esmaspäev, märts 01, 2010

põdrad

I knew I was nearing reindeerland as soon as I headed towards the Tallinn docks. Some cheeky Finnish youth actually said "Welcome to Helsinki" to me as he trudged through that day's blizzard towards the ship with a bundle of discount booze in his arms.

I had the privilege of spending some hours amongst Estonia's northern kin that day. Some notes on the neighbors:

* According to a recent column by Finnish Foreign Minister Alexander Stubb (left) in Finnair's in flight magazine, his country is among the happiest in the world, if not the happiest. How this washes with having three public shooting sprees in as many years is anybody's guess. Maybe those three mass murderers were the only unhappy people in Finland?

* Grouped by some wacky 19th century anthropologists with Japanese and Koreans as part of the "yellow race," there is some truth to Finland's eastern orientation. Finnair maintains reliable services to many cities in Asia, including three destinations in Japan and China each. Even though Finns have had preciously little to do with Asian culture or history, they seem to know what they are doing. It's hard to tell the Finnish elements and the Japanese elements in their marketing campaigns apart.

* Even though Finland has its problems, some Finns still seem to think that life is infinitely better there than in Estonia, which I think they see as troublesome and less stable. Finnish media covered a small protest outside the independence day gala by marginal figures, for example, while Estonian media ignored it. Why? If only Estonia was more pragmatic, if only they knew how to deal with Moscow, if only Estonia had a world class Olympic hockey team, if only Estonians were, basically, Finns, then they would rise rapidly on the happiness scale, according to this line of thought. Little Estonia still needs to grow up. Big Finland is waiting patiently for the day to arrive.

* Some Estonians stereotype Finnish women as being ugly. This is not true.

* Finland seems to enjoy its own monoculture: all the things you could possibly need are produced within the country, with each brand contributing to the national identity. In Finland, your whole childhood can be Moomin, your pantry and closets filled with Marimekko dishes and attire, your communications needs serviced by Nokia. It's easy to spot Finns in airports: they sport the same hairstyles, spectacles, and fashion accessories. It's like they have some kind of secret national uniform. Estonia also has attempted to replicate Finnish monoculture by building its own Esto world of consumer goods, but, so far, it's less convincing.

* Along with consumer monoculture, there is also genetic homogeneity. Researchers will tell you that Estonians are actually genetically closer to Latvians than Finns. That's true, but one should keep in mind that Finns are remote from basically all other Europeans because they descend from a relatively small founder population. This may be why so many Finns look alike. Each one is like genetic concentrate.

100 kommentaari:

Jens-Olaf ütles ...

First: In the Medal ranking after the Olympics Finland is somewhere close to Estonia and Latvia. (gold/silver/bronze)

Second: Since Finair has a direct flight to Seoul from Europe, it is a big challange for Frankfurt. If you are a German customer. The Finair connection was a great deal. For Finland and Korea.

Ricardo ütles ...

1. Do Estonian women say Finnish women are ugly or do they just stay Finnish women are less beautiful than Estonian women? I believe is more the second possibility. And I believe that possibility is "true".

2. "Monoculture" and having national brands for every need: that's good for the economy. And if so many brands can survive eventhough free int'l markets are free, then we may conclude that most national products are of good quality. However, too big national bias in consumption and, say, culture are not that positive: in my oppinion and from my experience, countries more open to foreign influence lead to better informed and more critical societies. I definitely prefere Portuguese and Estonian societies (small and open) to, say, French or Italian (big and closed).

Temesta ütles ...

Even though Finland has its problems, some Finns still seem to think that life is infinitely better there than in Estonia, which I think they see as troublesome and less stable.

This doesn't differ much from the way some Estonians think about Latvia? People feel better when they can compare themselves with a less fortunate neighbour.

The existence of Estonia also reminds some Finns about the end of the Soviet Union, which had painfull consequences for their economy and standards of living. Maybe that's why they associate Estonia with troubles.

Kristopher ütles ...

Probably Stubb is colored by his own outlook. Keep on smiling and the whole nation smiles with you, or at least looks like does.

When a place is as drearily homogeneous as midland Finland, I guess you'd better hope it's what they call "close-knit", but I guess it isn't.

No country's female or male population is of course any more or less attractive than that of others, but I haven't heard that particular gripe. At least blonde Finnish women don't dye their hair black.

stockholm slender ütles ...

Oh well, I presume rather a lot of tongue in cheek here... I have to say that the vodka tourists though were a revelation when I finally got around to visiting Estonia: that was no cross section of the population that I would have recognized. That was quite scary. Now I barely notice them (perhaps things have gotten bit calmer?) and anyway head towards Tartu where Finns are not so noticeable. I freely admit to a certain Nordic arrogance, but then again there surely is quite a bit to be genuinely proud about the Nordic model, I'm sure Giustino would not disagree!

Temesta ütles ...

* According to a recent column by Finnish Foreign Minister Alexander Stubb (left) in Finnair's in flight magazine, his country is among the happiest in the world, if not the happiest. How this washes with having three public shooting sprees in as many years is anybody's guess. Maybe those three mass murderers were the only unhappy people in Finland?

Compare this with the statements made by Estonia's prime minister Ansip at the celebration of the anniversary of Estonia:

"Estonia is becoming a symbol of common sense and wise management, a positive sign not only for the European Union, but the entire world, prime minister Andrus Ansip said In a speech at a celebration of the anniversary of Estonia on February 23." (Baltic Business News)

What to think of this when Estonia has an economical decline of more or less 15 % and unemployment approaching 20 %?

Giustino ütles ...

Sure, the current government lives in a world of self delusion and neoliberal kool-aid ("market forces" will soothe all, you'll see). Let me ask you a question, which way does BBN lean? They are definitely not on Ansip's side. But are they on Savisaar's? Really?

Temesta ütles ...

Aren't they more pro-Irl?

Myst ütles ...

Yeah, BBN (or actually Äripäev) seem to be pro-IRL nowadays. They publish a "vote for..." article before each elections. They used to suggest Reform. Last time it was already IRL.

Temesta ütles ...

I cannot imagine that a serious business newspaper would support Savisaar.

Ricardo ütles ...

"Estonia is becoming a symbol of common sense and wise management, a positive sign not only for the European Union, but the entire world, prime minister Andrus Ansip said In a speech at a celebration of the anniversary of Estonia on February 23."

I can easily defend this speech:

1. economic institutions in Estonia are rather peculiar and, for good or better, can teach some lessons to the world because they are (almost) unique. Just consider the fiscal system in Estonia. Just consider the success of communism->market system transition. Compare that transition with the other experiences (from Latvia to Polish, Romania, etc. etc., etc.).

2. As for the economic-financial crisis and unemployment: the situation is terrible in Estonia but there is a big but: it is one of the EU27 countries with a better starting position: Estonia is, for instance, the EU27 country with a smaller stock of public debt as per cent of GDP.

3. If Estonia was already part of the Eurozone, eventhough the economic downturn and unemployment, it would not be a threat to the Euro like Greece and possibly Spain. That's because Estonian public finances have been extremely well managed.

Miks ütles ...

Judging by the amount of time Stubb must spend on the sunbed to achieve his remarkable er, "glow", he is rather a member of the orange race.

Myst ütles ...

Ricardo, I think the problem (for Ansip) was not that the speech was completely wrong, but that it was completely tactless. The last thing people want, now, is for the PM to pat himself on the back.

Pierce Bacchus ütles ...

Granted I haven't dug to deeply, but why did Stubbs spend so much time in the US as a young man, graduating from high school in Florida and attending college in South Carolina?

Was his father a diplomat or does he have another American connection? Does explain his love of having a tan, all that fun in the sun in America's South. Explains his unusually excellent English as well.

Justin ütles ...

I don't see a problem with Finns having a "monoculture" where they have local products available for everything. This is good for the economy (assuming foreign products are allowed to compete, which they are). I wish I had more options to buy locally-produced goods in Estonia, but often they just aren't being produced, or they're massively overpriced (cucumbers, onions).

Myst ütles ...

Was his father a diplomat or does he have another American connection?

According to Finnish Wikipedia, his father is a jääkiekkovaikuttaja -- an ice hockey man. Has been a talent scout for the NHL and now runs the European office for NHL.

Temesta ütles ...
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Temesta ütles ...
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Temesta ütles ...
Autor on selle kommentaari eemaldanud.
Temesta ütles ...

