Sixteen months after Estonia joined the single currency bloc, it is booming. The economy expanded 7.6 percent last year, five times the eurozone average.
Besides, Estonia is the only eurozone member, which reports a budget surplus. Its sovereign debt amounts to just 6 percent of GDP. It is a very good indicator, compared to 81 percent in Germany and 165 percent in Greece, reports Global Post.
Estonia’s achievements can be regarded even more remarkable when we remember that it was one of the countries the global financial crisis hit the hardest. In 2008-2009, its economy contracted by 18 percent. That is even a bigger drop than Greece has suffered over the past five years.
Estonia is often asked how it managed to recover. The answer usually is simple – it used German medicine.
“I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank.
Koppel has already previously warned that Europeans must prepare for an inevitable decline in living standards, wages and job security to escape from the debt crisis.
Severe spending cuts have triggered strikes and social unrest in countries as Ireland and Greece, but Estonians have barely protested. Partly,it is because some of them still hold the soviet difficulties fresh in their memory. Those times cannot be compared to the problems of today.
Moreover, Estonians have even re-elected politicians that carried out tough austerity measures.
“It was very difficult, but we managed it,” says Economy Minister Juhan Parts.
“Everybody had to give a little bit. Salaries paid out of the budget were all cut, but we cut ministers’ salaries by 20 percent and the average civil servants’ by 10 percent,” he says.
According to him, in normal times cutting the salaries of the public sector is an extremely unpopular move. But people realized that if the country did not have revenues, it had to cut costs.
As if it was not enough already, the government decided to raise the pension age. Western European countries have met such a measure with anger.
Nevertheless, Estonia still has some economic problems. The average monthly take-home pay accounts for mere 697 euros, which is among the lowest levels in the eurozone. Unemployment stands at 11.7 percent, reaching above the bloc’s average.
Besides, there is growing concern that certain debt stricken countries might trigger eurozone collapse. Such a scenario could put an end to the Estonian recovery.