Estonia Booms Amidst the Euro crisis

From CNBC.com

Sixteen months after it joined the struggling currency bloc, Estonia is booming. The economy grew 7.6 percent last year, five times the euro-zone average.

Estonia is the only euro-zone country with a budget surplus. National debt is just 6 percent of GDP, compared to 81 percent in virtuous Germany, or 165 percent in Greece.

Shoppers throng Nordic design shops and cool new restaurants in Tallinn, the medieval capital, and cutting-edge tech firms complain they can’t find people to fill their job vacancies.

It all seems a long way from the gloom elsewhere in Europe.

Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. In 2008-2009, its economy shrank by 18 percent. That’s a bigger contraction than Greece has suffered over the past five years.

How did they bounce back? “I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank.

Let me be clear, the issue here isn’t about the euro, rather the issue here is about how Estonia managed to deal with the crisis even as part of the euro bloc. Estonia began to use euro in January 2011

And as pointed above and as blogged earlier, Estonia resorted to the common sense approach of letting the markets clear and work and passed with flying colors.

Indeed, Estonia’s budget has shown a slight surplus (from tradingeconomics.com)

Estonia ranks 16th as the economically freest country in the world and 7th among 43 nations in the Eurozone

Writes the Heritage Foundation

Estonia upholds all four pillars of economic freedom relatively well, with the rule of law strongly enforced by an independent and efficient judicial system. However, respect for the principle of limited government has eroded as government spending has risen as a share of GDP. Public finance management could be enhanced through clearer coordination between central and local governments as well as better targeting of social benefits. The debt burden remains quite low and has not undermined long-term economic competitiveness.

Flexibility and openness have equipped Estonia’s small economy with an impressive capacity to adjust to external shocks. Sound economic policies grounded in a strong commitment to economic freedom have ensured high levels of investment and entrepreneurial activity. The overall investment code is conducive to dynamic growth, and the financial sector remains competitive.

Estonia and Sweden's case should become the paragon for dealing with a crisis. Unfortunately, Eurozone politicians has stubbornly been fighting to retain their privileges from an unsustainable parasitical relationship. Worse, the regional political trends suggests that policies might run in the direction opposite to what is required. On that condition the crisis is likely to worsen before it gets better (when markets forces the hand of politicians).