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[...]Why You Need Devaluation – An Open Letter To The People Of Estonia | afoe | A Fistful of Euros | European Opinion[...]…

I think you miss my point. I said devaluation with immediate euro accession. Without the euro accession, devaluation is a much more risky proposition (probably less painful in the long term for the reasons enumerated by Hugh, Krugman, et al.), though this is debatable.

I would like to see more debate on the relative merits of Estonia’s various unpalatable options – what approach will best put Estonia in a position to grow again.

Lets see how Slovakia, Ireland, Spain, and other similarly afflicted fare with the euro straightjacket, though the current indicators are not good.

I would agree that no current consensus exists in favor of a straight devaluation right now (certainly not without some reasonable plan to support the EEK at a more reasonable level), though some financial people (of weight in perhaps more in the financial community that political world) feel that devaluation will be inevitable in the highly probable event of a forced Latvian devaluation in the second half of the year.

Do you know anyone of “weight”, aside from people playing politics who keep their life savings in EEK at the moment?

I certainly don’t, in spite of the high deposit rates for EEK currently on offer.

And also I forgot to mention, that this “full throttle” phase starts in May. Cash will reach to economy with a significant lag to avoid resurection of the inflation.

So take your time, dig it a bit more.

Somewhere in the summer or so, when most of locals are half-dead in the liquidity crunch and selling stocks to cover their every-day needs think about canceling your deposit.

Estonia is making it’s action plan according to current rules and they have chance to fill MAASTRICHT criterias at the end of this year already. Do you think we should instead plan according to some suggestions made by Ft journalist? Obviously not.

“So this way the CA deficit will close, but with your living standards plummeting towards the floor.”

Think also about “reinvested earnings” in CA, what have been one of the often misunderstood reason for huge CAD.

Do you remember how Slovenia made EUR adoption? Noticed some short-term tricks then?

Estonia used more than 96% of the EU funding available up to 2006. New cycle started from 2007 and so far only 1-2% of the available funding have been used. Perhaps this slow start can explained as counter-cyclical measure? In the next 5 years Estonia will receive some 30% of GDP funding from EU structural funds for improving infrastructure etc. European average stimulus to GDP is much smaller (less than 3%?)

I guess that this funding will be (as much it depends of Estonia) in “full throttle” mode when it’s certain that inflation criteria is not problem any more. Not sure, that we need much more if you consider also that local banks are already more willing to make loans today. Margins on EUR mortgage where 3-3,5% on the “we finally cool this sucer down” period (nov-jan), now it’s less than 2% and falling.

“I think the young people will just leave to send money home to help keep their families. They are really being left with no alternative. That is the tragedy.” is a bit premature.

Look at the map and port of Tallinn statistics to understand how open Estonian economy actually is (peaople count 1.3 million, number of passangers 7 million). Devaluation would mean fast inflation and (at least) two more years waiting for possible EUR adoption.