@Ricardo:

1. economic institutions in Estonia are rather peculiar and, for good or better, can teach some lessons to the world because they are (almost) unique. Just consider the fiscal system in Estonia. Just consider the success of communism->market system transition. Compare that transition with the other experiences (from Latvia to Polish, Romania, etc. etc., etc.).

If the fiscal system of Estonia is good, depends from your ideological point of view. It will be very difficult for example to build a Nordic-style welfare state with such low taxes (I know that's not what Estonians want now). But I do acknowledge that the fiscal system in Estonia is very efficiently organised.

Why is Poland in the list with countries that have difficulties with the transition? Between 1990 and 1991 the Polish economy shrank a little bit, but afterwards it has been growing at a steady rate and has never been in recession since, something we cannot say about Estonia. The IMF even predicts that Poland will surpass Estonia in gdp per capita in 2010.

According to Edward Lucas, Poland is the 'most successful of the eastern European countries.' (http://edwardlucas.blogspot.com/2010/02/europe-view-170-prickly-poles.html).

2. As for the economic-financial crisis and unemployment: the situation is terrible in Estonia but there is a big but: it is one of the EU27 countries with a better starting position: Estonia is, for instance, the EU27 country with a smaller stock of public debt as per cent of GDP.

If Germany and the United States and some other countries would have decided not to use massive public spending (and accumulation of public debt) to avoid an even more severe world recession, but would have decided to do as big budget cuts as Estonia, the world economy would be completely K.O. by now. Estonia could only pursue this policy because they are a small country, with a small, open economy that is highly dependent on what happens in big European economies. The crisis in Estonia was eased by massive public spending in other countries.
During the crisis, Estonia also didn't have to bailout any banks, as it doesn't have (significant) domestic banks. Sweden has supported most banks active in Estonia.
By the way, Russia has even lower public debt than Estonia (as % of GDP). Estonia is in nice company with its low public debt:

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html

Do you think it's a consolation for Estonia's unemployed and poor that their country has low public debt? Wise public spending and lending doesn't always hurt, certainly not in times of crisis.

3. If Estonia was already part of the Eurozone, eventhough the economic downturn and unemployment, it would not be a threat to the Euro like Greece and possibly Spain. That's because Estonian public finances have been extremely well managed.

With this I agree.

PS: If the Ansip government would have taken measures in 2007 to curb inflation, Estonia would probably have had euro and a a big part of these painfull cuts wouldn't have been necesarry, fall in gdp would't have been so big (because the economy would not have overheated so much). Instead he prefered not to sacrifice the high growth rates (which are squandered by now). I don't call that common sense and good management.

stockholm slender ütles ...

Well, as for genetics, I would never mistake Stubb for an ethnic Finn: that horse face certainly is purely Swedish... Whether he comes from inbred aristocrats or coastal fishermen and small farmers, I don't know. He is very qualified (has a PhD in EU studies etc.) but I personally can't stand his sunny teflon personality. (Again, not very Finno-Ugric.)

Ricardo ütles ...

Myst, I am far from following closely Estonian politics... But I don't think it is so bad that politicians exaggerate a bit when talking about their own countries, specially on a national political and historical holiday. Politicians from big countries glorify their countries all the time and nobody complains.



Justin, true. I don't really know Finland. But I can tell you that there are countries, Italy for instance, where economic and cultural nationalism is really too much. And it affects not only foreigners but also nationals. The thing is that I don't know whether Italians or, say, French realize how much they loose in being so nationally-self centered. I hope that's not the Finnish case and that Estonia will never become so closed in itself.



Temesta, I agree with you: discussing how good or bad a fiscal system is involves a fair dose of ideology. But not only! However, I said "for good or better", I didn't give my ideological oppinion about it.

As for Poland, are you sure there was no economic downturn since 1991??? No cycle for so long?? And did you check trend economic growth 1991-2008 for both Estonia, Poland and other post-soviet influence countries? I am not so sure Poland had such a good performance. True, the recent financial crisis didn't seem to hit hard on Poland. As for Edward Lucas: did you find the original document where he said that? Because that link is not for the original text where Poland being most successful is claimed, it is a link to a citation of that text. And one needs context! Citing one sentence from a text that has cited it is not enough for an argument on the merits of Poland!


Estonia had a small stock of debt prior (and after) the crisis! "Estonia could only pursue this policy because they are a small country, with a small, open economy that is highly dependent on what happens in big European economies." This is not true: small open countries are not "forced" to react to the crisis in any way, whether it is increase or reduction of spending. Ireland cut spending, Portugal increased spending, for instance.

And Estonia was certainly not "free-riding" on foreign public spending increases. The international leakages of public spending increases are not that big; a huge ammount of say, German government spending increase goes to Germans who lost jobs and will buy German products, not Estonian products.

And I didn't say public debt shouldn't be increased. Actually, if public debt and deficit are low, as fortunately it has been the case in Estonia, it is much easier for a country to get extra funding and increase spending. Estonia could have decided that way or not.

Finally: I don't see whether things would be so different if Estonia had the euro prior to the crisis. Did Estonia deflate since the crisis? No. But then, since the estonian kroon peg has been kept, I don't see what would have been different. Was the kroon subjected to some speculative attack? I don't think so. But then, again, I don't see the difference.

I claimed public finances have been extremely well managed, I didn't claim anything about monetary policy. Estonian Bank is independent, I presume.

Temesta ütles ...

@ Ricardo:

As for Poland, are you sure there was no economic downturn since 1991??? No cycle for so long?? And did you check trend economic growth 1991-2008 for both Estonia, Poland and other post-soviet influence countries? I am not so sure Poland had such a good performance. True, the recent financial crisis didn't seem to hit hard on Poland.

I am sure that Poland has not been in recession since 1991. The worst growth they had was 1.2 and 1.4 % in 2001 and 2002. That’s low growth but no recession. Here you can compare the growthrates of Estonia and Poland during the past two decades:

http://earthtrends.wri.org/searchable_db/results.php?years=1990-1990,1991-1991,1992-1992,1993-1993,1994-1994,1995-1995,1996-1996,1997-1997,1998-1998,1999-1999,2000-2000,2001-2001,2002-2002,2003-2003,2004-2004,2005-2005,2006-2006&variable_ID=227&theme=5&cID=59,146&ccID=

If the link doesn’t work then go to http://earthtrends.wri.org/searchable_db/index.php?theme=4
Select ‘economics, business and the environment’, then select ‘GPP: GDP, annual growth rate’. There you can choose the countries and the years.

As for Edward Lucas: did you find the original document where he said that? Because that link is not for the original text where Poland being most successful is claimed, it is a link to a citation of that text. And one needs context! Citing one sentence from a text that has cited it is not enough for an argument on the merits of Poland!

The link I gave is the link for the original article with the title ‘Europe view 170 – Prickly Poles’. One of the first sentences is ‘POLAND is the largest and most successful of the eastern European countries.’. Read the entire article to find out about the context. It’s an article Lucas wrote because he got a lot of negative reactions from Polish people on the article ‘Sikorksi for president?’ (where he is talking about how good Poland is doing):

http://edwardlucas.blogspot.com/2010/02/sikorski-for-president.html

Also this article is worth reading:

http://edwardlucas.blogspot.com/2009/04/polish-economy.html

I realise that I am only referring to one person, but he is a journalist writing for the Economist and he is an authority on post-communist Europe. And no one will deny that at this moment Poland has the most robust economy in post-communist Europe.

Temesta ütles ...

@Ricardo:

Estonia had a small stock of debt prior (and after) the crisis! "Estonia could only pursue this policy because they are a small country, with a small, open economy that is highly dependent on what happens in big European economies." This is not true: small open countries are not "forced" to react to the crisis in any way, whether it is increase or reduction of spending. Ireland cut spending, Portugal increased spending, for instance.

Where did I write that small open countries are forced to react in anyway? I was also not denying that Estonia had a small stock of debt.
As every economist knows, doing heavy budget cuts during a crisis worsens the crisis (although I agree that sometimes you cannot do otherwise, Latvia had to because they had no reserves). If many big countries would do budget cuts at the same time, it would have had disastrous consequences for the European economy. If you follow economical newspapers, then you read there that the decline of Western european countries was stopped by big western european countries injecting money in their economies. European economies are highly interdependent. If the German economy, for example, is stabilizing, fall in exports will also slow down in Estonia, Poland,…

And Estonia was certainly not "free-riding" on foreign public spending increases. The international leakages of public spending increases are not that big; a huge ammount of say, German government spending increase goes to Germans who lost jobs and will buy German products, not Estonian products.

