The New York Times (6/18/10) reports from Brussels that “the mood here was upbeat” as Estonia adopted the euro as its official currency. Despite the debt crisis, reporter James Kanter writes, “the euro remains among the strongest currencies in the world, and membership opens the door to a club with global influence. For small and unsure countries on the fringes of the European Union, it doesn’t get much better.”
Quoting the European Union as praising Estonia’s “sound economic and financial policies” in recent years, the article calls Euro membership a “recognition of the hard work and sacrifice it took to keep Estonia’s bid on track” and “an important signpost that a country is on the way to achieving Western European standards of living.”
There is a bit of balance to the article’s cheerleading for Estonia’s adoption of the euro. Towards the end, Kanter notes:
According to economists, the preparation to join the euro zone created some disadvantages for Estonia compared with neighboring countries, which have enjoyed a relative degree of flexibility by hanging on longer to their legacy currencies for now.
What “some disadvantages” means is not spelled out by the Times, but economist Mark Weisbrot (Guardian, 4/30/10) gives a good summary of the effects of the extreme austerity measures necessitated to keep Estonia’s currency in sync with the euro:
The economy has shrunk by nearly 20 percent. Unemployment has shot up from about 2 percent to 15.5 percent. And recovery is expected to be painfully slow: The IMF projects that the economy will grow by just 0.8 percent this year. Amazingly, by 2015 Estonia is projected to still be less welloff than it was in 2007. This is an enormous cost in terms of lost actual and potential output, as well as the social costs associated with high long-term unemployment that will accompany this slow recovery.
To write an article about Estonia’s economic policies without mentioning these facts is like leaving the Great Depression out of a history of Herbert Hoover‘s presidency.