Baltic states: “End this depression, NOW!”
Yesterday, Olivier Blanchard made headlines by stating that more spending (not necessarily government spending…) can lead to even more spending: the multiplier of economics 101. Which means: we should be austere with Austerity. Surprisingly the Baltic states, poster children of Austerity, have joined this chorus. Or, surprisingly? The regular reader of this blog of course already knows, thanks to Rainer Kattel and Ringa Raudla, also here, that the Baltics are to quite some extent dependent on transfers from the EU (graph).
And NOW!, they want to extend and increase these funds, despite all auteristian ideology (HT: “Jan”):
For Estonia it is essential that an agreement on the budget is reached quickly. “After three years of talking almost exclusively about the crisis and other negative things, citizens are awaiting a message from Brussels guaranteeing that Europe will make investments into economic growth and employment,” said Ambassador to the EU Matti Maasikas, who represented Estonia at the meeting.
“Therefore Estonia does not think it is right to cut the EU budget, especially at the expense of the European Union Cohesion Policy, which is meant to support regions with lower income levels,” he stated.
Estonia made a proposal together with Latvia and Lithuania that the countries that suffered the most during the economic crisis should get a higher upper limit on the amount of Cohesion Funds they can utilise. “It is justified to allow countries whose GDP has fallen sharply but have still used EU funds responsibly and found money to co-finance an opportunity to utilise more Cohesion Policy funds,” Maasikas asserted.
Estonia is continuing to work towards equalising direct agricultural supports in the European Union. “Support for Baltic farmers is much less than the European average, and we would like for changes to this situation, which leads to unfair competitive advantages and makes people justifiably upset, to be reflected in the new European Union budget,” said the ambassador.
Estonia also supports the European Commission’s proposal to create a European Infrastructure Fund for supporting cross-border infrastructure projects.
Don’t misunderstand me. More government spending will not solve the problems of the GIPSI countries in one or two years. They need (lots) of investments, exports and, after a while, consumption too, as well as 40% of Schumpeterian society changing growth. But that has to start, indeed, NOW! (and yes, that also requires quite some structural change like debt restructuring, a move away from ‘shareholder value’ capitalism and real flexibility of labor which not so much empowers mooching managers and bankers but the real makers and sellers).
( the NOW!-thing in the post is of course a quip to the brawl between the Estonian president and Krugman. The Estonian president is mad at Krugman – but (see the above) seems to follow his advise, to end this depression NOW!).
These countries should put their own houses in order instead of waiting for the EU to come to their aid. Both have agricultural sectors which seem to be in good shape, but the industry is hopelessly outdated. Estonia has a land value tax. The government should tidy it up ie by putting it on annual rental values and then raise more money from this source.
Latvia – where there seems to be a mostly cash-in-hand economy and normal tax systems cannot function. This could be turned to advantage – the country should get rid of taxes on companies and individuals and introduce a proper tax on land values, and then raise a decent amount of revenue from this source.
Riga and Tallinn are full of derelict sites which should be developed, to say nothing of the misused land such as the antiquated Riga coal dock close to the city centre where is nothing but a nuisance and an eyesore. The former Soviet steelmaking city of Dauvagpils is a disaster area. Landowners are sitting on valuable productive resources and locking them out of use. A sound tax reform would do more good than money from the EU. As the Irish republic discovered to its cost, largesse from the EU can pump up a property boom and lead to disaster.