Estonia and the European Debt Crisis

kaido vestbergMI Finland Consultants Meeting

June 26th, 2015 Tallink SPA Conference Hotel Tallinn

Economical crises tend to have W shape - CHW 1998

Real GDP Growth Rate – Volume / Eurostat

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

EstoniaFinlandEU (28)

Gross domestic product (GDP) is a measure of the economic activity, defined as the value of all goods and services produced less the value of any goods or services used in their creation. The calculation of the annual growth rate of GDP volume is intended to allow comparisons of the dynamics of economic development both over time and between economies of different sizes. For measuring the growth rate of GDP in terms of volumes, the GDP at current prices are valued in the prices of the previous year and the thus computed volume changes are imposed on the level of a reference year; this is called a chain-linked series. Accordingly, price movements will not inflate the growth rate.

Real GDP Growth Rate – Volume / Eurostat

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

EstoniaFinlandEU (28)

Gross domestic product (GDP) is a measure of the economic activity, defined as the value of all goods and services produced less the value of any goods or services used in their creation. The calculation of the annual growth rate of GDP volume is intended to allow comparisons of the dynamics of economic development both over time and between economies of different sizes. For measuring the growth rate of GDP in terms of volumes, the GDP at current prices are valued in the prices of the previous year and the thus computed volume changes are imposed on the level of a reference year; this is called a chain-linked series. Accordingly, price movements will not inflate the growth rate.

We had clear objectives to reach

New York Times columnist / the Nobel-winning economist Paul Krugman:„poster child for austerity defenders“

Estonian president hammers Paul Krugman on Twitter, Washington Post June 7, 2012

Estonian President Toomas Hendrik Ilves: „smug, overbearing & patronizing“

John Maynard Keynes1883 - 1946

Milton Friedman1912 - 2006

Austerity or not?

Keynesian Finland?

http://www.tradingeconomics.com/finland/government-budget

General government debt, 2013 and 2014 (¹) (general government consolidated gross debt, % of GDP) 

Estonia had the EU's worst year for unemployment, which rose from 3.9% in May 2008 to 15.6% in May 2009.

The same liberal democratic party Reformierakond in the government last 15 years

We are close to the top 2007 year, but economy is different today

• Less investments (30%-98%), today reached 60% level•Household has decreased 22%, today 11%•Governmnet expenditure decreased only 6%•During the crises import has decreased 40% and

export 20%, now export is 30% and import 10% higher compared to year 2007

https://mlauri.wordpress.com/2013/09/18/kuidas-kriis-majandust-muutis/

During last 10 years export has grown more than 4 times

Structural changes

Decreased sectors• Construction – 20%• Trading and logistics – 22%• Finance – 30%

Increased sectors• Industry +9% • ICT +12.5%• Real estate• Public sector

https://mlauri.wordpress.com/2013/09/18/kuidas-kriis-majandust-muutis/

„Estonia only managed to overcome the serious 2007-2009 crisis thanks to well-timed funds from the EU“

EU net budget transfers – paid and received 2004-2012 (bn EUR)

http://www.lza.lv/images/Baltic/Varblane.pdf

What got us here won’t take us there

We need paradigm shift