The Estonian newspaper Äripäev toady reports from a Washington economics seminar, "Is there a future for euro?", where the fate of Estonia's economic independence was discussed. "Joining the euro is a historic opportunity, which Estonia should make use of," says Professor Jeffrey Frankel from Harvard University. "Estonia has nothing to gain from its own currency (kroon) and anyhow, the country cannot have its own monetary policy and Estonia has understood this," claims Professor Allan Meltzer from the Carnegie Mellon University. We then learn that all the participants at the seminar emphasised that the future of euro and the future of the whole economic success of the euro-zone depends on the economic reforms, which are most necessary to be carried out in the bigger European countries. (European Parliament Transanslation)
So let me get this straight, Estonia should give up the Kroon because it "cannot have its own monetary policy", but it must rely upon France and Germany, and to a lesser extent the UK to reform their economies. And this the day Merkel failed to win the German election, the Estonians would be mad. And incidentally, if Estonia cannot have a monetary policy, then why should it be allowed to have an economic policy at all. Thus why on earth was it allowed to go ahead and institute a flat tax policy and lead the way in tax reform.
Well obviously it should never have done that.
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2 comments:
I think what the professors of economics mean when they say that Estonia cannot have a monetary policy is that there is nothing to be gained by issuing a currency that will add to transaction costs, increase exchange rate risk and yet bob up and down alongside the euro in the longer term. Sure, you could still have a monetary policy, it just wouldn't get you anywhere. That's the point being made.
It sounds a little bit paranoid, if you don't mind my saying so, for you to use these arguments to paint Estonia as a pluckly little nation battling to preserve its independence in the face of the Brussels monolith.
There's nothing in these comments that would surprise anyone who's read Hayek on privatising money.
Ok,
While taking the academic point about the pointlessness of Estonian economic independence I beg to differ. I feel these esteemed academics (and by the way I mean that epithet about Prof Frankel, his work on optimal currency areas following Mundell, I have read and appreciated for years, Meltzer I know less) miss something condign. If the Euro area is unreformed, and possibly unreformable / and the results of the German election have made that eventuality more rather than less likely, then what on earth is the point of Estonia hitching its economic and political future to a financial Marie Celeste?
Where is the paranoia? There are millions today across eastern Europe, whose lives and futures have been transformed buy the economic experiment first attempted by Maat Laar in Estonia, if they had joined the Eurozone, there is no way that that would have happened.
What economists often forget is that patterns, no matter how pretty do not always work, and there is more to life than economics, politics and human nature in all its eccentric messy confusion also plays a part.
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