There are usually disadvantages and various degrees of unpleasantness involved in showing up late to a party. It all depends on how late you arrive. Just an hour or two late, and the appetizers tray is either empty or you have to settle for slim pickins’. Several hours late, and you have two choices. You can once again discover how silly inebriated people are, which gets old quick, or you can boost your alcohol intake to catch up with the others. If you’re very late, arriving in the early morning hours, the house will likely be in disarray, and many partygoers will have left or nodded off on the sofa.
At the table you’ll find an array of half-empty cocktail glasses with cigarette butts floating in them, along with other detritus. For the Charles Bukowskis among us, if you show up several days late in one of the worse parts of town here in Tallinn – one with abandoned buildings where the unfortunates of our lumpenized caste spend their nights, there is a chance someone will get knifed, because by then nerves are on edge.
Estonia’s Invitation to the euro Party has come Badly late
On Monday evening (June 7), the finance ministers of the eurozone endorsed Estonia’s bid to adopt the euro, seconded by the finance ministers of the entire EU today (June 8). This invitation to adopt the euro as the country’s only legal tender at the beginning of next year and to run the discontinued Estonian kroon through the shredder is being officially touted as something really great for Estonia. In a wide variety of mainstream media headlines, Estonia was cast as someone nervously waiting to see if she will be allowed to clamber aboard the gravy train, and now as being a winner. As having been given a key to a desirable inner sanctum – to the promised land.
What’s wrong with this picture? In my opinion, Estonia would be better served by keeping her monetary sovereignty, even if the EU were doing just fine, except it isn’t. Be they boom times or bad ones, Estonia would be penny wise and pound foolish to relinquish her freedom to set a monetarily independent course.
Estonia is capable of substantial independent development – just as long as she doesn’t shackle herself to the “one size fits all” rigidness of the European Union. The European economy is at ebb tide to boot, but the government is spinning admission to the eurozone to the Estonians as a policy success story.
Is it a Victory or a Booby Prize?
Despite the brave faces, the much-heralded victory is more of an ironic and a Pyrrhic one. For years, the Estonian government, headed by the Reform Party, has held up admission to the eurozone as a fast lane cure for Estonia’s ills. No more than three or four years ago, the Reform Party leadership repeated over and over again that it intended to rocket the residents of the country into the company of “Europe’s five wealthiest countries” in quick order. Dumping the crown was a key dimension of this “rags to riches” vision.
In place of the these campaign slogans, I would have preferred that the Reform Party and other parties who love to point to Margaret Thatcher and Milton Friedman as their icons would have articulated and implemented a full-blown economic development strategy for a ‘free to act” Estonia, instead of getting entangled in European centralism.
For lack of an independent game plan and a period of transitional protectionism for the Estonian economy, such as the one used by the Asian Tigers during the decades after World War II, the Reform Party continues to doggedly pursue the euro, come hell or high water. We put all of our eggs in one basket and had bad luck with the timing, but for the people in power, admission of miscalculation is not an option. Though the gambit cannot bring the promised spectacular payoff, “this is our plan and we’re sticking to it”.
The reality is that in 2009, Estonia was one of the five worst performing economies in the world in terms of annual GDP growth rate, this according to the CIA’s factbook. There is a lack of vision about what comes next for Estonia, now that she has broken the “euro barrier”. Instead of enjoying the latitude of independence, where one is largely limited only by one’s own imagination or lack thereof, Estonia is looking more and more like Gulliver bound by the Lilliputians. In our case Estonia is of course herself a little guy, while the immobilizing webbing is the red tape and regulations of the EU.
Estonia – from Teacher’s pet to Patsy?
The announcement about admittance to the eurozone in six months time provides Brussels and her cheerleaders in Estonia with a great photo opportunity. At the moment, Europe needs Estonia even more than Estonia’s politicians have pushed for the euro. By bringing Estonia aboard, Brussels can point to someone who still seems to believe that the euro is strong medicine. The EU ideologues who have put all of their bets on a single centralized European state (with the euro as its economic keystone) are bent on not having their ailing project implode. Estonia is in the role of a foil who is helping to buttress an edifice that looks to have been built on an insecure foundation from the outset. She lends a vote of confidence to the battered and seasick common European currency.
No one really knows if the debt-ridden countries of Southern Europe will muster the fiscal discipline that is now required. How long will the storm that Europe has to ride out last? Will Greece, Portugal, Spain and possibly others leave the euro in tatters? Having a different vision for Estonia – one of steering a sovereign course, I rather hope they will, for that would conveniently turn a hopefully wiser Estonia free to explore an untethered economic future. EFTA or something in that fashion should suffice for future European economic cooperation.
Reality shock
We derive little comfort from our “victory”. Whether we see any boost remains to be seen. The hopes of the Reform Party and many others in Estonia were pinned on a Cinderella-like story line and a one-trick pony. The performance of the Irish economy was stellar during the glory days, boosted by the EU, but that is looking threadbare now. Portugal too – once one of the poorest corners of Europe – was also propelled upwards, only to fall again from grace.
Estonia has gambled, but had bad luck with the timing. One might say a whole run of bad luck. Before WW II, Estonia was a parliamentary democracy and part of Europe. Then she was cut off from the West for 50 years and not only held hostage by the Soviet embrace, but dragged into the gray abyss of communist economic mismanagement while her sibling Finland pulled away into the future. Estonia has exerted herself to catch up, but she made the fateful mistake of gambling on what looked like “the benefits of dependence”, instead of charting her own course. The fact that European carpet has been pulled out from beneath us now “just as we arrived” is either tragedy or farce, depending on your temperament. The gambit has not paid off.
Across much of the “lifestyle oasis” of Europe, the assumptions and gains of those who have already enjoyed their share of the good life are in jeopardy. Young Germans were complaining of having no future as far back as 25 years ago. The European standard of social welfare, built by left-leaning governments since the end of World War II, is in danger of losing ground. Although to live by the sweat of their brow and good husbandry may not sound very attractive to the people of Central and Eastern Europe, it is what has served us well in the past, and what we should return to now. Of course we ought to try to be innovative in the process and use our wits.
As they are finally allowed to board the dining car, Estonian leaders demurely pretend that they haven’t arrived at the scene of an economic train wreck. While they continue to nurse heightened expectations as they make their way to the tables, the passengers who boarded earlier are shocked and dazed by the smoke and broken glass that surround them. “What’s this? Most of the turkey on the table has been picked clean!” The waiter beckons. Now he’s saying that Estonia, (despite her being in difficult economic straits, which no one seems to want to notice), will have to help pick up the tab, since it turns out that some of the other guests regrettably left their wallets at home. You can have your pick of soundtracks here, one being the bone-chillingly ominous kind that is played in horror films just before something particularly unpleasant is about to transpire, or you can press the button on the jukebox that will launch a snappier tune, like Monty Python’s “Always look on the Bright Side of Life”. Mencken would have chuckled: “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”
Estonia still has Another Option Available
We can see this “scrapping the Estonian crown thing” through to the bitter end, set to the tune of Al Stewart’s “Year of the Cat” (“Well, morning comes and you’re still with her, and the bus and the tourists are gone. And you’ve thrown away the choice and lost your ticket, so you have to stay on” (in the eurozone)).
The other option would be to say “no thanks”. To keep the Estonian crown, while scrapping the currency board system that constrains Estonia so extremely. The currency board acts as a straitjacket that keeps us from using the fairly powerful array of monetary policy options that economically independent countries have at their disposal. Those who wish can read more about how that could work in my next installment.
© Juri Estam
Noncommercial copying and distribution permitted. Please attribute.