I didn’t mean that Estonia was ‘free-riding’. Small open economies are dependent on big economies, it couldn’t be otherwise. You are hugely underestimating the importance of stimulus measures taken by countries like Germany and France. If German firms, shops and consumers are doing better they will also buy more products from companies in foreign countries. How can you deny trade between countries? A company wants to make profit and wants the best goods for the best prices (and many consumers also), most of them don’t care if it’s a German product or not. Exports are important for Estonia, so if German firms can import more from Estonia, it’s a good thing for the Estonian Economy.

Temesta ütles ...

@ Ricardo:

Finally: I don't see whether things would be so different if Estonia had the euro prior to the crisis. Did Estonia deflate since the crisis? No. But then, since the estonian kroon peg has been kept, I don't see what would have been different. Was the kroon subjected to some speculative attack? I don't think so. But then, again, I don't see the difference.

It’s not so much about the euro itself, but about the reasons why Estonia could not have the euro earlier. In the past Ansip set the year 2007 as the time he wanted Estonia to enter the eurozone (He even said he would resign if he would fail, he failed but did not resign). In 2005, 2006 and 2007 Estonia had very high growthrates and inflation that was too high according to criterias for entering the eurozone. High inflation means that your economy is overheating, is in a bad shape. So you have to take measures, regardless if you want the euro or not. Ansip didn’t want to sacrifice growth for Euro, he didn’t want to curb inflation. Instead he lowered taxes, what made inflation even higher. So if Ansip would have taken measures back then, the economy wouldn’t have been so much out of balance (current account deficit, excessive borrowing in foreign currency, the real estate boom), and consequently would not have dived into such a deep recession (note that Estonia’s economy was the first to go into recession in Europe, in March 2008, before there was even talk of a global financial crisis) . Moreover, Estonia would have had the Euro, so the deep cuts (which made the recession worse) that are being made now for having the euro, would not have been necessary. So Ansip did not display common sense, but short term greediness.

Estonia is an average post-communist country (economically speaking) with a good fiscal system, so I don’t understand why people agree with Ansip’s boasting. He is deluding himself and he insults the people who are suffering because of his policy.
In terms of GDP per capita, prior to the crisis Estonia was the third best performing post-communist country after Slovenia and Czech republic. Now Slovakia and Hungary jumped over Estonia, and Poland will probably also do so in the future. Estonia has the third highest unemployment rate in the European Union. Do not understand me wrong, I am a big fan of Estonia, but it’s a bit tragic when people think about themselves that they are doing very good, when actually they are average.
For a more realistic picture of the current state of the Estonian economy, read the follow article by the renowned economist Edward Hugh:

http://balticeconomy.blogspot.com/2010/02/estonias-economy-only-contracts-by-94.html

Anne May ütles ...

Dear Giustino -
I wouldnt like to be compared to latvian or finnish people - estonians are so different and unique in their own way..
This is what makes us estonians...
If estonians believe, that average latvian has 6 toes - how can we be similar - estonians have only 5 toes ... thats the rule.

Rainer ütles ...

Funny that - I happen to have 10 tows in all. I suppose that makes me a Martian.

Rainer ütles ...

PS "tows" means toes in Marshun ;)

Myst ütles ...

Smithers, release the hounds!

Ricardo ütles ...

True, Poland had no negative growth in 1991-2007 except 1991; it had really an impressive performance. Still, for the period 1991-2007, Slovakia fared better. Estonia was better than Poland starting from 1996. Apparently, the link you sent me is for nominal GDP growth rates, not real. When I claim Slovakia was better than Poland I mean "real" and that's what matters. Anyway, I didn't compare for all post-soviet countries.


I read the article. It talks about too many things. How can we give weights to economic performance, foreign relations and corruption level, for instance? If we stick to economics only, we already agree on that: very good performance but probably not the number one (Slovakia, Estonia, Slovenia: these have had very good performances too, at least since 1996 and till before the crisis).

Poland surely is success when it comes to the present crisis.

If you like Edward Lucas you will love Norman Davies.

Economics: If big economies don't increase spending and bail out banks, the crisis would of course be worse everywhere. But the impact of that measures is not that big in the others countries. Small countries should not be considered "free riders". And even if they are, where was the epicentre of the crisis in the first place. Now this is not economics, it's ideology: isn't it fair that the countries where the crisis started should be the first to intervene and to take more responsibility for it? And the leakages from Germany are different from the leakages from US: Germany is a HUGE net exporter, the opposite applies to US. But I don't know whether the composition of US imports puts so much weight in European imports.

Int'l trade is important. But home-consumption biases exist and it is not only within the Finish monoculture that Justin mentioned in the first place. I have already said and claim again that the int'l linkages of government spending increases are not that big. And one has to check two things: 1) what is the proportion of tradables in, say, Estonian GDP; 2) check the bilateral-trade database: Estonia exports so much to Germany? There are data about all these things, I don't see why one has to ASSUME that France and Germany are the saviours of poor little countries like Estonia.

Maybe it is Estonia and Latvia that help Germany when so many people buy all those Mercedes S500 that you see in Tallinn and Riga.
The interdependence you talk runs in both ways: if all small countries stopped importing and exporting from France and Germany (both industrial AND agriculture) who do you think would get in real trouble?

Monetary Economics: Ansip decreased taxes? Good. Is it a source of inflation: no. Estonian Central Bank is not doing the right policy: it seems this claim is true. Ansip controls Estonian Central Bank: he shouldn't, if he does, that's bad. It is not clear how come Ansip is responsible for high inflation. Maybe he is but if that's true, then there is a deeper institutional problem: independence of central bank from government is needed and a "hard-nosed" central banker is needed too.

Ricardo ütles ...

"average post-communist country (economically speaking)" as for performance it is clearly better than average. But do you also include former Yugoslavian countries or not? Which post-communists are you excluding so that Estonia is just average? [This is not really the topic but it is really interesting how people from different countries tend to form sub-groups of European countries, how they exclude specific countries and include others from and into their groupings...]

I am realistic about Estonia. I put emphasis on 2 things: (i) Estonia is peculiar (for the better or the worse as I said before); (ii) there is not much point in denigrating own country and glorifing big ones: Ansip or whoever runs Estonia is not inferior to any sarkozy or obama or merkel out there. I am not however saying that we should be acritical about politicians, whether countries are bigger or smaller, more or less important, more or less peculiar, better or worse performing.

Myst ütles ...

That was in response to "estonians are so different and unique in their own way.." btw.

Oma naba imetlemine is a very counter-productive exercise.

I also think that in the modern age, what makes us Estonian is citizenship in the Republic of Estonia -- not some half-imaginary special quality of the ethnos.

We are very much comparable with Latvians, Lithuanians, Finns, Russians, Swedes, etc.

踢人 ütles ...

雖然說上班很累,不過還是得努力應付每一天,看看文章休息一下,謝謝你哦!........................................

Brüno ütles ...

I do not know about the finns and swedes, but relative to russians and latvians, we are "special". We have separate words for fingers and toes. They don't.

This should tell us something. Eh?

Markku ütles ...
Autor on selle kommentaari eemaldanud.
Markku ütles ...

Temesta wrote; "The existence of Estonia also reminds some Finns about the end of the Soviet Union, which had painfull consequences for their economy and standards of living."

The above is just too complicated way of thinking. When we think about Estonia, we don't think about the end of the Soviet Union.

Many of us Finnish põhjapõders have visited smaller Estonian towns and countryside, and nobody can't convince us life isn't infinitely better in Finland than in Estonia.

It is just a matter of fact things in Estonia aren't yet up to Western standards. They might not be there in Finland either, but life in Finland is quite a bit easier. Recently there was a case of an Estonian man committing a crime here because he wanted to get into a Finnish prison (free food & shelter). There was a similar case in Sweden, too. Doesn't this tell about something?

On the long term, though, Finland is going down and Estonia up. For example, almost every Finnish president since the WWII have been drooling idiots, whereas since re-independence Estonia has produced real statesmen (Meri, Ilves).

Brüno ütles ...

You forgot to mention our own drooler - Ryytel.

Ricardo ütles ...

Markku said "It is just a matter of fact things in Estonia aren't yet up to Western standards."

What are "western standards"? Are these standards "factual" or very much subjective?! It is far from being a "matter of fact" that this or that country complies with something so much vague as "western standards".

