Paul Krugman’s Baltic Problem

Anders Aslund provides a critique here.

59 replies on “Paul Krugman’s Baltic Problem”

“In Spain, it is easier to get a divorce than to sack a worker — which explains in part why companies are very reluctant to hire new ones.”

The words “in part” are doing an awful lot of work there. Companies were not reluctant to hire during the boom. Since Aslund is fond of telling us what Krugman appears to believe and what he seems to think (as if Krugman was an obscure writer rather than one of the clearest the economics profession has produced) let’s just say that Aslund appears to suffer from chronic demand denialism.

I’m surprised to see this piece of invective linked here, and it’s not that I agree with Krugman.

Austerity was the right way forward for Estonia, and this will become increasingly obvious over time. Estonia has positioned itself well for future growth when countries such as Greece, and indeed Ireland, have suicidally piled on public debt and suppressed downward adjustment in prioes.

However, Krugman is fair when he points out that these benefits to growth are not obvious right now. Estonia’s recent growth in output has not yet been enough to recover from the battering output took by compounding the effects of the downturn with strict austerity, and it is fair for Krugman to point this out. To be convincing, a response to Krugman should focus far less on invective, and far more on how Krugman’s analysis ignores the brightness of Estonia’s prospects for the future, relative to Greece and Ireland.

The stuff on the euro is an irrelevance. Estonia may come to regret signing up some day, but it takes at least a few years for things to go wrong. Everyone now understands the warning signs, so there’s good chance they will be able to avoid sailing onto the sharp euro rocks anyway.

‘If you pursue austerity, you do escape debt.’

While this may be true it’s important to realise that once a personal or business debt is repaid (to a bank) the money used to do so no longer exists and as such reducing our debts doesn’t leave us in a better position. Debt to banks is required for there to be any significant amount of money in the economy although it doesn’t have to be. We could recognise how digital our economy has become and allow Central Banks to create digital money as well as cash for the Governments.

Wow. I am with BeeCeeTee on this. It is a strange article to link to. It has the virtue of being short but Aslund is clearly pretty angry about Krugman being taken more seriously than he is just because Krugman is not a right wing sociopath and has generally been correct (the facts having a well known political bias).

Firstly – why are the Baltic republics even being mentioned?

The Baltics have importance to the right of the political spectrum far beyond their size (their total population is 6.6 million, their combined GDP is a third less than even Ireland’s GNP) because ruthless austerity was carried out so and so whatever the result was was going to be defined as success.

Aslund is a figure on the extreme right of the economics profession and his particular shtick on the “success” of the Baltics has received so many drubbings I think most reasonable people now just switch off. For those who have not here is one of many blog posts on what “success” means to the right of the economics profession, in this case with regards to another of the Baltic’s Latvia.

Key points are:

* 10% of the population has emigrated since the onset of Austerity.
* They received what would be the equivalent In Ireland of a 53 billion Euro loan from the IMF and EU (partially to protect EU members Sweden’s interest)
* Austerity success story Latvia, despite 10% of the population leaving, still has higher unemployment than Ireland

If the state of the Baltic’s represent a success for austerity I think we need to think about just how serious the consequences of austerity’s failure are going to be.

I’m really surprisedthat Philip Lane posted a linked to an article devoid of logic and with such poor economics.

“Well, if you pursue austerity, you do escape debt.”

If one defines debt as a ratio to national income (which everyone does) then this statement is obviously false.

Besides, as Blanchard pointed out in his paper not so long ago, Latvia had low public debt to being with and, as it doesn’t have a domestic banking system, it hasn’t had to deal with the enormous costs of bank bailouts.

Even then, the policies pursued by Lativa (and Estonia to a lesser extent) have been a disaster, both in terms of employment and GDP – a small recovery after a 25% drop in GDP is not policy success! And Iceland has done better than all the small crisis states.

As illustrated by the man himself:

I think a better title for this post would be
“Anders Aslund’s intellectual problems”.

“Austerity” as a word in fashion, is getting to the point where it should be banned. It is used and misused by all sorts of people in ways that are intended to convey different things – anything from ‘malicious cruelty’….to…’failure to increase public sector wages by more than ‘increments’ “.

Its all very ‘loaded’ and it is loosing its usefulness.

If you start by disallowing adjustments through currency exchange rate movements for the set of economies {A, B…..Z}:

If economy A has a 100% cyclical downturn and has not experienced a run-up in its prices paid by the state for goods and services due to a ‘boom’ or such-like, then “austerity” is a 100% bad idea.

