-2000s, that would have required some sort of drastic legislative steps to stop the influx of foreign capital, both as direct investment and as cheap bank loans. Even if that were possible to do, it would have been quite difficult to re-start the capital influx, because the investors would no longer trust Estonia to play by its own rules."

Difficult, but not impossible, there are a few ways in which the government could have exercised some influence. They could have started by not lowering the taxes in 2007 (http://edwardlucas.blogspot.com/2007/04/estonias-new-govt.html), or not raising governmental wages so much. Interesting that you mention the cheap bank loans. Had Estonia had some more strict banking laws back then, the bubble wouldn't have been so big and all the misery from the past three years would have been much smaller.
The few instruments the Estonian government had were not used, quite the opposite, so I have to conclude that the argument about deeper integration with the West is/was not so important after all, short term gains being more important.

Mardus said...

Conga Rats with punditry :>

My take on all of this:

During boom times, having the crown was nice, because we had the most beautiful banknotes in the world.

Then came the recession and some foreign businesspeople began tooting devaluation so much that introducing the Euro was yet another way to cement that much-touted stability and avoid any chance of possible devaluation by any political force much too friendly with 'local producers' and 'local retailers' <think 'green markets' :>.

There was another case against devaluation: Nearly all the loans were borrowed in Euros; a devaluation would have meant an impossible situation to borrowsers and/or sizable losses to Swedish banks.

In the E.U., the odd economy out is Poland, because it came to be one of the very few — maybe even the only one — to have economic growth throughout the recession: It kept lending tight (thus avoiding a property and lending boom), its currency is floating and their economy is growing (Hungary's currency is floating, too, but its citizens mostly borrowed in Euros and Swiss Francs and the country needed an IMF bailout).

Flasher T said...

Indeed.

The other thing that's really helped Poland is that it's a very agricultural country. Whatever the recession, the demand for potatoes doesn't really drop that much.

Temesta said...

"The other thing that's really helped Poland is that it's a very agricultural country. Whatever the recession, the demand for potatoes doesn't really drop that much."

Are you joking? According to the CIA world factbook, agriculture makes up 4% of Polish GDP (https://www.cia.gov/library/publications/the-world-factbook/geos/pl.html), in Estonia 2,6% (https://www.cia.gov/library/publications/the-world-factbook/geos/en.html). That won't make the difference.
But you were joking, right? :)

moevenort said...

Flasher T he is always joking - either that or he is blinded by ideology;)

Flasher T said...

Temesta: Interesting. I'd had the impression that agriculture was far more important in Poland (even driving through it, you see a lot of agriculture, and the most visible Polish products in Estonia are the apples and potatoes). It makes up for 7.6% of their exports, which is a lot less than I'd imagined. They do have quite a lot of industry though. Good for them.

Moevenort - what's your real name?

moevenort said...

no chance, boy - I´ve already explained you many times that in contrast to Estonian kids many people in Germany do care about privacy issues. so do I. In case you have a question you may contact me via my jabber / xmpp messenger account. (if you know what this is) just a hint: it´s an non-commercial open source messenger protocol like msn, skype or such stuff but just free, non commercial and open source. you may find the messenger adress in my profil.

and another hint: read a text book about economy once ( and by that I do not mean ideologic stuff like this Milton Friedman idiot or the Mart Laar shit). By reading you may able to learn that other countries / e.g. Poland) have much more intelligence in solving economic problems than ideologically blinded Estonian;)

Temesta said...

Moevenort,

Your Estonia-bashing is becoming boring. Why can't you just make your point without spewing hatred and insults?
And allthough on a lot of issues I disagree with Milton Friedman, his books are quite interesting to read.

AddThis

| More