Mr Ligi said the euro is a “comfortable and unsinkable cruise ship”, offering a safe-haven for small open economies that can be buffeted around in a storm. “It is cosy and warm in the Eurozone. We are not gambling anything.”
His maritime metaphor was thrown back at him by Estonia’s “Save the Kroon” movement, which plastered posters across Tallinn reading “Welcome to the Titanic”. Polls suggest that half the population still clings to their hard-fought symbol of sovereignty.
Eursoceptic leader Anti Poolamets said Estonia’s ruling parties had not shaken off “imperial” psychology from the Soviet era. This time they will jump to the distant orders of Frankfurt instead of Moscow. “The situation is downright peculiar. A small Nordic country that has been praised for not living beyond its means is joining a union that has many members doing the exact opposite,” he said.
Estonia’s budget deficit is just 2.8pc of GDP, making it one of only two countries in the EU that is not in breach of the Maastricht Treaty. Public debt is just 8pc of GDP, a trump card in the new world of sovereign jitters. An ultra-flexible economy makes Estonia – like the Netherlands or Finland – one of the few EMU members genuinely qualified for the rigours of monetary union. Strictly speaking, even Germany fails the test.
It is a remarkable feat for Estonia to meet the entry terms. The nation was still an occupied territory of the Soviet Union less than twenty years ago, with no currency, central bank, market system, or corpus of commercial law.
Estonia’s nation-state had to be constructed almost from scratch, harking back for inspiration to the medieval glory days of the Hanseatic League when Tallinn mattered more than Stockholm.
Stalin had targeted Baltic middle classes for destruction, deporting small businessmen and the intelligentsia to the Gulag en masse. The three Baltic countries – briefly independent states in the inter-war years – were reduced to an industrial cog of Moscow’s central planning.
Unlike the Soviet satellites of central Europe, they were left without the remnants of a trading culture. The transition to a market economy was that much harder.
Estonia lost no time rejecting Russification. It pegged the Kroon to the D-Mark, set a currency board that imposed strict discipline, pioneered the flat tax, and became the poster-child of Eastern Europe’s Thatcher revolution.
It was a spectacular success until all went wrong in the property bubble. Euro mortgages pushed external debt to 116pc of GDP. Tallinn house prices spiked wildly upwards, then collapsed by 60pc, at one stage pushing the country’s private wealth below zero.
Frederik Erixon, director of the European Centre for International Political Economy, said it was a classic boom-bust story, seen time and again around the world when policy-makers lose the plot, but not a failure of the free-market growth strategy itself.
“The 'Baltic economic model' has been highly beneficial and delivered fast real growth. The basic pillars of this model are not to blame for this crisis,” he said.
Estonia opted for hair-shirt austerity to uphold its euro peg rather than let its currency fall to help cushion the shock of the financial crisis. This was doubly painful because the Swedish krona, the Russian rouble, and Polish zloty all fell sharply.
The country has survived its “internal devaluation” without tearing apart the social fabric or triggering violent protest. Unemployment has dropped fast from a peak of 19.8pc to 15.5pc. The economy is growing at a 5pc clip again.
Estonia’s recovery makes it a laboratory case for Ireland, Greece, Spain, and other EMU states caught in debt-deflation, though the parallel can be stretched too far. Estonia’s near zero public debt and ultra-flexibility makes it a special case.
The ordeal has been more painful in Latvia, where debt is higher and the dynamics of debt-deflation more threatening. Latvia’s economy has shrunk by 26pc. It has required an EU-IMF bailout. Public wages have been cut 35pc. Riots toppled a previous government, and the pro-Moscow Harvest Party has become a major force.
Klaus Regling, head of the EU’s €440bn bail-out fund, set off a storm of controversy recently when he cited Latvia’s success – critics say slow torture is a better description – as a vindication of the EU strategy of internal devaluations under a currency system. Yet the political context is very different. The Baltic states suffered economic collapse when the Soviet Union blew apart. They have vivid and recent memories of even greater hardship.
Moreover, it is questionable whether the Baltics offer any useful guide for the unionised and rigid economies of southern Europe, each with its own deeply-rooted national tradition, and each saddled with far greater debt burdens.
Central European states are drawing their own conclusions. Czech premier Petr Necas said it would be “economic and political folly” for his country to join the euro soon.
Poland’s central bank governor, Marek Belka, said there are currently “more risks to being in the eurozone than being outside.”
Slovakia’s parliament speaker even said his country should consider leaving EMU’s debtor club after having joined a year ago, accusing Europe’s big powers of running the system to suit themselves.
“It is time for Slovakia to stop unquestionably trusting the words of eurozone leaders’ words and prepare a plan B. This would be a re-introduction of the Slovak crown,” he said.
Like other ex-Communist states in Eastern Europe, Slovakia’s public debt is modest at under 40pc of GDP.
As monetary union edges closer to a full-fledged debt union with each bail-out, it is less clear why these countries should give away their one great advantage by taking on the shared burden of Greek, Irish, Portuguese, Spanish, Italian, Belgian, and French debt.
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