For example, Estonia seems to have a much larger WiFi network (also cheaper) than many countries on the west side of Europe. Which countries are then lagging behind?

Why is it that people ASSUME "Western Europe" is superior, superior to the point that it defines "standards"? Civilizational standards? Cultural standards? Technological, economic? What are you talking about, Markku?

And why people still conceive the separation western Europe/eastern Europe in the first place? Sure, historically there are extremely important differences, but now?? When it comes to political and economic regimes, for instances, there is no separation between West and East Europe. Democracies, parliaments, political parties, market system, more or less State intervention, the same body of European Legislation... Why do people keep talking about Western Europe (suposedly better, superior) and Eastern Europe (supposedly worse and inferior)?

Temesta ütles ...
Autor on selle kommentaari eemaldanud.
peedu ütles ...

I'm sorry Ricardo, but until our GDP per inhabitant is third poorest in the EU, then we are most certainly the ones lagging behind. There's just no question about it, the living standard is lower in Estonia than it is in Finland and it is also lower in the Eastern Europe than it is in the Western Europe.

Actually I don't even see what point you are trying to make? That Estonia is doing better than Finland or Sweden? Come on now... :)
I bet our jobless 20% of the nation are really glad about the wifi coverage.

Temesta ütles ...

@ Ricardo:

True, Poland had no negative growth in 1991-2007 except 1991; it had really an impressive performance. Still, for the period 1991-2007, Slovakia fared better. Estonia was better than Poland starting from 1996. Apparently, the link you sent me is for nominal GDP growth rates, not real. When I claim Slovakia was better than Poland I mean "real" and that's what matters. Anyway, I didn't compare for all post-soviet countries.

The link is for real growth rates. Nominal growth rates give very little information because they don’ take into account inflation.

If you like Edward Lucas you will love Norman Davies.

Right now I am reading ‘Heart of Europe’ from Norman Davies. Interesting and well written. The one thing annoying me is that on many pages he does nothing else but praising Poles for their courage and high moral standards. The worst example is to be found an page 52-53 where he claims Poles suffered more, in a moral way, from the communist dictatorship than other ex-communist countries because of their traditions and history.

Economics: If big economies don't increase spending and bail out banks, the crisis would of course be worse everywhere. But the impact of that measures is not that big in the others countries. Small countries should not be considered "free riders". And even if they are, where was the epicentre of the crisis in the first place. Now this is not economics, it's ideology: isn't it fair that the countries where the crisis started should be the first to intervene and to take more responsibility for it? And the leakages from Germany are different from the leakages from US: Germany is a HUGE net exporter, the opposite applies to US. But I don't know whether the composition of US imports puts so much weight in European imports.

Didn’t I say in my previous comment that I don’t see small countries as free riders? If you want an example of a free rider, look at Greece. Committing fraud for years and then expect that other countries bail you out. And may I remind you that the crisis in Estonia started much earlier than the one in the US. Estonia would have had a crisis anyway, but the global crisis made it more severe. So it's no only the US that's responsible.

Temesta ütles ...

Int'l trade is important. But home-consumption biases exist and it is not only within the Finish monoculture that Justin mentioned in the first place. I have already said and claim again that the int'l linkages of government spending increases are not that big. And one has to check two things: 1) what is the proportion of tradables in, say, Estonian GDP; 2) check the bilateral-trade database: Estonia exports so much to Germany? There are data about all these things, I don't see why one has to ASSUME that France and Germany are the saviours of poor little countries like Estonia.

Here are the data for Estonia:

Exports: $9.233 billion in 2009, while Estonian GDP was $18.05 billion. That's 50%. It is evident that exports are very important for Estonia.
Export partners: Finland 18.3%, Sweden 13.8%, Russia 10.3%, Latvia 10%, Lithuania 5.7%, Germany 5%, US 4.8% (2008)
You are right, Germany doesn’t have the biggest share in Estonia’s exports. I my argument, please replace Germany with Finland and Sweden. :)

You claim that ‘int'l linkages of government spending increases are not that big’ but can you explain why? For me it is quite logical that when the economies of your biggest trading partners start to stabilize or grow again (partly because of government intervention), this will also be good for your own economy.

Here is Edward Lucas’ explanation why the Baltics are having such deep recessions, as you can see he also puts emphasis on Estonia’s dependence of its neighbours:

“Today, Atlantis is buffeted again by cruel and threatening tides. One is the sharp downturn in the domestic Baltic economies, which began two years ago when their reckless credit bubbles began popping. These had been inflated by the belief that the Baltic markets were rapidly converging with Europe’s. Property prices and consumer spending rocketed, creating huge current account deficits as Estonians, Latvians, and Lithuanians took advantage of the easy credit offered by banks keen to increase their market share in Europe’s most dynamic new region. Square foot for square foot, prime apartments in the Baltic capitals were costlier than in Copenhagen.

On top of all that has now crashed an even larger wave: the global recession. As small, open economies, the Baltic states thrive when their neighbors are booming, and wither when they slump. In the current downturn, demand for Baltic products—food, furniture, tourism—is sinking both in European markets and in Russia. That has led to stunning gdp falls in all three countries. In the first quarter of 2009 alone, gdp dropped at a 12 percent annual rate in Lithuania, 15 percent in Estonia, and 18 percent in Latvia.” (http://edwardlucas.blogspot.com/2009/06/foreign-policy-magazine-1.html)

The interdependence you talk runs in both ways: if all small countries stopped importing and exporting from France and Germany (both industrial AND agriculture) who do you think would get in real trouble?

I would never deny that. In fact, one of the main problems of the Estonian economy during the boom years was that it imported much more than it exported.

Temesta ütles ...

"average post-communist country (economically speaking)" as for performance it is clearly better than average. But do you also include former Yugoslavian countries or not? Which post-communists are you excluding so that Estonia is just average? [This is not really the topic but it is really interesting how people from different countries tend to form sub-groups of European countries, how they exclude specific countries and include others from and into their groupings...]

I am mostly thinking about post-communist that already joined the European Union. And I do not mean ‘average’ here in a mathematical sense. I just don’t see them stand out in this group, except for their fiscal policy.

I am realistic about Estonia. I put emphasis on 2 things: (i) Estonia is peculiar (for the better or the worse as I said before); (ii) there is not much point in denigrating own country and glorifing big ones: Ansip or whoever runs Estonia is not inferior to any sarkozy or obama or merkel out there. I am not however saying that we should be acritical about politicians, whether countries are bigger or smaller, more or less important, more or less peculiar, better or worse performing.

Do you mean that I am denigrating Estonia and glorifying big countries? I just criticise the unrealistic image of Estonia that Ansip presented in his speech.
Have you read the president’s speech, where he presents a much more realistic image and talks about unemployment and other problems. Was he ridiculing Estonia? No, he’s just concerned with the wellbeing of Estonia, while Ansip seems only to be concerned with the fiscal wellbeing of Estonia.

Kristopher ütles ...

"We have separate words for fingers and toes. They don't. "

Last time I checked Estonian didn't have separate words for arm/hand and leg/foot, though. D'oh.

Markku ütles ...

In hindsight I perhaps should not have used the term "Western standards". I could just have stated that in terms of infrastructure and people's purchasing power, Estonia lacks Finland. Denying this is utter nonsense - like claiming Finland to be a richer country than Switzerland.

Ricardo, if you still object, Estonia's GDP/capita is $18800 (2009 estimate) whereas Finland's is $34900. These figures are adjusted to local price level (purchasing power parity). You can rant and rave all you like, but that is not going to change the facts.

Salarywise, I'd much rather have a job in Finland than in Estonia. I'd also much rather be unemployed in Finland than in Estonia. Life is just easier in Finland, period. I can imagine, for expats in Tallinn it can be different, but not for native Estonians.

Also you could check the direction of immigration/emigration between these two countries and adjust the figures for the respective size of populations. Usually people move to a place they consider having a better standard of living.

Sure, if it makes you feel better, Estonia has more freedom of speech, eServices, wifi coverage. Estonians in general make far better interior designers than Finns. etc. etc. And as a cherry on top, like I said before, Finland is going down in a big way, whereas Estonia still has hope. Closing the gap in standards of living will take decades, but the gap is definitely going to disappear.

Markku ütles ...

Stockholm slender wrote, "Well, as for genetics, I would never mistake Stubb for an ethnic Finn: that horse face certainly is purely Swedish..."

Only a small proportion of 'Swedes' in Finland have actual roots in Sweden. Most just changed their names and language into Swedish in order to get ahead in a society that did not tolerate the Finnish language.

