Ülo Ennuste Economics

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Memo Draft

Draft, 20.IX 09 do not quote

Independent macro-economic scholars


Memo to:

The Prime Minister of Estonia

The Commissioner for Economic and Monetary Affairs

First, Estonia shouldn’t at all in the present hyper-crisis rush to exit from significant fiscal stimulus policies categorically. It is not yet late to ensure a proper sequencing of fiscal expansionary relief  instruments, with the goal of preventing further increase of   high-unemployment (already about 17%, and net financial assets of households in the red, industrial output in free fall etc) and soften the likely double-dip recession (one neighbour country already signalling about preparing for that by new future transit-blockades, so have euro-sceptics activated activities against euro-zone enlargement).

Second, but Estonia should rush to “harmonize” and seek better time-consistency (crisis-contingency) with the EU Commission at least to the extant Maastricht inflation criterion: in present form it is also non-transparent and technically defective, and with that may cause for Estonia irretrievable socio-economic and credibility losses. It seems at the moment the Estonian Government is incompetently going in the end of the year to deflate county dawn to fulfil the first part of the inflation criterion (level of inflation < i+1.5%, average three-best inflation), thereby the second part of it (stability and sustainability of ) stays almost certainly unfulfilled (the trouble is that Estonian ruling macro-economic experts are mainly not competent enough to understand the existence of the second part of inflation criterion (stability and sustainability of prices), although in 2006 Lithuania failed just this that component (BTW, it seems that Estonian proposals  for the amendment of Maastricht inflation criterion thus far have been incompetent).

And perhaps in the hyper-crisis situation, it may be rational for new Commission to move beyond a rigorous adherence to the hole stability and growth pact altogether and rewrite it to be more state-contingent (decision theoretically) and charitable to micro-member states with a past in half of century in the occupational centralised planning limbo with huge economic and human capital losses.

Third, instant reform of the Estonian tax system is probably necessary: in the sense of harmonization of moral competition with member countries, for enhancement of Estonian socio-economic sustainability, lowering the risks of domestic capital flight without domestic taxing and avoiding worsening of the Estonian international investment position. And most importantly, presently there is a lack of balance between tax laws and national pension law, the income tax law is biased towards incompetently low capital income taxation, absolutely unbalanced, that has almost certainly had regrettably vast opportunity costs for national economy. 

Fourth, the crisis has shown that macroeconomic policy in the Baltic-Rim area needs to be better coordinated regionally, especially when it comes to post-crisis management, e.g. “free” movement of “all kind” of labour, credit, investments, financial obligations, and most importantly to the Baltic-See protection against third-parties contaminating activities etc. It seems resonable that the Commision has to intoduce a Baltic-Rim Coordination Centre.

Fifth, the coordination mechanism of the Estonian public knowledge space building should be basically adapted to the IT and liberal non-censorship conditions. Unfortunately at present such significant indicators as Estonian high national gross external debt (this year forecast about 140% of GDP), current account chronically with relatively high deficiency, international investment position retreating, Estonian economic inequality index by quintiles barbarically high compared to nearby Nordic countries, net financial assets of households in read etc – are, alas, from the Estonian public knowledge space by self-important administrative and incumbent political camp rhetoric, in overshadowed position in mass media and administrative statistics, thus helping to play down cognition of real severity of the present national economy situation, and not enabling to make high quality forecasts – so probably significantly magnifying national socio-economic sustainability risks.  It slould be organized that the freedom of speech clauses are not extended to the tax-law, pencion-law, foreign-trade etc matters, and especially not to the last occupation and foreign policy matters, moust imprtantly not to insulting and slandering the European Union and bousting against member-countries.


September 20, 2009 - Posted by | Uncategorized

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