If economy Z has a 100% structural downturn having had a run-up in its prices paid by the state for goods and services due to a ‘boom’ or such-like, then “austerity” is a 100% necessary and eventually unavoidable thing.

…and all economies between are sorta, kinda incrementally ordered, then the discussion can focus on roughly where Ireland, Latvia or Spain are in that alphabet….I respectfully suggest.

This point:

“Another way to look at it is that even when Krugman writes about European economic policy, he is actually only making arguments for what he believes the United States should do.”

…is, I think, largely fair. His valid arguments about US policy choices have been misapplied by others to other countries that have no capacity to print their own money and cannot sell government debt to investors.

It is a slow news week, term time is approaching and a busy Prof Lane probably just thought a contrarian viewpoint would brighten up our Friday. Which it has.

However the Baltic Republics as a success fable for austerity/neoliberalism is dead, dead, dead and Krugman helped kill it. Irish economics journalists take note.

I also think it is unfair (well, in fact wrong) to criticise Krugman for not recognizing the differing political arrangements of the EU and the US when a major part of his argument is that in the EU i the political consensus (and the structures that they are transferred through) are incompatible with a workable economic solution.

The best that can be said about either of these gentlemen is that they produce a lot of … noise. Best of luck to them, but I would tend to pass as much heed on their respective utterings as I do on the average edition of the Sunday Independent. Invariably entertaining, but really only of use for clear out the ashes.

Greece is not a simplistic ‘either/or’ it is a ‘both and’; responsibility lies with both Greece and the Eurozone states.

I was impressed by something Aslund wrote recently – cannot recall it. Might have been a moment of weakness …

The Levy Institut has totally debunked austerity success for the Baltics. We had this discussion before – the blog is going through a Nietszean recurring ….

A strong argument can be made for further stimulus in the US and apart from extremists, most economists agree that the 2009 stimulus created over 1m jobs and the auto bailout saved another million.

Taxes are at a 60 year low and the United Sates has a record of success from public investments.

According to the US Treasury Department, infrastructure spending in the US is about 2.4% of GDP – – half of what it was in 1960 — and compares poorly with China (9%) and Europe (5%). Most of the infrastructure dates from the years after the Second World War. The interstate system was mainly built in the period 1956-1972 and roads generally have a 50-year life span.

Fracking, the Internet, and Silicon Valley developed from public investments — the price of semiconductors became commercially viable because of demand from NASA and weaponry during the Cold War.

As grumpy suggests, a small country that has to sell debt to foreign investors is a different kettle of fish.

Armchair experts may see running the printing presses and devaluation as panaceas. It seldom is.


Are u joking?

like him or not, there can be little doubt but that krugman is well established as a global thought leader

the linked to article sets up a straw man then cuts it down

The full paper version:

Austerity that Never Was: The Baltic States and the Crisis

The commonly cited example of the successful application of “internal” devaluation as a strategy for economic recovery is that of the Baltic economies. In this Policy Note, we discuss whether the Baltic austerity plan worked, how it was designed to work—and, most important, whether it can be replicated anywhere else. We argue that the Baltic recovery has unique features that do not relate to domestic austerity policies, nor are they replicable elsewhere.

Rainer Kattel & Ringa Raudla

It is past ‘midnight’ and we should not be concerned about either of these two writers. The evolving economic mess has morphed into a Frankenstein monster and we need a new story.

Economic theory is just that – theory. So attempting to use its axioms and logical arguments to address what has become an intractable political problem is a waste of time. Political realism will trump any solution which does not have the maintenance of the political status quo as its primary objective. Just consider (carefully) how it was exactly that we are in this mess. How long it was brewing up? And who were the principle c(r)ooks?

The idea that it is necessary to apply ‘austerity’ measures to re-set a failed system is similar to advocating cyanide for a headache. It’ll surely cure your headache – but you might be a tad disappointed when your respiratory system locks up! Why do so many folk believe this unctious academic c**p. I suspect they do not, but are powerless to stop their politicians acting like reckless juveniles.

The economic paradigm which begat this economic mess is Permagrowth. It has failed – not once but at least three times in the last 70 years. So why do economists persist with this failing paradigm?

Anybody read William Greider? How about Michael Hudson? (the academic not the journalist). Both are a lot better than Krugman. Unfortunately they tell the truth about the chicanery in our financial system. I suspect that both are virtually unknown to a general readership.

@ veronica

You have hit the nail on the head! Economists, however eminent (or as defined by the Central Bank of Sweden) that indulge in polemical exchanges deserve everything that they get by way of criticism.