Finns have a variety of "ethnic types". There are North-South and East-West differences. To complicate things, some Swedes also have Finnish ancestors, whether they like it or not.

Myst ütles ...

Only a small proportion of 'Swedes' in Finland have actual roots in Sweden. Most just changed their names and language into Swedish in order to get ahead in a society that did not tolerate the Finnish language.

Yeah.. I remember a Finnish friend commenting that the rally driver Marcus Grönholm has such a typical Finnish (or Finno-Ugric) face that his ancestors can't have been Swedish. One of those cases, perhaps.

Here's Marcus: http://www.valtra.us/images/481_1.jpg


Last time I checked Estonian didn't have separate words for arm/hand and leg/foot, though. D'oh.

Küünarvars, käsivars, käsi; reis, säär, jalg. No? :)

Of course, "käsi" and "jalg" are commonly used for the whole thing.

Markku ütles ...

There's even a list about the Finnish background of some "Swedish" aristocratic families in Finland. A family name such as Adlercreuz sounds like crème de la crème for Finns, but it all boils down to one Eerikki Teutari, who changed his name in the beginning of the 17th century. The same with many other fine-sounding family names such as Avellan, Ehrnroth, Langenskiöld, Procopé, Taucher etc.

On top of that, many of the "Swedish" families in Finland came actually from other parts of Europe, not Sweden. Many were wealthy by Finnish standards, and they simply adapted and mingled into the prevalent Swedish system, adopting Swedish family names.

stockholm slender ütles ...

re: Markku

Well, that's partially true, but Stubb's face really is typically Swedish, and I would say there are some average differences though especially in the South the population is largely mixed. The adoption of Swedish as language happened mostly in upper classes and I believe that poor Swedish speaking fishermen and farmers on the coast (numerically the bulk of the population) really do descend from immigration during the Middle Ages (both population history and linguistics support this view).

Markku ütles ...

Regarding Stubb's family, his family roots reach into Karelia, Ingria and Pskov (Pihkova). Nothing much Swedish there, except language. Of course we don't know about who really slept with whom, but looking at Stubb's face, his genes could equally be from the Baltics. Lots of square-faced German genes there.

http://luutkasaan.blogspot.com/2008/04/alexander-stubbin-juurista-voi-puhua.html

Brüno ütles ...

A bit off topic ...

My friends ask me why I refuse to open a Facebook account.

Here is why ...

http://www.youtube.com/watch?v=kFKHaFJzUb4&feature=player_embedded

Do you have a facebook account?

Why?

Myst ütles ...

Excellent video!

I have a Facebook account and initially it was quite good for getting in touch with people from the past. Of course, after a while I realised/remembered why it was we hadn't stayed in touch... My account is deactivated now.

"Massively multi-player online role playing game" indeed!

Ricardo ütles ...

peedu said: "GDP per inhabitant is third poorest in the EU, then we are most certainly the ones lagging behind". Are you sure of this? What about Romania, Bulgaria, Latvia and Lituania? Is Estonia's GDP per capita really the third smaller in the EU?

Anyway, GDP per capita is definitely extremely important, but economics is not the unique important thing. Consider education, per cent of people who finish primary/secondary/university education, consider freedom of press, consider of corporate freedom, civil freedom, religious freedom. Is it Estonia lagging behind? Estonia is LEADING when it comes to things as education and freedoms!

peedu said: "I don't even see what point you are trying to make? That Estonia is doing better than Finland or Sweden?" I am trying to do 3 points here:

1) "western Europe", Finnland or whatever country has no moral, political, historical and not even economy superiority vis-a-vis Estonia or any other "eastern Europe" country.

2) I don't see the point of looking down and denigrating a specific country. Estonia's economy is doing poorly? True, just like it is true it outperformed many "western European countries" in the very recent past, just like it outperforms NOW most countries of the world when it comes to civil freedoms, education, etc..

3) Estonia has the third lowest GDP per capita? And much lower than Finlandia's? But was Finlandia invaded and forced to communism for almost 50 years? How do you think Finland or any other "western" nation would be today had it been subjected to same communist regime as the one imposed on Estonia? A little bit of historical and critical perspective is needed. Considering Estonia's past (invasions, wars, tyrany, deportations, threat of cultural supression) Estonia is a case of great success.


@Temesta: historians get carried away too... But it is good to know that sometimes the countries that get glorified are not the usual ones. And Norman Davies is NOT Polish: it is good when the glorification of a country is done by a foreigner.

@Temesta: very good: now I see that in Estonia int´l trade is really extremely important. But I also see that neighboors are much more important than Germany, England and France (who might have been the ones with bigger spending increases too face the crisis). I don't know what Estonians think, but I would say that owing a thank you to Sweden or Finnland should be way better than owing it to Germany, France and England.

Int´l leakages being low: government spending increases will be spent in nationally produced and imported goods. Home consumption bias can play a role. Also, if a country has pretty much diversified production, less need to import from, say, Estonia. Finally, those leakages might be specially low when a country is mostly a net exporter, as is the case of Germany. If you like Norman Davies, you will love Martin Wolf: he has been keeping this discourse that to solve the imbalances of, say, Greece and Spain, Germany should correct its own imbalance: a huge superavit in the trade balance.


Markku, just read what I wrote above: economic performance is not the only thing that matters. And using the "economic facts" to somehow give a better or worst picture about a country is not that fair: Estonia has plenty to be proud of, no matter how good Finland or Switzerland or... are. Even if Estonia was the poorest country in the world... Even the poorest country in the world (which one is that by the way) for sure has things to be proud of.

Brüno ütles ...

Estonia leads in every category, including this one ...

http://epp.eurostat.ec.europa.eu/tgm/graph.do?tab=graph&plugin=1&language=en&pcode=tps00140&toolbox=type

Who says we are not special?

E:r ütles ...

I flew with Finnair to Helsinki today.. and five (5, viis) Finnish ladies sported exactly the same Louis Vuitton handbag.

Temesta ütles ...

@Ricardo:

@Temesta: very good: now I see that in Estonia int´l trade is really extremely important. But I also see that neighboors are much more important than Germany, England and France (who might have been the ones with bigger spending increases too face the crisis). I don't know what Estonians think, but I would say that owing a thank you to Sweden or Finnland should be way better than owing it to Germany, France and England.

That is why I said 'in my argument, replace Germany with Finland or Sweden'.

Temesta ütles ...

@ Ricardo:

@Temesta: historians get carried away too... But it is good to know that sometimes the countries that get glorified are not the usual ones. And Norman Davies is NOT Polish: it is good when the glorification of a country is done by a foreigner.

I do not see why that is an excuse for making ridiculous statements, certainly not for a renowned historian like Norman Davies.

Justin ütles ...

The Estonian education is good, but it's not great, especially at the university level. You can look at various lists of top 500 universities in the world, and no university in Estonia appears on the list.

http://www.arwu.org/ARWU2009.jsp

Myst ütles ...

I think Estonians operate best when miserable. When we think well of ourselves, things tend to go to south quite quickly. We need our misery, especially in these very difficult times. So I too must join the resistance to Ricardo because he messes with my misery.

Vive la Resistance!

PS. Someone give Ansip an unhappy-pill!

-----------

We drink too much, smoke too much, eat fried stuff too much and don't exercise enough. The secondary education system produces mindless drones, so no wonder the universities suck. We're poor and mean to each other. Pretty much everything sucks!

There. That's better. Now, to work!

Ricardo ütles ...

Temesta, I don´t know the context and the complete argument when Norman Davies claimed Polish suffered more than other countries. But I doubt it was a ridiculous statement.

Justin, as far as I know there is no world top univ in any post-communist country. I don't know what explains that. But if you check the percentages of people who complete an university degree, you will see that Estonia is in the European top.

Least important: there is much, much to say when it comes to university rankings: how sound methodologies are? why look at "universities" and not at "departments"? whether it is pedagogical quality or research quality that matters for the ranking ando so on. For instance, the ranking you linked puts 0% weight on "pedagogical quality". And it puts 30% on alumni and or staff receiving a Nobel or Fields Medals... How useful is, thus, such ranking? http://www.arwu.org/ARWUMethodology2009.jsp

Temesta ütles ...

@Ricardo:

I don't see the point of looking down and denigrating a specific country.

