Still, there is hardly a common strategy to dealing with the crisis. The UK, already saddled with the highest rate of personal debt in the world, decided to cut taxes and try to promote more spending. Most of the European states are not being quite that cavalier, although almost all of them have been bailing out their large financial and commercial institutions, in an effort to stave off disaster.
Then again, not even the richest nations have billions of Euros lying around; decisive action takes resources. The money that you are pouring into your economy will have to be borrowed. But wasn’t it the massive borrowing that got us all into this mess?
There is an excellent article in Der Spiegel that talks about the possibility of countries going bankrupt. Everyone knows that this happened in Iceland, but let’s face it: Iceland is three hundred thousand people who can’t grow any bread. More worryingly, the article points out that large countries - those that make up the backbone of the EU - very much can go bankrupt; in fact they have before, and it’s increasingly likely that they will again; and soon. What hope do the smaller member states have?
That question has been on a lot of minds in the northeast corner of the Union. Latvia is hanging on for dear life, and in Estonia, politicians are calling on the people to make sacrifices. They’re telling us that the key to long-term stability and prosperity is in joining the Euro; that it should be our new national goal, just as membership in the EU and NATO was before. We could have joined in 2007, but the rapid growth meant we just missed out on the inflation criterium; with the average EU economy in trouble, it’s quite likely that we can get in by 2011. But we’ll need to work hard on it.
When I mentioned this to fellow th!nker Toni Straka, he thought I was mad. Why the hell would we want to join the Euro, with all the trouble it’s in? Indeed, for all the problems of our economy, we’re ahead of the curve in a lot of useful ways. We have almost no public debt to speak of, devaluation of the Estonian kroon is highly unlikely, and since none of our major banks are locally owned, it was the Swedish taxpayer who kept them liquid. As Europe’s big boys compete with the US in the race to borrow - €50 billion by Germany this year alone - so that smaller countries are left with no lenders (according to a quote in the Spiegel article), Estonia is actually cutting its budget. In the last few days, the cabinet has trimmed down 2009 spending by almost ten percent, forsaking pension increases and birth rate stimulation programs, all in the name of getting through the year without a budget deficit.
If we succeed, we may just find ourself in the odd position of our own currency being healthier than the Euro. Germany’s public debt is 62.6% according to the CIA Factbook; France’s is higher. Let’s go back to the Spiegel article for a clue as to what might be in store for a currency when its issuing government borrows too much
One way to pay down debt, of course, is massive spending cuts and austere savings programs. That, though, is difficult. Much more attractive is the inflation route. The state can just print money and pay its bills. Or the central bank prints money and pumps it into the economy. The currency becomes devalued, but the state doesn’t care because that makes it easier to pay off its debts. (…) Up until now, the process has been subtle. Since the end of the 1990s, the major central banks in the US and Europe have trippled the volume of money in circulation. In recent months, the volume of money in circulation in the US and Europe has increased by almost half.
So, for the eleven member states who still use their own currencies - and especially the more developed ones, whose economies might have some chance of standing on their own without leaning on the European Central Bank - the question is: do we want to join the Euro?
Another fellow th!nker, a Dane, told me his country was extremely EU-friendly. So why hasn’t Denmark joined the Eurozone yet? Maybe they know something we don’t?
I have an answer, but I’d like to hear yours first.