Focus on Central, Eastern and South-Eastern Europe
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 7: The Euro Area: A Shelter? Estonia’s Perspective
Märten Ross Can the euro area be a shelter for our countries from the turmoil of global financial and economic storms? And what kind of shelter would it be? After all, a shelter could be envisioned as a comfortable waiting room with a fireplace and free coffee. Or it could be the place for the homeless. So, the appeal of that shield would matter too. Furthermore, we could also ask if very small and open economies need any shelter at all in good times. This chapter elaborates on whether the euro area is a shelter from Estonia’s perspective. First, background information on the Estonian economy is given. Second, the trade channel and the financial channel are discussed. Finally, conclusions are drawn. ESTONIA’S ECONOMY IN BRIEF Estonia introduced a currency board arrangement in 1992, under which the exchange rate of the Estonian kroon is now fixed to the euro. The strong nominal anchor currency has greatly facilitated the flexibility of the public and private sector in terms of economic adjustment. At the same time, Estonia’s trade and capital flow regimes have been among the most liberal in the world. For example, the exports of trade and services have been around 75 per cent of GDP. Thus, Estonia provides a good case for establishing the actual impact of globalization and free movement of capital on a very small economy. It is also important to recall that from the late 1990s Estonia’s banking sector has been practically fully integrated into the Nordic...
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