What is remarkable about this thread is the number of posts saying that the link to the exchanges should not have been made. What price academic freedom?


“You have hit the nail on the head! Economists, however eminent (or as defined by the Central Bank of Sweden) that indulge in polemical exchanges deserve everything that they get by way of criticism.”

I think you might want to reconsider that. Politicians will always engage in such discussions, often with either an intent to deliberately mislead or from a position of near complete ignorance, with the economic debate hidden from the public.

Look where that got us!

The fact that the K-Crusader personally and combatively engages with those with opposing views has dragged the public debate around economic policy at least to the upper region of the gutter rather than allowing it to remain at it’s traditional venue at the bottom.

Anyway, you wouldn’t want your academics going off in a huff if a discussion gets heated, would you?


Yes. Think about a parallel currency with which to settle domestic liabilities like rubbish disposal, Bertie’s pension etc (any suggestion of an equivalence there is entirely in your imagination).

The problem of the internal devaluation is achieving simultaneity.

@Kevin Donoghue
“Companies were not reluctant to hire during the boom.”
Yes they were. Temporary contracts, self-employed, outsourcing.

“Besides, as Blanchard pointed out in his paper not so long ago, Latvia had low public debt to being with”
Eh, so did Ireland before it suicidally decided to inflate the rest of Europe (both through bank bailouts and deficit spending).

“And Iceland has done better than all the small crisis states.”
Yes, because it has cut public spending and refused to bail out its banks. It is that it has done both of those things, not one of them, that it has done better than Ireland. I don’t think you can really say, though, that a country with capital controls has really done better than one without.

“The best that can be said about either of these gentlemen is that they produce a lot of … noise. Best of luck to them, but I would tend to pass as much heed on their respective utterings as I do on the average edition of the Sunday Independent. Invariably entertaining, but really only of use for clear out the ashes.”
+1 Acerbic single-track liberal meets guileless neocon. They should get a room.

Until the failure of Japan to respond to stimulus is adequately explained, stimulus must be considered of doubtful benefit.

By the way, the more astute of you will have noticed that the link points to the second page of the article…

there’s that great analogy people use, imagine if instead of the clocks going forward an hour in the summer, everyone agreed to get up an hour early . obviously it wouldnt be the most workable strategy!

Yes, if wages were then kept in check. Sadly the evidence is that within 5 years the same overspend has returned. Devaluation on its own is not going to work without entrenching the drop in living standards that it entails in an economy that mostly imports. If cost competitiveness is immediately eroded by inflation matching spending rises, the effects disappear.

Also, it must be borne in mind that devaluation is contractionary…

So cut spending and contract the economy or leave the euro, devalue and contract the economy… or, of course, just pile on the debt…

One has to keep one’s ears and eyes open. If you tune in to a small part of the left – right continuum sooner or later you will get the surprise of your life. Our TDs’ ignored research, statistics and forecasts secure in the knowledge that all they needed could be acquired in racecourse tents and the back rooms of bars after midnight. No need to keep an eye on the Luxembourgs, Estonias, Icelands, Denmarks, Switzerlands sure are we not unique therefore there is nothing to be gained by wasting time evaluating policy and practices elsewhere.

Always keep in mind that right wing lunatics have a following and if the centre or left of centre screws up the competency vacuum will be filled.

Philip Lane is keeping his eyes open and as Martha sez dats a good ting for all of us.

@Kevin Donoghue
You might want to read the rest of my post.

I object, though, to your criticism of some of the valid points in Mr. Aslund’s article. Look at youth employment in Spain and Greece. Look at who is unemployed – it is people who didn’t have permanent employment in the first place. Companies use the methods I mentioned to avoid increasing permanent headcount.

That universal austerity is the wrong prescription doesn’t mean that universal stimulus spending is correct. As I say, explain Japan. Likewise, stimulus in an open economy is likely to be wasted, I forget who said that to us…

Mr. Krugman’s comments about, in particular, Latvia have been quite nasty. I read his column regularly and as a (generally speaking) liberal, I sometimes despair. It is nasty political invective directed at Republican opponents. It is domestic polemic leaking to an international audience. It is effectively overhearing your best friend calling your sister a slag.

He said there had been substantial rises in tax over the last number of years. “I don’t believe that we can give any more on the tax side. Otherwise it will be a recipe for disaster. [Hayes]

People earning more than 80K can well afford to pay a little more. Where is the ‘disaster’ here.

