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Baltic states navigate troubled waters of 'European Dream'

Peeter Koppel.
Peeter Koppel. Source: Siim Lõvi /ERR

While what constitutes the American Dream is fairly straightforward, the European Dream remains a somewhat enigmatic concept, often evoking ideals of social welfare, unity and cooperation, writes economist Peeter Koppel, but it is actually tied to a type of managerialism characterized by an excessive reliance on the ability of politicians to predict and even manipulate economic trajectories.

Amidst the complexities of "The European Dream", the Baltic countries find themselves in the throes of formidable challenges.

While the American Dream, deeply rooted in the belief that hard work and entrepreneurship can pave the path to prosperity and personal growth, is widely recognized, the European Dream remains a somewhat enigmatic concept. It often revolves around ideals of social welfare, unity, and cooperation, all of which are undeniably virtuous in their essence.

Yet, a discerning perspective reveals that the European Dream might be intricately linked to a specific form of managerialism, marked by an excessive reliance on the ability of the political elite to shape, predict and even manipulate economic trajectories.

Now grappling with a unique set of tribulations as the European Dream appears to be faltering before their very eyes. Economic indicators within the eurozone are raising eyebrows. Some may attribute these concerns to the energy crisis and the European Central Bank's proactive stance on inflation through interest rate hikes. However, the evidence points in a different direction. After the energy crisis of May 2022 to June 2023, when all commodities reverted to pre-Ukraine war levels, placing the blame solely on the ECB's monetary policy may not be entirely warranted.

Notably, the ECB's monetary policy maintains an accommodating posture, even in the face of heightened interest rates. Furthermore, its anti fragmentation program continues to underpin the debts of fiscally imprudent nations.

Fiscal and monetary policies remain expansive, affording governments
substantial leeway in terms of expenditure, facilitated by the suspension of fiscal constraints and limits. Consequently, the fiscal and monetary conditions provide substantial backing. Additionally, the fully operational EU Next Generation Fund, a €750 billion stimulus package crafted to invigorate growth and productivity, adds weight to the eurozone's arsenal.

Zooming out, the broader perspective reveals an elusive growth despite substantial stimulus packages, deficit spending, a lenient monetary policy, and external backing from relatively inexpensive natural gas and coal.

Oversimplifying the eurozone's economic challenges by placing the blame on China's economic deceleration may not do justice to the intricacies at play. If eurozone growth were solely reliant on exports to China, it would not be witnessing Germany teetering on the precipice of recession and countries like France and Italy grappling with stagnation.

The crux of the eurozone's issues does not chiefly revolve around China, interest rate hikes, or even the Ukraine conflict. The real conundrum resides within the European Dream, which appears to be an elusive concept entrenched in the minds of the political elite. The subsidization of obsolete sectors, support for unproductive enterprises, increased government expenditure, and hefty taxes on the most productive segments of the economy have stifled innovation, industrial progress, and the emergence of high-productivity sectors.

A misguided energy policy has eroded competitiveness in the industry and made the economy more vulnerable. Small and dynamic, face an additional layer of complexity. Their economies are closely aligned to the economic trajectories of their primary export partners. Estonia's exports, for instance, are inextricably linked with Finland, Sweden, and to some extent, Germany.

Further intricacies arise as Finland and Sweden, in turn, rely on Germany as a pivotal export partner.

Even as the Baltic countries uphold the principles of the American Dream rather than the European Dream, they continue to wrestle with the repercussions of the eurozone's challenges. Undoubtedly, their membership in the European Union has brought substantial benefits. Nevertheless, they probably did not foresee that, having escaped one form of central planning failure, they would find themselves grappling with yet another.

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Editor: Kristina Kersa

Source: Baltic Business Quarterly

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