Estonian Austerity Models Healthy Economic Correction

via: WealthCycles
July 27, 2012

As Eurozone governments try to figure out how to sell “austerity” to their disgruntled citizens and the rest of the world wonders how in the heck Europe is ever going to get itself out of its mess, the tiny Eastern European nation of Estonia offers a glimmer of hope, as well as a real-time model for how the global economy might find the path to recovery if only government would get out of the way.

Estonia offers an inspiring example of how a national economy, even one starting off with the Cold War-era baggage of state-organized inefficiencies and anti-entrepreneurial culture of a former Soviet state, can, by keeping debt low and refusing to debase its currency, succeed in the global marketplace.

Estonia nearly went astray in the same manner as the rest of the world in the booming late 90s and early 2000s. As a result of its economic success, Estonia received an influx of cheap money as Finns and other Scandinavian neighbors grew eager to offer cut-rate mortgages and build a bunch of new homes. The result was a real estate bubble, artificially stimulated economic growth and malinvestment.

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