In the week that both Vince and Giles sell their souls for power and influence, and the idea that spending cuts really are necessary takes hold within the centre-left, it’s handy to note that there are still economists talking sense.
So here’s Tim Millar at the massively underrated Vimothy, telling cuts-driven economic collapse like it is. For Estonia, read ConDem Britain?
“Fiscal responsibility” in the New Europe
Estonia is the poster child for austerity in Europe. In response to the crisis it has been “internally devaluing” and deflating its economy, heavily cutting government spending: its deficit went from 14% of GDP in 2008 to 2% in 2009. Estonia’s currency is pegged to the euro in anticipation of future membership. Its national debt is around 6% of GDP. 6%! (Its foreign currency reserves are half as big again). Estonia is Europe’s fiscal golden child. The market certainly thinks so: CDS on its soveriegn debt are trading at about 90 bps; Greek CDS, by comparison are trading well over 300 bps. It must be a very rich country, then, to have saved all that wealth.