The Euro 's A Panacea for all of Estonia's Economic Problems?

  • 2010-01-12
  • Anna-Maria Galojan

By Anna-Maria Galojan

From its inception, it has been the aim of the European Union to have a common currency. On the surface this seems a completely natural, inevitable and desirable part of the Union’s development and indeed has obvious advantages. However, if so, why are so many Europeans sceptical about a common currency? For instance, the UK is far away from accepting the euro, convinced that it’s own economic advantage lies in retaining the pound – and this not just for economic reasons, as many, including Margaret Thatcher, see the pound as a symbol of British sovereignty.

Do investors avoid the UK because it is not in the euro zone? Of course not. Experienced investors - individual and corporate - regard a nation’s currency as almost the lowest consideration when evaluating medium- to long-term growth potential. (Currency trading is a specialist investment aspect and naturally dependent on having a basket of currencies). Intelligent investors invest only when they perceive intrinsic value in an investment.

Why is the Estonian government almost fanatically committed to adopting the euro at the earliest possible opportunity? It is still not too late to debate this issue. And such debate should be encouraged in our so-called free society. Such debate must not be portrayed as disloyalty or unpatriotic, either. It is well to remember what Mark Twain once said: Loyalty to a petrified opinion never yet broke a chain or freed a human soul.

Loyal Estonians who also value a progressive Europe should challenge the present government in its apparent preoccupation with the implementation of the euro. Most readers of this newspaper will be familiar with Estonia’s recent economic history. Following the inflated property boom – caused mostly by the irresponsible bank lending policies - taking foreign investors by surprise came the bronze statue ‘Monument Crisis,’ resulting in an almost overnight decline in transit business, of over 40 percent, and the beginning of a serious decline in tourism. On top of this was the international financial crisis leading to the present recession. This was the Estonian government’s response: the aim of the government is to come out of the economic crisis as rapidly and strongly as possible.

Therefore there are less general measures for boosting internal consumption and maintaining the current economic structure and more specifically targeted measures to support public investment and employment, develop export potential among Estonian enterprises and keep the public balance within reasonable margins.

So far, so good. Fine words indeed - and what was the result? Very little action, but two priorities indicated: First: a conservative macroeconomic policy with the aim of keeping the public deficit within the limit of 3 percent of GDP, joining the euro area in 2011 and maintaining low public debt levels in order to be able to sustain high investment levels and a favorable level of taxes in the medium- and long-term perspective. Second: Raising the export potential of enterprises primarily by improving the general business environment in order to increase investment and productivity...

In fact, despite these stated aims there has been no common foreign investment policy nor any systematic and sector-based work with investors. Indeed, some of the biggest investors needed to wait so long for Estonian visas that they preferred to take the Finnish Schengen visa.

Before rushing to embrace the euro (which is not at all yet certain by 2011) the Estonian people should consider:

One, will the adoption of the euro result in a significant increase of foreign investment into Estonia?

Two, will unemployment be significantly reduced?

Three, will the large numbers of poor people be better off?

Regarding point one it is clear to most people that the euro will not, in itself, attract investors. Regarding points two and three, thought should be given to the results of the latest Euro Barometer Survey, which reveals that for Europeans unemployment is the most important issue while concerns about the economic situation have lessened slightly. However, a majority still believe the worst of the crisis is to come: Citizens have clearly identified jobs as their main concern, and the EU must continue to give its full attention and commitment to dealing with the crisis, said Margot Wallstrom, Vice President of the European Commission responsible for Institutional Relations and Communication Strategy.

The Estonian government has yet to demonstrate how unemployment will really be reduced, whether in or out of the eurozone. And if in it, the government has yet to explain how this will enable the poor to benefit when the probability is that the prices of basic food and utilities will increase. The euro undoubtedly has its attractions - for some more than others - but let it not detract from the real problems and challenges that face the ‘Little Country that Could.’ If only it would!