Analytics, Economics, Estonia, EU – Baltic States, Financial Services, Investments

That welfare could be improved, as for example the unemployment is almost 20%. Reducing that by just a quarter would do wonders for Estonias well-being, Edin Mujagic, a monetary economist at the ECR Euro Currency Research in Utrecht, The Netherlands and at Tilburg University, writes in EU Observer column.

Estonia needs stable and high economic growth to increase the welfare of Estonians. To achieve that, it, as any other country, will need to invest in better infrastructure and education and create an environment where entrepreneurship thrives. This needs to be done as for example the country is faced with significant brain drain due to stubbornly high unemployment, informs LETA.

Those investments require money. Money Estonia does not have but could get hold of very easily and, that is my main point, very cheap. In fact, given its ultra sound public finances, Estonia could even get paid to borrow, or borrow for free at the very least.

Look at the recent example of the Netherlands, one of those financially sound euro area countries, although Estonia might not see it that way, given the Dutch national debt of approximately 65% of its GDP and budget deficit of quite a few percent of that GDP. Recently, that country borrowed money for a period of three years paying just 1% interest rate.

At the current inflation rate of 1,9% that boils down to being paid to borrow as the real interest rate (nominal minus inflation) is negative. Unless the Estonian government believes its country will be hit with deflation, then it is missing a great opportunity. If it, like many economists including myself, subscribes to the view that inflation will be much higher in the coming years, then the picture becomes even more attractive.

Estonia could do the same as the Netherlands have done, given its lovely fiscal position. It could be paid to borrow and could use that money to improve its infrastructure, stimulate entrepreneurship and enhance the education of Estonian people. By doing that economic growth, and thus welfare, is bound to increase. Paying those loans off in the future should equal small change for Estonia, certainly for a much more rich Estonia by then. So, when can investors expect the first offering of Estonian ten-year government bonds then?