While the economic crisis is rending Europe (Greece, Ireland, Spain, Italy) and the population of these countries blames the common European currency for it, on Jan 1st 2011 Estonia is to exchange its national currency for Euro. Will it bring luck or misfortune to the new member of the Euro zone? The opinions of the pro-governmental and opposing mass media contradict each other. So, let’s consider the problem and try to find out the answer to the question in order to understand the investment trend in Estonia as well as the impact that the event will have on the Euro currency rate.
Estonia is the most northern Baltic state, the economy of which has shown amazing pace of growth. Later it was called the Estonian economic miracle, members of the Estonian Association of Traders under Masterforex-V Academy explain. The real income of the population was improved and evened up, which became possible due to strong authorities and their reasonable economic policies. In terms of transformation quality, Estonia stands out in the crowd of the other EU newcomers (Romania, Bulgaria, Hungary). Many times the EU authorities sited Poland and Estonia as examples.
In 2009 Estonia’s budget deficit was just 1.7% of the GDP. For the sake of comparison: Germany – 3.3% of the GDP, France – 8%, GB – 12%, Greece – 13%. The average budgetary gap for the EU is 6,8% of the GDP while for the Euro zone it is 6,3%. Yet one of the main criteria allowing a certain country to join the EU is the budget deficit lower than 3% of the national GDP. According to the Euro Commission, Estonia showed an insignificant increase up to 2,4%. Thus, Estonia remains one of the few EU members that meet the membership requirements.
The European Union resembles a school class where there are all kinds of children, which do not have much in common. They have different families, traditions and habits, different past and quality of life. But despite all the differences they have to learn to be tolerant and responsible, to help each other and to learn the fundamentals of the generally accepted (shared) culture. As in any class, the EU has its good and bad pupils, as well as spoilt, lazy and diligent ones. Latvia, Lithuania and Estonia (ex-USSR republics), which were once accepted to the big European family “for Christ’s sake”, are of the latter type (diligent ones).
How are things with the most dutiful country of the EU?
The Estonians already suffer from the popularity gained from being held up as an example of diligence and good behavior. Estonia maintains the financial discipline (it shows the tiniest gap between income and spending, the external debt is 7% of the GDP, while the deficit is restrained to 2.2% of the GDP) and it is not under the risk of facing a default as Ireland did. However:
1. In Ireland each unemployed person gets €800 as unemployment benefit and approximately the same amount to pay the rent. At the same time his counterpart in Estonia gets only €67.
2. In Estonia 65.000 people (5% of the population) live rough. In Ireland the amount of the poor is lower as the low-income poverty threshold is higher.
3. This year the exports from Estonia have risen by 40% while Ireland sees continuous decline. However the unemployment dynamics in Estonia is much…higher than in Ireland. It appears that the same Estonians have to do 50% more amount of work to make the same amount of money. It means that the cost price of the Estonian labor has dramatically decreased.
4. The income of a “suffering” Irishman is €33.000 a year while a “successful” Estonian earns only €9200 a year.
5. Even under the austerity measures the spendthrift Irish continue to live better than the saving Estonians. Besides, for Ireland it is a tragedy while for Estonia it is a norm.
6. The entire Eurpoean Union rushed to save Ireland while the diligent Estonia has to be at the cutting edge and helping the “poor” Ireland.
Estonians looking for some job
Among the numerous problems that are currently worrying Estonia thereis a problem, which is probably the most dramatic one. It is a demographic problem. The population decline has unfortunately become a norm in many European countries, but Estonia is a special case. This is a country with the smallest population in the region (only 1,35 million people). The importance of the problem cannot be underestimated. The Estonian government shares the opinion. Probably that is why they conceal the real statistics of those who left the country.
Masterforex-V Academy experts have compared some facts. That is what they have come up with:
· About 130.000 citizens left the country, the recent demographic report (released in autumn 2010) says.
· The report caused lively disputes and numerous denials made by politicians. The final figures are kept secret.
· The Estonian Minister for Foreign Affairs made continuous statements saying that the amount of the Estonians voting abroad is roughly equal to 40.000.
· However, in the neighboring Finland over 30 to 40 thousand workers employed in the construction industry are Estonians, not to mention other economic sectors.
· Probably the same amount of the migrant laborers from Estonia work in Sweden. Some guest workers go to Norway, Denmark, Germany, Great Britain and Ireland, not to mention the US, Canada and Australia, so popular with the citizens of the ex-USSR states.
Taking into account all the above-mentioned, we have come to a deplorable conclusion: the amount of 130.000 is very likely to be true.
Is Euro a gift or a curse for Estonia?
Europe prefers not to notice Estonian problems. On the contrary, the country is considered quite successful. In mid June 2010 at the meeting of the 27 EU representatives in Brussels everyone praised the sound economic and monetary policies maintained by Estonia. They also approved Estonia’s transition to Euro on Jan 1st 2011. So the diligent Estonia has finally got the grade it deserves. The EU authorities say it would be a mistake to prevent the country that follows all the rules from entering the Euro zone.
What is in for Estonia after entering the Euro zone?
1. First of all, a strong currency
2. Ability to influence the interest rates managed by the ECB
3. A higher status in the eyes of its own citizens and other Europeans
4. A increase in foreign investors’ interest
5. An easier way to borrow for any economic sector (both for private and public ones)
What are the risks the investors may face? Masterforex-V Academy experts have defined the following ones:
1. Estonia may follow Greece: euphoria from Euro – wastefulness – an increase in the external debt – a deep crisis.
2. If the Euro zone remains unstable the export-oriented Estonian economy may face serious problems.
3. The unfavorable scenario may become even worse if Estonia’s neighbors stick to their national currencies
EURUSD currency rate:
Masterforex-V Academy experts have analyzed the EURUSD chart to note that currently the price is forming a correctional movement against wave 1.1876-1.4281. The bearish wave started at 1.4281 will be terminated on breaking through the MF pivot at 1.3383 and coming out of the MF sloping channel built through 1.4282 and 1.3785. In this case the price will start developing wave B to continue the downtrend in the form of wave a(C )/C within the scope of correction to wave 1.1876-1.4281. A breakout of the MF pivot at 1.4281 will prompt the formation of wave a(C )/C, indicating the strengthening of the Euro currency rate.
How should the Estonians react to the introduction of Euro as the national currency?
The main thing is not to fall into euphoria and not to waste money. Previously they managed to restrain their public debt while striving to enter the Euro zone. Now, when the goal is reached, they should proceed to even more strict measures of controlling the public spending and avoiding new debts. It will allow Estonia to maintain the necessary budgetary balance.
Even today Estonia doesn’t give cause for questioning its famous economization. Some Estonian politicians urge the Euro zone authorities to punish those countries which do not follow the criteria, saying that there are no reasons for the responsible countries to make up for someone’s wastefulness, probably hinting at Ireland, Greece and others.
Market Leader analysts together with Masterforex-V Academy experts offer you to take part in a survey and share your opinion on the matter in order to estimate the situation in a more objective way. Please, answer the following question to participate:
What will be the impact on Estonia after it enters the EU?
· The impact will be negative
· Estonia has got a chance to become a rich and prosperous country
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