No one here is looking down on and/or denigrating Estonia. If you claim the opposite, I ask you to refer to the comments where this happened.
I criticised the recent speech of Ansip and parts of his policy. I also stated that Estonia does not stand out among the other post-communist countries that recently joined the European Union. You may disagree with this, but to say that I am looking down on Estonia is untrue. Giving criticism is not the same as denigrating.

Ricardo ütles ...

Overall, Estonian history since 1991 is a case of success: changing from communism to market system; and from dictatorship imposed from abroad to democracy. These are two HUGE chalenges and Estonia was successful in both. Whether the present crisis is relatively worse or better in Estonia than in x or y; whether Estonia performs relatively better or worse than z or w: nothing of this matters much when it comes to accepeting how successful Estonia has been. Of course, the present is also important.


However, very recent past alone should not have so much importance when one wants to make assertions about how good a country is and how better this country is when compared to some other. All those country comparisons sometimes are a bit like childish exercises: do you really want to compare Finland and Estonia without regarding their different histories? You compare a former communist-economy-totalitarian regime country with a long-lived democracy and you want to ignore most of the different paths those countries took during most of the XXth century? We compare some GDP figures and we are done with the exercise! Uau! That's really great: Estonia low GDP per capita high unemployment: final result: bad, bad country, we still need to learn from the "western standards".



You asked me for "denigrating citations"? "If Germany and the United States and some other countries would have decided not to use massive public spending (...) K.O. by now. Estonia could only pursue this policy because they are a small country, with a small, open economy that is highly dependent on what happens in big European economies. The crisis in Estonia was eased by massive public spending in other countries."

We have already discussed and clarified this. But this paragraph, in my oppinion, could be summarized in the following way: "Estonia is free-riding on Germany and the US, Germany and US are responsible and stick to sound policies, Estonia does not." But I have already claimed that US was the epicentre of the crisis and it might be fair that the epicentre should bear more responsibility. And we have already seen that Germany is not that important for Estonia's economy. So we have already discussed this.



And from Markku "Many of us Finnish põhjapõders have visited smaller Estonian towns and countryside, and nobody can't convince us life isn't infinitely better in Finland than in Estonia." Infinitely better??! Not even people from some extremely-poor African countries would say that life is infinitely better in any European country... "Estonia aren't yet up to Western standards." But Markku already said "In hindsight I perhaps should not have used the term "Western standards". " So, this has already been discussed.


I think we can move on. Justin! Write a new post please!

Temesta ütles ...

@ Ricardo:

If you are offended by such statements it is indeed better if we end the discussion here.

Ricardo ütles ...

I don't feel comfortable with some country comparisons and country-groupings. But please let's not stop debating! Light will come out of debate!

Temesta ütles ...
Autor on selle kommentaari eemaldanud.
Temesta ütles ...
Autor on selle kommentaari eemaldanud.
Temesta ütles ...

@Ricardo:

What is wrong with dividing European countries into a group that has known democracy and a market economy since WW2 and a group that untill the end of the eighties/early nineties were dominated by the Soviet Union-Russia? (without mentioning the different histories of Spain, Portugal, Greece and ex-Yugoslavia)
I think this division is relevant because it explains a lot of the differences that still exist between these two groups.
In your argument you yourself refered to the differences in history between Estonia and Finland, differences that are at the basis of the division we still make for Europe as a whole.
In time this division will become less and less important, but to understand the present condition of Europe, it is highly usefull. We can use it as long as we do not forget that it is not the only element that constitutes the identity of Estonia.

Bäckman ütles ...

"But please let's not stop debating! Light will come out of debate!"

A major exception being, of course, when one is debating his own alter ego.

I'm waiting for the part where Ricardo asks Temesta, "What were you, born yesterday?" and Temesta replies, "Well, actually, yes!"

Markku ütles ...

E:r, are you sure it was Louis Vuitton? If the handbags were similar, it could have been Marimekko bags or else the women have all bought fakes from Thailand. :-) http://img.mtv3.fi/mn_kuvat/mtv3/viihde/henkilot_ja_yhtyeet/suomalaiset/630659.jpg

Ricardo, it is pointless to discuss anything, as you take even facts as offense. Nobody denies the destruction Soviet occupation caused, and the progress since 90's, but the situation is still what it is. What is the unemployment% in Estonia? How much money do the unemployed receive? Is life with that money hard or comfortable?

The best assessment of the situation comes from the Estonians themselves, and many of them are moving to Finland and Western Europe.

Estonia has made some very good moves since regaining independence, but pegging the kroon to euro was a MAJOR mistake. A freely floating currency would be much better for Estonia - in fact for almost every country. Joining the eurozone won't help, if the lost competitiveness isn't restored by devaluation before that.

Ricardo ütles ...

Markku, it's not that I take offense from "facts": it is not "facts" in the first place (and I was not even offended...)! It is the interpretation of facts and the importance one gives to facts that matters. I don't deny GDP per capita and unemployment rates are "facts". But I can disagree with the interpretations and importance others give to those facts. I can agree or disagree with the relevance or fairness of the interpretation people make from the same facts! And, of course, one can even feel offended/unconfortable with some interpretations.


As for the kroon being pegged to the Euro: that's a big and important debate. Paul Krugman says that whether internal deflation (wages and prices going down) is better or worse than devaluation is mostly a matter of the portion of debt that is written in euros vis-a-vis the one written in local currency. And he claims Latvia's recent devaluation was the right thing to. That is possibly also valid for Estonia.

Temesta ütles ...
Autor on selle kommentaari eemaldanud.
Brüno ütles ...

Can you give a link or explain the circumstnces surrounding loans denoted in euros and people paying them back in devalued or potentially devalued local currencies. I am by no strech of an imagination an economist, but is looks obvious to me that if your local currency gets pluked, you as a a loan holder in euros, you are gonna get gimped in a major way. Do you see what I am saying?

Brüno ütles ...

I am asking Ricardo.

Temesta ütles ...
Autor on selle kommentaari eemaldanud.
Temesta ütles ...

As for the kroon being pegged to the Euro: that's a big and important debate. Paul Krugman says that whether internal deflation (wages and prices going down) is better or worse than devaluation is mostly a matter of the portion of debt that is written in euros vis-a-vis the one written in local currency. And he claims Latvia's recent devaluation was the right thing to. That is possibly also valid for Estonia.

Latvia did not devaluate its currency. Through budget and wage cuts it's trying to achieve a so-called internal devaluation to restore competitiveness, but that's a different thing. And Krugman is a very skeptical about this strategy as you can read here:

http://krugman.blogs.nytimes.com/2010/03/07/competitive-deflation/

http://krugman.blogs.nytimes.com/2010/02/26/if-this-be-victory/

http://krugman.blogs.nytimes.com/2010/02/10/riga-mortis/

http://krugman.blogs.nytimes.com/2008/12/23/latvia-is-the-new-argentina-slightly-wonkish/

Temesta ütles ...

@Brüno:

Yes, people who have loans in foreign currency will suffer if their domestic currency is devaluated. But that's not the whole story. Latvia, for example choose not to devaluate, but to restore competitiveness through wagecuts and the resulting deflation, the so-called internal devaluation. Labour and products will become cheaper for foreign companies, and devaluation of the currency is not necessary anymore. But because of these wagecuts, people anyway will have problems to pay back their loans. On top of this, internal devaluation also suffocates the economy untill it becomes competitive again, more people will become unemployed, so more people will have trouble with paying back their loans.
Some people (Paul Krugman,...) say that instead of this internal devaluation, the Baltic countries (and Latvia in particular) should have devaluated their currencies. Initially, this would hurt people with foreign currency loans, but the economy would recover much faster (it is assumed) (Argentina is often cited as an example).
The Baltic countries choose not to devaluate their currency, because then they would have to wait longer to join the eurozone (among other reasons this one is the most important I think).

Ricardo ütles ...

Brüno, you are right: if one is a loan holder in euros, devaluation will hurt. But the opposite will happen: if loan is in lats, then devaluation means one will end up paying less (in real terms) for their loans. Cfr. Temesta's links (specially the last one).


What Krugman says in the last of those links is that "internal devaluation" is pretty much the same as "devaluation": if loan is in euros and wages go down then one looses even if currency peg is left unchanged: smaller wages means less money, more difficult to pay loans.


If all debts were in euros, internal deflation would be like devaluation; the more debts are written in local currency, the better is devaluation.


So are there any important difference between internal deflation and devaluation?


