Government used euro as front for tough decisions

  • 2010-01-07
  • Staff and wire reports

TALLINN - The global economic environment will be the biggest risk factor for Estonia’s economy this year, say economic analysts Maris Lauri and Kristjan Lepik, reports news agency LETA. The recovery of Estonia’s economic environment has been fragile so far. Lepik expects some growth to take place in 2010, “However, if we were to compare this with the economic decline in 2009, of approximately 15 per cent, even stagnation would be a step forward,” he said.

Lepik expects that 2010 will be a year for adjustments as it will take time to meet a lower level of normal growth after the crisis. He believes that adoption of the euro would be an important test for the government. “If this objective would be achieved, that would be cause for satisfaction with the government’s activities,” he said.
Swedbank Estonia’s Lauri also expects to see limited growth in the economy noting, however, that Estonia needs to find some new strategies to achieve success. “The cuts in spending were very important and enterprises were very good in this respect in 2009, but an entirely different strategy will be needed to move forward.” Lauri added that Estonian businesses need to find new options in terms of new products and services, new markets as well as new technologies.

Until there is greater confidence in the adoption of the euro, developing economic relations and exports will be difficult, investment will be more expensive and future prospects will be lower. Lauri estimates that real estate prices may start to recover. “A lot will depend on how consumers act. There is no point in expecting any major growth in 2010 or in 2011 – it is entirely possible that it will take a dozen years or more to exceed the former peak level,” cautioned the analyst.
Deputy Governor of the Estonian central bank Eesti Pank, Marten Ross, says that the euro has been used as a reason to implement the government’s economic policy decisions. Ross said that in recent years there have been a number of decisions targeted at introducing the euro.

He notes that “The euro has been used as a cover for economic policy. A decision is justified as necessary for transition to the euro, but the actual need has been somewhere else,” adding that, for instance, the real objective from calls that the government reduce the budget deficit was not the need to adopt the euro, but to overcome the current economic shock.
“The euro makes it easy to justify policies and mobilize the people, but calls to reduce the budget deficit don’t have so much to do with the euro, but instead with the fact that the economic shock has been huge,” he said. Ross explained that the euro would be very useful for Estonia, so it is strange to talk about “victims” and efforts made in its name.

“The euro has already helped us. The developments of recent months in the financial markets cannot be explained by something else. The very fact that we have been taking steps towards adopting the euro has restored confidence towards us,” he noted. Ross said that in this respect, Estonia’s southern neighbors, Latvia and Lithuania, are in a much more difficult situation. “I am not saying that this is because of the euro, but the euro is what is setting us apart from the others,” he pointed out.