@David od

Irish politicaleconomy is on the brink of redefining the concept of “dysfunctionality”. You have one governing faction who won’t increase taxes on income and another that won’t reduce or even halt the rises in public sector pay.

They seem to be heading for a situation where the only thing they will touch is volume and quality of services for the economically vulnerable and politically weak groupings in society.

It is difficult not to view this as pandering to respective bases and political ambition that tops out at “being in office”.

FYI (good graphic – included Irland comparative

Greeks work the longest hours in the EU; and other facts about the Greek labor markets
There has some confusion about the labor market situation in Greece. To clarify, here are the latest statistics:

1. Greek official unemployment rate is just under 24%.

2. Greek youth unemployment is the highest in the Eurozone, just under 54%


It really defies belief – and come of the idiotic ‘constraints’ that they invent.

Difficult to refute the allegation that they are placing petty party interests and ‘stupid ideologies’, at a time of potential economic collapse, ahead of the need to protect the state. If despair were an option we would be innit. Worse, Hayes does not understand ‘finance’ as he has amply demonstrated in interviews with foreign TV. On a par with Lucinda’s understanting of EU political complexities.

@david od

Did you see the interview with the Minister for Reform in which he stated:

“We don’t want to touch ‘increments’ for public sector workers because ‘increments’ are, by definition recieved only by lower paid workers”

That is more of less verbatim.

There was some bloke on this blog called “Johny Foreigner” last year claiming that some public sector were getting a pay rise (aka ‘increment’) of up to €6,500. What kind of definition of ‘lower paid’ is Brendan Howlin working to?

Does “lower paid” mean anyone who is not at the very highest pay level for whatever ‘grade’ they happen to be on in the public sector – ie everybody not on the brink of retirement?

BTW, I got the distinct impression JF wasn’t making it up!

The usual argument for not raising taxes is that the taxed will emigrate and take their wealth-creating businesses with them. That is an extreme example in reality – there will be a few businesmen or women who might in fact react like that, so you should not ignore it as a factor for consideration. However that extreme is wheeled out as h sort of human shield to protect Irish Judges, senior public sector employees and members of the Irish protected professions. Just where, exactly, would the vast majorit yof them be tempted to depart for?


We can expect more of this in the next month or two – but it is difficult to take …. now to see if Camelot can make history!

RTÉ reports that around 10% of those receiving increments earn more than €70,000.

The percentage of civil servants entitled to increments is also falling. It is down from 43% in 2009 to 39% this year, with a further drop to 36% expected in 2013.

The cost of civil service increments will fall from €23m in 2009 to €18m this year, and to €16.5m next year.

Howlin noted that over 76% of civil servants entitled to increments earn less than €50,000.

In the broader 300,000-strong public service, around 44,036 workers earn over €70,000, which is less than 15%.

11,000 earn over €90,000.

Howlin confirmed :

19,422 earn under €20,000
26,749 earn €20,000 – €30,000
66,504 earn €30,000 – €40,000
68,935 earn €40,000 – €50,000
44,019 earn €50,000 – €60,000
30,315 earn €60,000 – €70,000
22,285 earn €70,000 – €80,000
10,814 earn €80,000 – €90,000
4,146 earn €90,000 – €100,000
3043 earn €100,000 – €125,000
1,212 earn €125,000 – €150,000
2,536 earn over €150,000

This data at the lower end is likely misleading – – presumably includes work-sharing, part-timers – – as there is no reference to full-time equivalents.

Allowances of €1.5bn are not salary.

This useless minister is 18 months in office but can show rare boldness in demanding backbone from others.

“Mr Howlin has urged Dr Reilly to ‘personally engage’ with his department and the HSE to ensure steps are taken to bring spending into line.

Mr Howlin says the deficit could reach €500 million by the end of the year. He told Dr Reilly to take ‘immediate action,’ including measures on top of those already set out in the budget for this year, to deal with the deficit.”

@ Kevin Donoghue: Krugram was taking a swipe at one of Greider’s columns, which appeared in “Come Home America!”. I had Greider’s “Secrets of the Temple”, and “Who Will Tell America” in mind. Kugman’s own “The Great Unravelling” is good; but not great!

Hayes’s contribution in to-day’s IT is for all intents and purposes pure political pap. He appears to be clueless about the changes in global labour situations and the idea that a person may be ‘incentivised’ to seek a waged labour job rather than remain of ‘welfare’. Its the usual crass ignorance of a politician seeking to cover the party’s ass. If you really want to ‘incentivise’ folk – cut all welfare! But you better have jobs for all the dis-incentivised – and within easy commuting distances of their homes and with an appropriate level of disposable income. Our politicians (or any other group) can never achieve this.

