Estonia’s Euro – the dark side

In regard to Rudi’s post on Estonia’s benefits of joining the EURO-union, it is now time to focus on the possible disadvantages of this membership. Will the Baltic state of Estonia be in the position of a lucky beneficiary or is there also a strategic downside risk to it? Let’s find out what the media estimates.
Having pointed out the benefits for Estonia, I was curious whether there would be any dark side about this historic movement. Therefore, I started searching the web for any contemplations or concerns on this new membership. To be honest with you, it seemed as if there would be nearly no problems occurring for this rather tiny economy.

Nonetheless, a report on businessweek emphasized some hard challenges that Estonia might be facing from now on. Primarily, the risk was “that Estonia is compelled to contribute to the eurozone’s recently agreed support mechanism, although the minister says this is not a major concern.”

Of course, one should not trivialize the country’s exemplary performance. Concerning its debt level, it merely amounts to a “minuscule 7.2 percent of GDP” and the country’s budget deficit is below the accepted maximum of 3%. But one should not forget that Estonia went through tough austerity programs only for the sakes of being able to join the union (by providing this performance).

On the other hand, this means that there won’t be such a high degree of fiscal autonomy anymore:
“…tougher laws are likely to have greater ‘bite’ inside the eurozone and result in more fiscal decision making being taken at the European level.”

To speak frankly, Estonia will benefit more from the membership than it will harm itself and especially it won’t do any harm to the other members.

One can state that Estonia is only a very small economy, thus playing a minor role in the Euro-union with only little influence on decisions taken. This could then mean safety for the other members – but also a lack of power for Estonia on the fiscal basis now. Nonetheless, one might say that the new membership of the Baltic state should not be over-dramatized. Perhaps, this is the reason why our global media has not pointed out these many problems…and thus accentuated the mere benefits.

To go even further, one could put more emphasis on the new currency for Estonia. One could therefore tend to reckon that Estonia may benefit from the Euro as it may boost the country’s economy. In this respect, I found an interesting article published on bbc news published which summarizes the possible advantages of the Euro currency – as well as its disadvantages. For your interest, you can find this summary here.

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