{"id":5037,"date":"2012-06-14T15:16:47","date_gmt":"2012-06-14T19:16:47","guid":{"rendered":"http:\/\/www.multiplier-effect.org\/?p=5037"},"modified":"2012-06-14T15:21:22","modified_gmt":"2012-06-14T19:21:22","slug":"austerity-wars-a-new-false-hope","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/austerity-wars-a-new-false-hope\/","title":{"rendered":"Austerity Wars: A New (False) Hope"},"content":{"rendered":"

The intensity of the debate over whether the Baltic economies (Estonia, Latvia, and Lithuania) should serve as models for the rest of the eurozone periphery has been raised a couple notches.\u00a0 Last week, Paul Krugman noted<\/a> that the Estonian recovery, while positive, has not been as remarkable as austerity supporters tend to imply.\u00a0 This prompted a vigorous reaction from Estonia’s head of state (unless there’s someone impersonating\u00a0Toomas Hendrik Ilves on Twitter).\u00a0 But let’s bracket for the moment this question of how impressive the Baltic recoveries have been.\u00a0 They are growing again, and that’s at least something.\u00a0 Last week, Rainer Kattel and Ringa Raudla put out a policy note<\/a> that focused on a different aspect of the problem:\u00a0 whatever you think of the results, to what extent is the Baltic experience replicable?\u00a0 If the rest of the eurozone periphery can’t reproduce the conditions that led to Baltic growth, then this isn’t a terribly useful model.<\/p>\n

The argument is supposed to be that austerity and internal devaluation (that’s basically trying to get your real wages to fall in order to regain competitiveness) should be credited for the recoveries in the Baltics (incomplete though they may be).\u00a0 As C. J. Polychroniou has been pointing out<\/a>, the latest attempts at internal devaluation don’t appear to be working terribly well in the rest of the periphery.\u00a0 But perhaps if Greece and the rest of the GIPSI countries were to suck it up, bite down hard, or whatever is the tough love phrase of the day, they might come out on the other end with a Baltic-type recovery.<\/p>\n

The problem with this argument, as Rainer Kattel and Ringa Raudla point out, is that there was very little actual “adjustment” in Estonia, Latvia, and Lithuania.\u00a0 The Baltic recoveries are largely attributable to economic factors that have little to do with austerity policies.\u00a0 The recoveries were largely “outsourced,” as Kattel and Raudla put it.\u00a0 First, the Baltic states have been relying on advanced use of EU structural support funding (as Kattel and Raudla note, a stunning 20 percent of Estonia’s budget is made up of EU funds), and second, Baltic exporters are deeply integrated with the Scandinavian and Polish economies, both of which weathered the crisis quite well. Finally, all of the Baltic economies have very flexible labor markets, accompanied by an usual amount of emigration\u2014which is in part why (very high) unemployment rates have started to tick down.\u00a0 This is simply not a model that could be replicated periphery-wide.<\/p>\n

Moreover, Kattel and Raudla provide reasons to believe that the “outsourced” Baltic recoveries are unsustainable.\u00a0 The whole thing<\/a> is worth reading.\u00a0 A One-Pager version is available here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

The intensity of the debate over whether the Baltic economies (Estonia, Latvia, and Lithuania) should serve as models for the rest of the eurozone periphery has been raised a couple notches.\u00a0 Last week, Paul Krugman noted that the Estonian recovery, while positive, has not been as remarkable as austerity supporters tend to imply.\u00a0 This prompted […]<\/p>\n","protected":false},"author":202,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[141,325,327,311,328,329,326,330,331],"class_list":["post-5037","post","type-post","status-publish","format-standard","hentry","category-eurozone-crisis","tag-austerity","tag-baltic","tag-estonia","tag-internal-devaluation","tag-latvia","tag-lithuania","tag-paul-krugman","tag-rainer-kattel","tag-ringa-raudla"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/5037","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/202"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=5037"}],"version-history":[{"count":22,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/5037\/revisions"}],"predecessor-version":[{"id":5060,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/5037\/revisions\/5060"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=5037"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=5037"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=5037"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}