No. 24




The European Union Debt Crisis – Economic or Political Crisis?

In Riigikogu Toimetised conversation circle on 21 November, three experts discussed the European debt crisis, and the future of the European Union and the common European currency. The experts participating in the conversation circle were the Minister of Finance Jürgen Ligi (Estonian Reform Party), Member of the Board of the Estonian Foreign Policy Institute Erkki Bahovski and lawyer Andres Tupits. RiTo Editor-in-Chief Helle Ruusing acted as the moderator and compiled a summary of the discussion.

In reply to the question on how to define the European debt crisis, the participants of the conversation circle expressed the opinion that the shortest way to define it was as distrust in the governments and their bonds. It is the lack of confidence in bonds that has caused first of all the increase of interest rates for states that are in trouble and the decrease in value of their bonds. All else, including the decline in investments and consumer security and cooling of economy, is an accompanying factor. All problems start from the fact that for a long time the expenditures of states have been larger than their revenues. The expenditures are very rigid, and when the revenues decreased, the expenditures could not be cut but rather there was a tendency to increase them. In the so-called welfare states, comfortable life is guaranteed to people in spite of the situation of economy, and they are very used to it. Also the fact that some states are not able to properly collect taxes from their citizens and therefore their revenues are to a large extent based on loans has a role here. The possible introduction of common European bonds, that has been much discussed lately, was considered a good idea in itself, but contradicting the principle enshrined in the fundamental agreements of the European Union that a Member State is not responsible for the obligations of other Member States, and each state deals with its budget and economy by itself. The participants in the conversation circle did not doubt the future of the common European currency, but expressed the opinion that although the euro zone had a million things to think about at the moment, the euro would endure. By its exchange rate, euro continues to be a very strong currency and has not dropped anywhere, and is still the second largest currency in the world. Naturally there will be some changes in the euro zone and the EU, and no one can predict yet what they will be like, but the political will to keep up the euro is there. In the opinion of the participants in the conversation circle, the fact that some states have failed in performing their tasks does not mean that euro is a bad project. On the contrary, the euro is a project to invest in. If nobody invested in it, there would be many times more problems.

Full article in Estonian