Storia dell'articolo
Chiudi
Questo articolo è stato pubblicato il 16 dicembre 2010 alle ore 13:51.
KIEV – Two years ago, five of the ten new East European members of the European Union – the three Baltic states, Hungary, and Romania – appeared to be devastated by the global financial crisis. Social unrest, huge devaluations, and populist protests loomed.
And then nothing. Today, all of these countries are returning to financial health and economic growth without significant disruption. No country has even changed its exchange-rate regime. Old Europe should learn from New Europe’s untold success.
The cause of the East European financial crisis was a standard credit boom-and-bust cycle. East European countries attracted large international capital flows, owing to loose global monetary policy and accommodating business conditions. In the end, short-term bank lending became excessive and was used to finance a splurge on real-estate investment and consumption, while inflation took hold.
Moreover, current-account deficits piled up into substantial private-sector foreign debt, while public finances were in good order everywhere but Socialist-led Hungary. This crisis of success and overheating was reminiscent of East Asia in 1997-1998.
East Asia’s nations, as well as Russia in 1998 and Argentina in 2001, exited their crises through devaluation. A choir of prominent American economists, including Paul Krugman, Kenneth Rogoff, and Nouriel Roubini, claimed that Latvia, Estonia, and Lithuania must also devalue. None of them did, yet they raised themselves out of the crisis.
The Baltic states had many reasons not to devalue. Their aim is to adopt the euro as soon as possible, which devaluation would have complicated. As their small and open economies were already heavily euro-ized, the pass-though of higher foreign prices into inflation would have been huge following any devaluation, which would also have broken their otherwise reasonably healthy banking systems.
Instead, the three Baltic governments opted for internal devaluation, reducing public-sector wages and costs. In 2009, all three countries cut public expenditures by 8-10% of GDP, which – remarkably – was politically easier than marginal cuts. When cuts are big, people realize how severe the crisis is, and the politically impossible becomes necessary. Small cuts are usually delivered evenly, aggravating all public services, while deep cuts have to be selective and structural. Therefore, they may improve economic efficiency.
