Estonia is hiding their mistakes with budget cuts

Jüri Uustalu, an Estonian economic analyst based in US discusses of Estonian government’s insane budget cuts in the commentary sent to Äripäev yesterday.

Albert Einstein has said that insanity is doing the same thing over and over again and expecting different results.. The disastrous consequences of first budget cut are already visible and now the government is going to second round. Why?

When the government made first cuts, the official economic forecast expected the economy to contract about 2 pct. After first cuts were made this number became 15 pct. And still the decision was to go on with mad budget cuts. What could be expected after second round of cuts or 20 pct to 25 pct “growth”?

It all is needed as if euro? But in current situation who has promised that Estonia will join eurozone? As far as I know eurozone (or any other currency) new, nearly dead members. Although it doesn’t say in black and white among Maastricht criteria, it’s clear new members, who are lying on the litter and waiting for help, aren’t accepted. Members, which’ economy is sick, your jeopardize euro’s stability!

Why this self-delusion through the budget cuts continues? It seems to me that it has three main reasons.

First the government tries to hide their own mistakes with budget cuts. When it was promised to people to take Estonia among 5 richest countries in Europe, then in reality we made it among 5 European countries with the highest inflation. No politician or state institution has taken responsibility for this disgraceful “achievement” (hint – read the law of the Estonian central bank).

The second reason is burnt Swedish banks’ pressure to Estonia. Devaluation would be an alternative to this insane cut campaign, but is would expose complete idiocy of loans Swedish banks issued in Estonia. If Estonian private sector had loans in amount if 100 pct of GDP, then after the devaluation the number would be, let’s say, 200. It’s clear Estonia wouldn’t be able to pay back such a loan burden and loans should be restructured, which would bring huge losses to Swedish banks and taxpayers.

The third reason is that however difficult the crisis is for common people, it doesn’t affect the welfare of Estonian “prominent”. Even if every second Estonian walks without pants then the salaries of MPs won’t lessen, first lady gets new expensive car at the expense of tax payer etc.

So instead of dealing sad coincidence of last years’ inflation bubble – overvalued EEK – they play insane and try to hide their incompetency by slashing dog’s tail piece by piece. They aren’t concerned even by the fact that the best economic scientists express their amazement over such idiotic economic policy.

Paul Krugman, recent Nobel laureate writes:” Let’s take and have a look at Estonia, which, of course, doesn’t have very big economy, but it almost, yes, almost, seems like someone has taken analysis, explored Indonesia’s collapse and Argentina’s collapse some years later and found that oh, how great, let do it again, let’s repeat it. I mean that here is the exact same peg to foreign currency which isn’t sustainable in the end, big debts denominated in foreign currency. It’s all happening just the same.”

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