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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'Lonely hamburger' to tempt Estonians in e-voting test

Bidding to spice up the lacklustre campaign for June 4-7 elections to the European Parliament, organisers hope such fare will encourage young Estonians to participate in the new high-tech voting system.

Among the specialities on offer are traditional Estonian dumpling soup and the local karask scone, but those seeking more of an international flavour can opt to vote for spaghetti al pomodoro, tiramisu or a simple espresso. The lonely hamburger is supposed to reflect independent candidates not linked to any party.

Estonia's electoral committee hopes the test poll, which will be available on the www.valimised.ee webpage from May 28 to June 3, will also iron out any glitches in the new online voting system. The colourful menu is designed to attract more Estonians to learn how the system works and engage in the electoral process. Online voters will be able to change their vote as many times as they want up until the deadline but only their final vote will count.

If an e-voter also casts a ballot on paper at a polling station their electronic vote will be annulled. Estonia pioneered e-voting and plans to implement soon a system that will enable voters to cast their ballots via mobile phones from anywhere they can. All rights reserved.

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Estonia to borrow from Swedbank, EIB, use reserves

Estonia has hit a deep recession and has struggled to find ways to finance its budget deficit, which it wants to keep under the European Union level of 3 percent of gross domestic product (GDP) so it can adopt the euro in 2011. We have a budget deficit of three percent, this is one of the means to cover the deficit," Prime Minister Andrus Ansip told a news conference, when asked about the Swedbank loan.

Estonia has no government debt market and has followed a conservative policy in borrowing since the fall of the former Soviet Union in 1991. Most of its loans have come from multilateral lenders. Finance Minister Ivari Padar said the Swedbank loan was offered at Euribor plus 2.75 percent.

The government said in a statement it planned to borrow 2.35 billion kroons from Swedbank with a maturity up to two years and 4.15 billion from the EIB with a maturity up to 15 years. The money from the EIB is part of an earlier loan application for 8.6 billion kroons from the EIB.

The government that funds from the EIB will be used for co-financing European Union structural fund projects and construction of roads. It also said it would take 3.5 billion kroons from budget reserves the country has built up over the years. The reserves amounted to 7.33 billion at the end of March. Using the money will require approval from parliament.

The use of reserves' resources is quickly needed as the conditions of the economic fall have lowered budgetary revenue and increased expenditure," the Finance Ministry said in a statement. Most Popular on Reuters Chrysler files for bankruptcy; inks Fiat deal Video Redstone says U.S.

Source http://reuters.com/article/rbssfinancialservicesandrealestat~

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