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InsiderOnline Blog: May 2013

The Estonia Model

In contrast to the policies of the United Kingdom, Estonia’s austerity isn’t fake. It’s also working, says Matthew Melchiorre:

In the four quarters following the British government’s announcement of austerity in June 2010, general government spending increased by 4.3%, a rate of growth that has increased since then.

Some “austerity.”

Whitehall also has been squeezing more taxes out of British citizens, with revenues increasing by 7.8% the first year and the rate of growth shooting up into double digits the next two.

And the Bank of England’s balance sheet has grown 334% since September 2008, as it’s tried to prop up bad assets held at London banks.

The result: A still-unaddressed gap between wages and labor productivity that has sapped British competitiveness over the past decade, stagnant export growth (which was actually negative in 2012), and net negative economic growth since 2008. […]

For a better way forward, let’s look at Estonia, which took its medicine as soon as the global financial crisis broke. It cut government spending relatie [sic] to its pre-crisis level drastically—2.8% in 2009 and 9.5% in 2010—and is now one of Europe’s fastest growing economies.

Tax revenues fell, too. Moreover, Estonia’s central bank refused to prop up banks that shipwrecked on the rocks of a real estate bubble.

Today, the country’s number of non-performing loans is half what it was during 2009-2010. Export growth rebounded strongly during 2010-2011 and has since remained above its pre-crisis level.

Estonia’s economic recovery is impressive enough, with unemployment now below the Euro Area average and having made up its total economic losses by 2012. [Investor’s Business Daily, April 24]

Posted on 05/10/13 03:52 PM by Alex Adrianson

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