Estonian exceptionalism shows way to revive economy

Economist:

PLUNGING unemployment, rocketing growth, soaring exports and a budget surplus: that is the story of Estonia as it bounces back from a precipitous economic collapse. This burst of good news shows not only the virtues of flexibility and austerity (a sensitive subject, as other euro countries taste the same medicine); it also gives heart to Latvia and Lithuania.

Estonia’s GDP growth rate in the first quarter of the year was 8.5%, the highest in the European Union. It boasts the biggest drop in unemployment, from 18.8% to 13.8%. It has the lowest debt in the EU, of just 6.6% of GDP; measured by the price of credit-default swaps, it is among the ten best sovereign risks in Europe. Fitch, a rating agency, has just raised Estonia’s standing to A+.

Strong export growth (up by 53% year-on-year in May) and industrial production (up 26%) reflect in part soaring production of mobile-phone kit at the country’s largest exporter, Ericsson. But the recovery is broader-based. Eva-Maria Ounapuu of Joik, which makes “simple, Nordic, minimalist” cosmetics, says the recession made consumers turn to local products. Now that this market is “all but saturated”, she is starting to export.

... A bigger question is whether other countries can match this. Estonia boasts unusually thrifty politicians and an open public culture. It scores well in business-friendliness and clean-government rankings. Taxes are flat and low (the government has just moved to cut income tax from 21% to 20% in 2015)....

It is a demonstration of what happens when you reduce spending and flatten the tax rate.  Estonia still has a ways to go on its unemployment problem, but I would rather have its problems than those of Greece and Spain.   Those two countries have shown that you can't spend your way out of a recession, and in Spain's case, it demonstrates the folly of Big Green energy projects.  Some have argued that Estonia has been successful because of its exports, but that happens when you become more competitive.