A Lesson from the Baltics for Southern Europe and Obama

An interesting article on CNBC’s website today contrasted the rest of the European Union with the relative prosperity of Estonia, despite the Estonians’ entry into the European Monetary Union in 2010.  The state is enjoying robust growth and low unemployment.  The other Baltic States, Latvia and Lithuania, which are not part of the Eurozone, are also prosperous.  The reason these three former Communist states are enjoying prosperity is their government policies of austerity, i.e. cutting government spending, without raising taxes, which has held down public debt in the Baltics to far lower levels than in Western Europe, and their people’s willingness to sacrifice in order to avoid worse problems.  The low debt which keeps interest rates low naturally, coupled with the pro-business environment, makes the Baltic States attractive to investors. 

In my update on the Monetary Union last month, I observed the rejection by many Greek and French voters, among others, of austerity policies.  United States President Barak Obama has also voiced opposition to austerity, just as he supports increased federal spending (“economic stimulus”) instead of reducing unnecessary spending.  The Baltic States are proving the Southern Europeans and Obama wrong.  Austerity does work.  Indeed, more public spending only exacerbates the problem.