A Bright Spot in the European Debt Crisis

By Matthea Brandenburg

While many of the European giants continue to flounder in debt, one small nation is rising above the rest.  Estonia, a member of the European Union since 2004, located in Eastern Europe between Latvia and Russia, is proving capable of greatly reducing its debt and creating growth, both of which are uncommon in the midst of a crisis.

What makes Estonia unique is how quickly it has adjusted to and embraced a new economic system after decades of control under the communist Soviet Union.  Under Soviet control, Estonians enjoyed little to no economic freedom, as land was redistributed and enterprises were nationalized.   In addition, those who openly opposed the Soviet regime were sent to Soviet prison camps.  Estonia gained independence in 1991, and adopted a free-market economic system, which allowed entrepreneurship to play a much bigger role in the economy, in turn giving rise to advancements in global technology.  One of the world’s most popular technological tools, Skype, was born in this small nation.

[photo courtesy of Stephan Huot on the Gadget Site]

Isabelle de Pommereau of the Christian Science Monitor, in her article, “Skype’s Journey from tiny Estonian start-up to $8.5 billion Microsoft buy,” explains, “On the outskirts of Talinn in the research park where the USSR secretly assembled its first computer and designed its first space mission, a group of young Estonian computer buffs launched Skype and ushered in a communications revolution”

Skype made Estonia a major player in technology.  According to de Pommereau, “Within the country, its [Skype’s] success began influencing other technology entrepreneurs.”  Additionally in de Pommereau’s article, one of the founders of Skype, Jaan Tallinn, asserts, "If you were an entrepreneur who wanted to do crazy things and people used to say, 'come on, it’s not possible' – well, you couldn’t say this anymore.” 

Estonia’s early use of the internet led to its quick acceptance and wide present-day availability within the nation’s borders.  In her article, “Why Estonia may be Europe’s model country,” de Pommereau explains, “There’s free wireless internet at almost every street corner.  In addition, people pay their parking tickets with their cell phones and voters cast their ballots digitally—the first people to do so in the world” (http://www.csmonitor.com/World/Europe/2011/0518/Why-Estonia-may-be-Europe-s-model-country/%28page%29/2). 
Despite these advances, Estonia proves that creating wealth does take time.  Estonia is still the Eurozone’s poorest country, but is emerging as a bright spot in the European Union.  According to CNN, Estonia is the EU country which records the lowest government debt to GDP ratio (http://edition.cnn.com/2011/BUSINESS/06/19/europe.debt.explainer/index.html).  Over the next five years, Estonia is expected to have Europe’s fasted growing economy, according to de Pommereau (in her article “Why Estonia may be Europe’s model country”). 

Estonia has taken strict measures to ensure the continuance and success of free-market principles within its borders.  It made quick steps to privatize industries and simplify the tax system.  In 1994, Estonia became the first country in Europe to introduce the flat income-tax (“The Case for Flax Taxes” http://www.economist.com/node/3860731?story_id=3860731).    To aid in the survival and growth of business, corporations are not charged an income tax on reinvested profits. 

Belarus, a country just south of the Baltic Nations, and once a republic of the Soviet Union, has not experienced the recent success that Estonia has.  According to the CIA World Factbook, Belarus has retained closer political and economic ties to Russia than any of the former Soviet republics (https://www.cia.gov/library/publications/the-world-factbook/geos/bo.html).  Belarus’ government has taken a more authoritarian approach, putting restrictions on freedom of speech and the press, peaceful assembly, and religion (CIA World Factbook). 

Since 2005, the government of Belarus has re-nationalized a number of private companies, and continued state control over economic operations hinders entry for businesses in both the domestic and foreign sectors (CIA World Factbook).  The results of this suppression of economic freedom include a per capita GDP of $13,600 in 2010, much less than Estonia’s $19, 100 per capita GDP in the same year (CIA World Factbook). 

Despite Estonia’s late start in gaining freedom to establish its own economic system, it is gradually climbing the ladder of economic success and emerging from the shadow of larger European countries with once more successful economies.  After spending decades under oppressive communism, Estonia has come to embrace a free-market system characterized by growth under the umbrella of economic freedom and entrepreneurship—a strategy which has allowed technology within the country to flourish and new opportunities to be realized.  Other European countries, and the global community for that matter, would do well to take notice. 

Jul 142011
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