Devaluation vs. internal deflation:


1) an extremely important thing on this debate is sovereign debt. When it is written in Euros, a devaluation can save a country from its own debts. BUT it is more or less like the same as a sovereign debt default: after devaluation, markets will be much LESS willing to lend again to that country (less money available, higher interest rates, higher interest rate premiums, etc.). Devaluation different than internal deflation because countries can have a huge stock of sovereign debt written in own currency: devaluation is better today but comes at the price of very difficult to get further loans in the future. In case of Latvia, I believe (have to check) the stock of it as % of GDP is low: thus, devaluation might not be a big problem when it comes to the credibility of one country.


2) devaluation is also a much faster mechanism than internal deflation: it happens overnight and consequences are immediate and it is somehow "controlled": one country can devaluate to a precise new peg. Internal deflation is a slow process: cutting wages and price sometimes is politically and socially accepted (Ireland) but can face huge resistance (Greece) or politicians burnt by many scandals might not even want to do it (Portugal).


3) Paul Krugman, in one of those links, seems to propose that all countries in difficulty should devalue. But I don't agree much with that: if many countries devalue, the effects of my devaluation will be lost (at least part). Devaluation raises thus two types of issues: its effect of "saving" the economy of one country looses some effectiveness if its trade partners also devaluate; it can be seen as an unfair free-riding on countries with sound public finances. That is why gold standard, currency agreements and common currencies were actually created: to stop devaluation wars. If there was no euro, a devaluation war might take place: the end result would be less effectiveness of devaluation, inflation, and instability and distrust in int'l finance and currency markets. But then how can one help countries like Latvia? Next episode: The "European Monetary Fund" project and a "common public finance policy".

Ricardo ütles ...

Forgot to say: if devaluation and internal deflation (when all debt is in euros) is more or less the same and it hurts, why doing it in the first place? To restore competitiveness: increase exports and invite foreign companies to come and explore cheaper labor. Increase in exports + foreign companies getting in = economy growth push.

Ricardo ütles ...

Sorry, have to correct this: "When it is written in Euros, a devaluation can save a country from its own debts." I wanted to say "local currency", not "Euros".


Finally, my oppinion: I think Latvia should devaluate: it would also hurt consumers even if wages are kept the same (imports more expensive) but it would be faster and positive effects on economic growth would start much sooner. Since stock of sovereign debt as % of GDP is (I believe) low, it would not be such a blow to Latvia's credibility. Also, I don't think that would trigger a devaluation war (Latvia's economy even smaller than Greece's and there is the Euro out there). Finally, the economic downturn in Latvia is one of the biggest in the history (at least, since there are natinal account statistics): it is such a big exception that a devaluation would be understood to be exceptional. And adhesion to the Euro can wait (actually, Latvia is institutionally bound to adopt the Euro sooner or later anyway).

Temesta ütles ...

@Ricardo:

This (http://www.cepr.net/documents/publications/latvia-recession-2010-02.pdf) is an interesting analysis of Latvia's economical problem. It also explains why 'internal devaluation' is not the best solution for Latvia.
Interestingly, they also point out that, while Latvia's government decision not to devalue the Lat is because they hope to have the euro in 2014, Latvia's public debt will soon become much to high according to the criteria for accession to the eurozone.

Ricardo ütles ...

Temesta, true and thank you for the link!

Brüno ütles ...

I conclude that you gotta admire the smart people who convinced the poor saps in the Baltics to take their loans out in euros.

Is this what can be called a risk swap or something? Definitely a win-win situation for the underwriting banks. It is amazing that central banks in the Baltics saw this switcheroo to be nice and dandy and let it happen.

I am mean, I am a simple talupoeg, but my reasoning would have jammed right at such a proposition: you pay me back in euros while your employer pays you in lepalehed. Nice try, I would have said.

Temesta ütles ...

Well, SEB bank and Swedbank certainly have problems now because of their reckless lending. Their losses are high:

http://www.baltic-course.com/eng/finances/?doc=23616

Goldman Sachs (the winner of Greece's crisis) gives the advice to sell shares in SEB and Swedbank:

http://www.baltic-course.com/eng/analytics/?doc=24426

In the near future, these banks will stay careful with giving loans to Baltic consumers, so new growth will not be as high as in the pre-crisis period. But that's probably a good thing: low but sustainable growth.

Inita ütles ...

The question that I have is either the Baltic scheister borrowers were clever from the get go and never meant to pay anything back to the unassuming swedes, or on the opposite, the Balts were very naive.

Inita ütles ...

If you borrow a little, the lender owns you, if you borrow a lot, you own the lender. Which way is it in this case?

Kelly K ütles ...

I am a Finnish American married to an Estonian. Hmm, heard lots about the beautiful Estonian women, but when I have been there it was pretty much the same as anywhere else -- some pretty, some ugly, some fat, some thin, etc. Same goes for Finland. I know some people want to believe everything about their own country is the best. But that's all the political commentary you will get from me!

Bronze ütles ...

"Sure, the current government lives in a world of self delusion and neoliberal kool-aid ("market forces" will soothe all, you'll see)."

I know you're politically far to the left of me, but that's just disingenuous.

1. Ansip is talking about the fiscal responsibility of the government - in a terrible economic downturn, we're balancing our budget and not living in hock.

2. The unemployment numbers are not 20%

3. The economic downturn is not the result of Estonia's "neoliberal" policies. It's the combined result of the global economic crisis caused by your former compatriots going spend crazy, and the screwups of Swedish-owned commercial banks.

What, pray tell, would a more "compassionate" and egalitarian government have been able to do about the economic downturn, if our budgets were further riddled down by welfare state overheads?

The comment you were replying to is asinine demagoguery, and I thought you'd be better equipped to recognize such.

Temesta ütles ...

@ Bronze:

3. The economic downturn is not the result of Estonia's "neoliberal" policies. It's the combined result of the global economic crisis caused by your former compatriots going spend crazy, and the screwups of Swedish-owned commercial banks.

If only external factors are to blame for Estonia's recession, who should we praise for Estonia's previous high growth rates?

Myst ütles ...

If only external factors are to blame for Estonia's recession, who should we praise for Estonia's previous high growth rates?

An entirely valid point.

I think it's foolish to blame the banks. Yes, they bear part of the fault, but it has very much taken two parties to "tango" in every loan agreement.

In a manner of speaking, we Estonians thought that gravity didn't apply in Estonia. That it does is a painful lesson now. In the end, prosperity is always a function of productivity. Is our productivity significantly better than a decade ago? Than in, say, 2005? If the answer to that question is "no" -- and I think it is -- then we also shouldn't expect to live more prosperously.

Blaming others is a convenient but useless exercise. There are many faults to be found in the mirror...

Jim Hass ütles ...

Actually, the productivity of Estonia, its capital and workers, is a record of excellence. We should look at two factors here:
The phase change set in motion by radically better policies in 1992-4, which liberated and internationalized the economy.

The slow accumulation of capital, human, financial and real and intangible, and experience in that new situation.

The huge changes in phase one are almost over.
The latter never ends.

Giustino ütles ...

I know you're politically far to the left of me, but that's just disingenuous.

It's not about left versus right, it's about hiding behind ideology. The rightwing parties in government have adopted social democratic policies (mother's salary being one of them) when needed and then gone on to attack their opponents as Marxists and populists. As a person, I ask the most basic thing of my leaders: don't lie to me. Don't enact social democratic policies and then pretend that you are the apogee of liberalism. That goes for those on the left and on the right.

2. The unemployment numbers are not 20%

They are still among the highest in Europe. Why is it so hard to employ people in Estonia? I mean, there are only 1.3 million people here in this land that sits between Stockholm, St. Petersburg, Helsinki, and Riga. You'd think there might be some opportunities to employ them. This is a serious question. I am obviously not an economist. I don't pretend to know everything.

What, pray tell, would a more "compassionate" and egalitarian government have been able to do about the economic downturn, if our budgets were further riddled down by welfare state overheads?

A compassionate, egalitarian government would take a longterm view of the Estonian economy and realize that FDI flows in and flows out, and unless you have a skilled, educated workforce and decent infrastructure, and constantly invest in innovation, sooner or later it's probably going to be flowing out, get-rich-quick opportunities not withstanding.

The comment you were replying to is asinine demagoguery, and I thought you'd be better equipped to recognize such.

I think that statement was indicative of a public perception that the current leadership seems aloof from the way in which the crisis has impacted average Estonians. The Reform Party to me is the party of the status quo. Their response to all criticism seems to be, "it's the best that we can do and no one else could do any better." A lot of people buy into that, but I think that government can always do better and that being open to criticism is a means to being more effective.

tartuense ütles ...

