Austerity Works (2)

No seguimento de Austerity Works, As Spain and Greece Burn, Estonia Offers a Lesson:

On the other side of the spectrum, the Baltic nations (especially Estonia and Latvia) cut government spending and liberalized their economies. While the short-term effects were painful, these two countries grew last year by 8.3 percent and 5.5 percent, respectively—remarkable when you consider that Greece, Spain, and Italy are in recession.

In Estonia, total government spending fell by 10 percent in just two years. The Estonian people displayed admirable fortitude, while the Estonian government recognized that the spiralling private-sector debt of the previous decade had produced unsustainable, illusory growth and that the financial crisis of 2008 had exposed structural flaws in their economy.

Remarkably, their swift action—which, in line with best practices, made significant supply-side reforms alongside the spending cuts—enabled them to keep their highly competitive 21 percent flat tax. They even got rewarded for their efforts with re-election.

.. the problems in southern European are structural. Excessive borrowing, large welfare states, high debts, illiberal labor markets, and dysfunctional banking sectors—and, decisively, the euro as it was adopted in 1999—are the real underlying causes of today’s crisis. Remedying it will require addressing those problems, not pumping more borrowed money into the system.