Tuesday, October 11, 2005

Euro News Estonia

In a desperate attempt to convince a sceptical public the Estonian under-secretary of the Ministry of Finance, Aare Järvan , has published an article in Postimees on the possible impact of Euro entry on the economy of Estonia. In a classic peice of self deception he claims optimistically that "through joining the 'euro-zone' we (Estonia) will have a real possibility for the first time, to participate in the decision-making process concerning the continent's monetary policy " . Well I suppose the good under-secretary is right, Estonia will participate, but it will have no influence. Why does he think that one voice - and a very small voice at that - would have any influence. All he has to do is to look at the damage single interest rates have been doing to significantly larger countries and economies like Ireland and Portugal to realise the level of participation the Estonians will have in Euro zone decisions.

He goes on to say that "euro cannot fulfil the functions of money worse than the kroon (present Estonian currency) ... The impact of inflation can be related to the one-time act of conversion (prices to euro). This is a limited impact and we should all stand against possible abuses in this field. The effect of inflation may also be due to sectoral impact derived from the overall speed of economic growth" . Again Järvan veers to the blindly and foolishly optimistic. The Euro cannot do the job worse than the Kroon? I was unaware of quite how bad the Kroon was as a currency the high inflation low growth in Estonia that I have heard about must all be down to the dreadfully currency? What is he going on about?
The impact of inflation as a one off? Well yes there are serve one of inflationary pressures in Euro changeover, but please don't discount the inflationary aspects of the single currency zone after the one off effects. Indeed the inflation versus growth equation in the Eurozone has shown almost continuous preference to inflation.

Mr Järvan seems to be in the final stage of euro dementia, by which the sufferer seems to believe that a dose of the single currency can cure all ills. However of course he is merely applying a quack medicine or poultice, as if he was a mediaevalist who believed in the efficacy of bleeding a patient until the fellow was too weak to protest.

3 comments:

Anonymous said...

I constantly hear the argument that one must be in the EU in order to” participate in the decision-making process” However surely the withholding of funds or threats to withdraw entirely taking funding with you would be far more effective.

France’s share of the swill would bankrupt the EU within a year and no amount of farmers strikes could prevent the French elite from a rethink.

Anonymous said...

Ireland has been growing at an average of 5% in the last five years, three times the EU rate (and twice the UK's for that matter) since the introduction of the euro so if that's damage I'd hate to see would happen if it helped the economy.

Of course Estonia has no say and either does Ireland where before the euro there was ERM and before ERM the Irish punt was pegged to sterling.

The European Union gives small countries entry to a lucrative market, the rest is up to them.

Their strengths lie in being able to manoeuvre quicker than their larger counterparts.

Go Estonia!

Elaib said...

Dear Anon 2,
Ireland's growth I believe has far more to do with the taxation system and the English language than it does to membership of the Eurozone. Thus i would love to see what would happen to Ireland's economy if its interest rates were set to help its economy rather than to help Mittle Europa's sclerotic economy.
It's growth rate - and to be fair Ireland had a fair amount of growth in it to catch up wit the UK at the time - would no doubt improve, and their might not be quite so much inflationary pressure to take t he shine off things. There is no way that having no influence on that level of macro-economics can be a good thing, unless you believe that the entire leadership from the Taoiseach down is incompetent.

Barring that their strength does indeed lie where you say it does, they would just be better able to take advantage of the global not merely the eurozone situation if they had full freedom of manoeuvre.

Go Estonia etc

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