Estonia: what happens when countries bite the austerity bullet and cut up the credit cards?

June 6, 2012 – ESTONIA – It’s the euro zone Jim, but not as we know it. Sixteen months after it joined the struggling currency bloc, Estonia is booming. The economy grew 7.6 percent last year, five times the euro-zone average. Estonia is the only euro-zone country with a budget surplus. National debt is just 6 percent of GDP, compared to 81 percent in virtuous Germany, or 165 percent in Greece. Shoppers throng Nordic design shops and cool new restaurants in Tallinn, the medieval capital, and cutting-edge tech firms complain they can’t find people to fill their job vacancies. It all seems a long way from the gloom elsewhere in Europe. Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. In 2008-2009, its economy shrank by 18 percent. That’s a bigger contraction than Greece has suffered over the past five years. How did they bounce back? “I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank. After three years of painful government belt-tightening, that’s not exactly the message that Europeans further south want to hear. At a recent conference of European and North American lawmakers in Tallinn, Koppel was lambasted by French and Italian parliamentarians when he suggested Europeans had to prepare for an “inevitable” decline in living standards, wages and job security, in order for their countries to escape from the debt crisis. 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. -CNBC

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8 Responses to Estonia: what happens when countries bite the austerity bullet and cut up the credit cards?

Granny Bear says:

June 6, 2012 at 2:49 am

I think it is a more workable situation when there is a smaller population in a smaller area to work with. As in Iceland. Like Estonia, which has living memories of the Soviets.

I think there may be some advantages, such as “transparency”, In smaller political entities. Even some of the states in the USA are getting too big to work out policies that are fair. For instance, percentage cost-of-living raises for government employees are grossly unfair.

- nickk0 says:
  
  June 6, 2012 at 3:52 am
  
  Well said, Granny Bear !
  
  - John F Cook says:
    
    June 6, 2012 at 9:18 am
    
    Yup! We know the other stuff, co-ops and local trade currencies…
Sam Beckett says:

June 6, 2012 at 3:55 am

Amazing! When people actually only spend what they can afford, no debt & more money…….big problem with our materialistic America & world. We have movies, tv shows, magazines, commercials, billboards, companies telling us we must have this product, etc…& sadly people spend, spend, spend, actually charge it So they can have the new $1500 iPad the is “new & better” than the one 10 months ago…& people wonder why they have no bloody money. If one lives within their means, does not charge anything, save money & so on…then you will have money…very simple

- Mrsotto says:
  
  June 6, 2012 at 11:31 am
  
  I concur! I quit the newspaper, magazines, the home land line for a pay as I go phone, cutting off the internet today from home and using wifi at lunch and the radio is “free” so bye bye things that try to control ME instead of me using them wisely. Facebook, fad for a year then quit cold turkey, not that hard really. No cable tv, no good reception so I only get the local weather on a good day! Savings all add up! When the grid goes down, all those “needed” electrical items will suddenly turn into very expensive pieces of plastic!! Books last forever, Gods Word lasts forever, that’s all I need! \o/
  
Bobi says:

June 6, 2012 at 5:13 am

Like I have stated before, we need to start spending cuts at the top, not at the bottom. Start with the white house and right on down the line, Stop the greed of the big CEO’s that tend to think they deserve millions of dollars and bonuses. NO ONE NEEDS that much money to live on and they definitely need to get off the cloud they are living on….

- John F Cook says:
  
  June 6, 2012 at 9:20 am
  
  Lol, Again Yup!, not that complicated is
  
sKeptical citizen says:

June 8, 2012 at 5:52 pm

Myself I have avoided debt like the plague. we always tried to save 10% even during the hard times. It has worked remarkably well in the long run. I want my goverment to be fiscally responsible. The USA goverment will have to eventually readjust our position and spending of costly wars and forieghn expenditures that the UN wants. Also we will have to addres our illegal immigrant and entitlement programs at home. Until our leaders start practicing fiscal responsibility we will continue to decline.