Faced with shrinking revenues and an economic crisis in 2008, the IMF forecast that Estonia would have a budget deficit of more than 10% of GDP in 2009 on unchanged policies.
But with Mr. Jürgen Ligi taking the helm at the Ministry of Finance in June 2009, the government cut spending drastically. Keeping taxes on business and entrepreneurs low, and liberalising employment laws, the economy has since recovered from the initial large spike in unemployment, and looks in much better shape than many other European countries. It has little public debt, a balanced budget, high but falling unemployment and relatively strong growth prospects.
The approach has not been without its opponents. Paul Krugman has been especially critical, having argued for devaluation. Comparing Estonia’s output today to the height of the boom, he has written: “So, a terrible — Depression-level — slump, followed by a significant but still incomplete recovery. Better than no recovery at all, obviously — but this is what passes for economic triumph?” This led to an angry response from Estonian President Toomas Hendrik Ilves, who tweeted: “Let’s write about something we know nothing about & be smug, overbearing & patronizing”.
This event will give the Estonian Minister of Finance Jürgen Ligi the opportunity to outline the context Estonia faced in the depths of the crisis, why austerity was the right policy path for the country and how the Government managed to take the people with them.
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