Two things:

1) The argument that many foreigners espouse about devaluation helping the Estonian economy wouldn't help, since most things exported have components that were imported, so the end result is no advantage for export, plus strangling the already squeezed people who live here. Funny thing is that those same foreigners would stand to benefit quite a lot from a devaluation, since they would automatically be able to afford to buy everything else that isn't already sold to foreigners. Good thing is that Estonians have an unpleasant government at the moment, but they still rule for Estonians' sake, not for foreigners (and we hope that stays that way, although if Kesk ever win the elections, who knows, shto?).

2) Yes, I also believe that Reform's irony is in its name. It's often that way that a party's name is completely opposite to its true ways, and the squirrels are zero interested in changing the status-quo (they basically care for the newly rich and business owners and PENSIONERS). If ever there is a populist policy, then it is that pensioners are the holy cows in Estonian politics and nobody (not a single political party) will dare touch them. They even fight over each other to try to show that they are defending pensioners' interests. (And why? - because pensioners vote, vot, and they vote for their interests).
Demographically, this is really dangerous for Estonia. The birth rates are going down again. More and more people retire and there could soon be only 2 or 1 working person per every retired person. Add to that that one of Estonia's main exports are its people, since many young emigrate to wherever they are paid a salary they can live with. Those who live here have to settle to misery salaries that are cut and then cut, and then cut yet again, and it's OK! And the gov. are dismantling what they had built for encouraging child birth, removed the tax benefits for people with a child, thinking of removing benefits for people with a mortgage, postponing benefits except for oldie-goldies.
I think IRL made the wise choices in the coalition and had valuable arguments (protect education and innovation, do more for creating jobs, reducing MP's salaries -who decided to give themselves a raise, including h5rra lynx, while everyone else had cuts-). Let's hope.

Bronze ütles ...

It's not about left versus right, it's about hiding behind ideology. The rightwing parties in government have adopted social democratic policies (mother's salary being one of them) when needed and then gone on to attack their opponents as Marxists and populists.

But their opponents ARE Marxists and populists. Mother's salaries aren't a social democratic policy, they're a policy directly aimed at forestalling the negative population growth of the country.

I think it's a complete strawman argument to act as if Reform is some sort of Ayn Randian anarcho-capitalist cult. They're not. Fiscal responsibility and a general support of free markets over centralized, state-run economic policy doesn't mean they are diametrically opposed to social spending.

And don't act like there's a healthy left in this country. The vast majority of the opposition's "marxist and populist" policies amount to sacks of potatoes and firewood, along with the annual municipal vote purchase... I mean pensionitoetus.

There's the sotsid, but they're not the ones being painted as marxist/populist. They were, in fact, happily in a coalition with the center-right, until Pihl's gigantic ego sunk said coalition.

Yes, I'll agree that the traditional meanings of "left" and "right" are irrelevant in discussion of Estonian politics.

I think that statement was indicative of a public perception that the current leadership seems aloof from the way in which the crisis has impacted average Estonians.

I'm an average Estonian, and I'm extremely proud of the way the government has preserved our fiscal health in this crisis brought on by extra-governmental factors.

The Reform Party to me is the party of the status quo. Their response to all criticism seems to be, "it's the best that we can do and no one else could do any better."

And they're correct, in as much as it's correct that they're saying that.

Governments can't cure all ailments, at least not governments as small as Estonia's. We do not have a Federal Reserve that can endlessly print money in the hundreds of trillions. We don't have T-bonds to sell to the Chinese.

Yes, people are hard hit by the economic situation. But no one is starving on the streets. We as a society lived outside our means, much like the rest of the world. We need to recuperate, and learn to live more responsibly. Unlike most of the world, the Estonian state is healthy, and this is because our policy is not set by the standards of Võsareporter and the entitled ignoramuses who burn their passports therein.

tartuense ütles ...

Just to clarify, I mention foreign interests, even if I myself am a foreigner, though living in Estonia and earning an Estonian salary, and pretty much living an Estonian life.

Bronze said :"we were living beyond our means". ?? Maybe you were living beyond yours, but most people were just trying to afford food, clothes and habitation for their families. It was not a question of greed. Is it greedy to want to live a normal life? No. If you want to find greed, don't blame the whole population, blame those who have lots, and who only want to have even more and can't even pay 1% more tax than others who can't afford it.

To be fair, Reform has maintained some positive things, like the emapalk, and has brought the budget under control and within Maastricht criteria, and I would never had supported devaluation so it's good they didn't.
At the moment, productivity is not regained by endless cuts, nor is competitiveness. I would say that morale is extremely low. The economy is also depressed, and will only grow healthily when export and internal markets are recovered. You can't copy the German export model if you have meagre salaries and no support for education and innovation.

It has also not been even. A 20% cut in earnings means not much if you earn 40 K EEK a month, but a lot if you earn 15 -10 K EEK a month.

tartuense ütles ...

Most people probably earn at the moment around 500 euros a month after tax (circa 8 K EEK, ca. 800 USD). And you call everyone greedy? Even when they earned 10 K EEK, ca. 640 euros ? Come on.

Temesta ütles ...

Hey Bronze,

I would be very happy if you could answer my question.

Giustino ütles ...

But their opponents ARE Marxists and populists.

No major Estonian political party is openly Marxist.

Mother's salaries aren't a social democratic policy, they're a policy directly aimed at forestalling the negative population growth of the country.

It is absolutely a social democratic policy, built on a tradition of social welfare laws that stretch back to the late 19th century. Estonia, for all its liberal PR, is quite red compared to the US. American women would dream of 140 days of fully-paid parental leave. In the US, American women are entitled to 0 weeks of paid leave.

I think it's a complete strawman argument to act as if Reform is some sort of Ayn Randian anarcho-capitalist cult. They're not.

They couldn't be and seriously expect to be reelected. But they are an ideological party and liberalism is their ideology. According to Ansip, Steve Forbes is a "genius."

And don't act like there's a healthy left in this country. The vast majority of the opposition's "marxist and populist" policies amount to sacks of potatoes and firewood, along with the annual municipal vote purchase... I mean pensionitoetus.

The organic left split in the 1930s between the moderates and the radicals. This political faction died first in 1940 with the dismemberment of the republic and then again in 1950 with the purge of bourgeois nationalist elements from the Estonian Communist Party.

The "new left" similarly split in the early 1990s. Lauristin went the more moderate way, Savisaar struck out on his own. Ever since it's been truncated. Savisaar is the main obstacle to any kind of rapprochement, though they are governing together in Tallinn.

There's the sotsid, but they're not the ones being painted as marxist/populist. They were, in fact, happily in a coalition with the center-right, until Pihl's gigantic ego sunk said coalition.

First of all, those guys all have gigantic egos. Second of all, I have seen many instances of Reform politicians, Ojuland especially, dropping the Marx bomb on her social democratic opponents in both Estonia and Europe.

Bronze ütles ...

Temesta: I would say the economic growth is mainly the work of a multipartisan unity towards establishing rule of law and an investment-friendly economy.

Tartuensis: I'm not calling anyone greedy, I'm calling people irresponsible and short-sighted. Businesses expanded on borrowed money backed up by nothing. Families bought hugely inflated mortgages well beyond their means. People racked up credit well beyond those 640 euros you mention. Coupled with the equally retarded lending policies of the Swedes, we had no leeway when the global economy collapsed.

Giustino: of course no one is openly Marxist. "Marxist" in this context is a pejorative term for a redistributionist lefty, for whom the only function of the government is to dole out largesse to voters.

As to social democratic policies, please. The very explicit motivation of the emapalk is NOT "social justice" or redistribution of wealth, it's designed entirely to increase the birth rate, because we're dying out.

The center right in Estonia is not opposed to social spending, but its motivation should primarily be to benefit society as a whole, not to provide "reisisaatja" makework jobs to uneducated, unskilled voters.

Bronze ütles ...

And I'd also like to request we not use the United States as a comparison in any of this. As has been shown by the health care debate, the political discourse in your country is at a level between "Terry Schiavo" and "windowlicker".

Universal healthcare is a given. Reasonable work hours and appropriate vacation and maternity leave are a given. When discussing the difference between the left and the right in Estonia, you're going from about Kucinich/Sharpton to Gore/Clinton on the "neoliberal paternalistic hard right".

Temesta ütles ...
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