Greece and Estonia: Economic Antipodes
Rahvusvahelised uudised 07 Jun 2010  EWR
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Experts debate the devaluation trap, putting the spotlight on currencies of both nations
Steve H. Hanke, Special to Gulf News


On May 12, the European Commission welcomed Estonia with open arms, recommending that the tiny Baltic country be allowed to adopt the euro next year. That's a far cry from the frosty reception Greece was accorded on May 2, when its European partners, plus the International Monetary Fund, promised to pony up $145 billion (Dh532 billion) to rescue that fiscally reckless Balkan nation. Greece and Estonia are truly economic antipodes.

Less than a decade ago, Estonia was in the grip of the Russian Bear and was part of the Soviet empire. All that changed on September 6, 1991, when Estonia's fully independent status was conceded by the USSR State Council. Estonia immediately set out to put its economy on a free-market course. There were no fond memories of the good old communist days, nor were there any illusions about where third-way socialism would take Estonia.

Estonia's problem was its currency. It was still stuck with the inconvertible, hyperinflating rouble. The best solution would be to establish an Estonian currency board in which an Estonian kroon would be fully convertible and trade at a fixed rate with the Deutschmark.

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