Perhaps Hayes might tell us the truth – for once. That you cannot continue (indefinitely) with defit budgets. You must increase the rate of taxation; or cut state salaries and services; or both.

“So what is it to be Mr Hayes?”

I am reminded of our recent joint BBC radio broadcast that Paul and I did to encourage the Irish electorate to vote NO on the fiscal compact referendum–alas to no avail. The VIPs* unfortunately always win out .

* Vested Interest Parties

One reason it is “crucial” is that our effective top rate is aboove the UK now and in line with Germany. It is to do with competitiveness in the private sector. Not something many on the blog know or care about.
That is not to say that credits cannot be reduced or a property tax brought in along with payment for services.

Patricia Conboy, director of advocacy group Older and Bolder rejected Mr Hayes’ assertion.

“It is simply not true to suggest that older people have been untouched by cuts since the economic crisis began. Minister Brian Hayes is reported as saying that the Irish political system will never countenance cutbacks on older people.

“These remarks are made in the aftermath of a decision to apply a cut of €12.5 million to home care services targeted at the most frail and vulnerable older people in our society. This cut has not been reversed by the Government.”
“Older people have been affected by: the loss of the Christmas bonus, implementation of Universal Social Charge, prescription charges, electricity levy, introduction of household charge, reduction in the Fuel Allowance from 32 to 26 weeks, increased tax on home heating fuel, reduction in medical card cover for dentistry, increases in Vat and Dirt (tax on savings), cuts in frontline health and social care services, rising costs of medical insurance; and they will be affected by planned water and carbon tax charges. ”

” It is to do with competitiveness …”

What do folk actually mean when the use this term? Competetive in what manner?

We are being subjected to a crushing self-imposed* debt overhead which is distinctly un-competetitive in respect of countries which do not have this self-imposed overhead.

So to ‘increase competitivness’ we increase the debt overhead. Charming!

* If we had told the ECB to ‘stuff it’ over the bank debts we would be a lot more competitive. We did not, so our economy goes into Regression and we have less ability to re-pay that overhead. Brilliant idiocy!

@John Corcoran
The use of these time machines continues to astonish me. Surely that can be the only explanation if nobody could have seen that unfettered capital flows uncontrollable by national regulators would lead to disaster…


If the elderly can pay, they should pay
By Michael Clifford

Saturday, September 15, 2012
But is really it feasible that all benefits and payments for pensioners remain ringfenced? Is there a place for means testing?

Of course, on one level, the classification of all pensioners as vulnerable is politically cynical. The reality is pensioners have huge political power. They number around half a million strong. They are more engaged with the political process that any other demographic.

Some sections of society have been hurt disproportionately in the current economic turmoil. The young are most vulnerable to unemployment, as they were to the bubble in property prices. Pensioners, by contrast, have so far been disproportionately protected. If any element of fairness is to be introduced to the accursed austerity being inflicted, then that situation will have to change.


Unfettered capital ran riot – but the bill for the fall-out has landed on labor’s desk. This is the real tragedy of the Euro crisis closely followed by the impotence of European democracy in dealing with it on behalf of its citizenry.

speaking of idiotic ‘constraints’:

Time to PUT the TUPs on the table … Colm McCarthy

‘The Government has unwisely ruled out three of the most important options available in getting the deficit down. These are increases in the rates of income tax, further reductions in rates of payment under the social welfare system and further reductions in public service pay.

A meaningful debt deal is within the control of European partners, while a retreat from unwise pre-election promises is up to the Government. The deal is obvious: the Government could offer to do more than it is committed to, abandoning the TUP (the Three Unwise Promises), provided the Europeans offer debt relief in amounts that will ensure a decent chance of success. ‘

@D OD / Grumpy

‘We will agree to take a responsible approach to the management of the country provided the EZ removes odious debt’.

The TUPS need to go, period.

If the govt implemented the agenda suggested by Prof. McCarthy in a logical Fashion designed to have the maximum financial impact it would be slammed by the bulk of the lefty commentariat on this blog. There would be a host of “regressive” tax and spending measures.

For example the 9000 seniors who have medical cards that they are not entitled to would presumably have to give them back.

@grumpy, Joseph Ryan

I’ve been in favour of declaring a ‘state of emergency’ since mid 2009!

Tying both hands behind one’s back wearing a blindfold is no way to climb a cliff. When are they going to get real?

