Sunday, January 02, 2011

Over The World: Euro-stonia

Estonia joins the Euro. The announcement is greeted, as expected, not with joy and announcements about the fading of nationalism, but the exclamation: What timing! What timing indeed, as the European single currency is up for big tests in the coming month. With Portugal and Spain tottering at the brink of bankruptcy, this may not be the best year to be anywhere near the Euro. However, as the Estonian Finance Minister explained, rather resignedly, one can't choose the timing of such events.

Indeed, this may have meant years of negotiation and preparation, printing of currency and calibration of information systems. One can't really withdraw from the process once committed, without great cost: A cost the poorest economy of the European Union can ill afford. Besides, this is a political decision. Giving up the national currency is in a way giving up a lot, a lot of power given up by the national ruling classes (I shall refrain from the word 'bourgeois' ) in favour of a supra-national arrangement like the EU and the European Central Bank. Obviously, not everybody will ever be happy and arrangements would have been made to compensate, at least temporarily, those who lose out. Such arrangements can not be reversed overnight. Besides, last minute withdrawal from the Euro could have sunk Estonia, as those bond-holders who have put money on Estonia on the basis that they will join, would have fled. And, finally, if Estonia decided not to join, or at least to wait, this would have further weakened the Euro: The political pressure on the Estonian government must have been enormous to go ahead with this deal.

It is difficult to see how this helps Estonia, though. A stronger currency will work against its exporters at this difficult time. At the same time, it would not raise the confidence of the International money-men by much: Euro itself has to first pass the tests. As we have seen, giving up controls on the monetary policy eventually comes to the surrender of fiscal independence, as we have seen in Greece, Ireland and Spain already. Besides, exporting the monetary power somewhere outside the borders undermine the democratic priorities of maintaining social balance to the technocratic requirement of keeping deficits low, something that a fragile society like Estonia may not be able to afford.

But, despite all this, the deal is done and Estonian Kroon is no more. Latvia and Lithuania are next in the line. These economies are bigger and more significant, particularly Lithuania, the once proud imperial power of Eastern Europe. The march of Euro is one, notwithstanding its troubles. One can see an alternate economic and political model of influence, the European one, emerging head to head with the American one. Despite the hiccups, this is the soft and successful version of spreading power, of the Western European powers (mainly France and Germany), as against the power, of the more hard version, of the United States. One can argue that the world has moved onto the post-nationalist phase, but may be not, as a closer scrutiny of the sayings and doings of the leaders like Angela Markel clearly demonstrates.

Looking at it from that angle, here is a prediction: We shall see expansion, and not contraction, of supra-national formations like European Union in 2011 and beyond. What we saw in 2010 (and a similar crisis in 2009, between Dubai and the UAE) is the painful next steps that the national ruling classes of these weaker countries must take as a part of the deal of keeping them in power. In a perverse way, the crisis in Ireland and Greece were pre-destined, and the fact that they did not have the option of bankruptcy protection, just the option of changing their ways of life, tells us about the fall of nations, and not about the return of it.

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