As I noted before the IFAC needs a companion group of pragmatic realists to deliver advice on the HOW of fiscal adjusment – and McCarthy has been leading this non-ideological realist empiricist narrative for some time …. without TUPs it is possible to be achieved in a Progressive manner.

Btw TUP is the stock code for Tupperware. Putting it on the table is great symbolism for getting thrifty, even if it’s a trifle uncool, like the Queen does.

I predict There will be a concerted attempt to reformulate TUP to TUPXTTIM. The latter compound will be as robust as a choccy tea-pot. This key feature of the adulterated formula is that someone else must always pay.

@ All

I was struck by this comment in particular.

“Instead of focusing on legalistic arguments about promissory notes and the mandate of the European Central Bank, or on the prospective growth rate of the Irish economy, it is time to address the following question: what is a sustainable debt target for Ireland given poor growth prospects, and what needs to be done to achieve it?”

Amen to that! But is there not a slight element of revisionism creeping in here?

As to the deal that is supposedly obvious, it may be so as far as the author is concerned but certainly not to the other side that is supposed to agree it. Unwise election promises are just that. The consequences rest with those making them. Full stop!

On the subject matter of the thread, I came across this priceless exchange in today’s Sunday Times (Stephen O’Brien).

“Brendan (Howlin) has respect for public servants, unlike a lot of people, but he seems to recognise that we can’t continue to protect people on generous salaries in the public service,” said one Labour TD.

“I think that there is recognition in the party now that it would be difficult to object to pay cuts for the highest paid, even though this will mean pay cuts for politicians, too, because our salary is linked. That’s the way it has to go”.

The moral hazard flaw in this situation appears to have escaped the notice of both the questioner and the questioned.

This is not “the way it has to go”. The Public Services Management Act underpinning this grotesque situation, and all the management gobbledygook going with it, is what has to go. Some “evidence based” policy-making might then be possible.

Prof. Krugman keeps showing data periods deliberately from the point when the Estonian economy was seriously overheated to make his argument, which I personally find annoying and – from a more academic point of view – flawed in the context he uses. What is true is that Estonia has been governed by neo-liberal policies that have bordered on the extreme, running budget surpluses in a way that almost eliminated public debt before the onset of the crisis. It also resulted in the highest foreign direct investment (FDI) per capita stock in all of Central and Eastern Europe! Surely, these kind of policies arent Krugman’s cup of tea… Its also obvious that what works for the small, still relatively poor and very open Baltic economies cannot serve as a blueprint to US economic policy – I guess he is just annoyed of Republican pundits making that argument…

“…what works for the small, still relatively poor and very open Baltic economies cannot serve as a blueprint to US economic policy….”

And in any case these policies aren’t working for said economies.

Surely the part I was referring to – fiscal restraint during the boom period and liberal economic policies together with boosting new technologies enabling massive foreign direct investment (highest per capita in all of CEE even [slightly] ahead of traditional industrial powerhouses like the Czech Republic) – were working quite well including the fixing of the Estonian kroon to the Euro from the early 90s… What was the Achilles heel of the economy (and a big part of the overheating) was cheap loans from Swedish-owned banks that boosted a relatively sizable real estate bubble – and the sudden bursting of the bubble once Swedish-owned banks stopped credit growth as early as 2007/2008…

One last piece of statistics that Prof. Krugman should have quoted:
Back in 1995 Estonia’s GDP per capita was just 36% of that in the EU(27) –
10 years later in 2005 (one year after EU-entry) Estonia’s GDP per capita was already 62(!)% of the EU(27) average…
Compare that with Bulgaria and Romania who started out at 31% and 33% in 1995 and had reached just 36% and 35% of the EU(27) in 2005 respectively (due to sever economic crises in the late 90s/early 2000s) – and peaked at 44% and 47% respectively in 2008 – Estonia’s economic policy worked very very well indeed…
Estonia’s GDP per capita peaked in 2007 with 70% of the then EU(27) average before falling back to 63% in 2009 (Estonia and the Baltics were hit by the global financial crisis very early due to the pulling of the plug of Swedish-owned banks that burst their sizable real estate bubbles)
By 2011 Estonia was back to their convergence peak of 70% of the EU(27) average it had reached back in 2007 and is expected to reach 75% by 2014…
Unfortunately the source I use (Vienna Institute for International Economic Studies) does not list Iceland, but they do list Ireland:
1995: 103%
2005: 145%
2007: 148%
2009: 128%
2011: 126%

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