In the years leading up to the economic crisis, Estonia experienced exceptionally rapid economic growth, reaching 10.1% GDP growth in 2006. In 2008, however, the European economic crisis caused the growth rate to drop below zero, and when the crisis reached its peak in 2009 GDP growth dropped to –14.3%. Estonia was thus one of the EU-10 countries worst hit by the global economic crisis. However, in 2010 it staged a dramatic recovery, and by 2011 GDP growth reached 7.6%, bringing it close to the pre-crisis GDP growth levels. Nonetheless, Estonia still faces some economic challenges. The IMF’s 2013 GDP growth projection is modest but positive at 3.5% growth.
Estonia is one of the few countries of EU-10 where levels of democracy were virtually unaffected by the crisis. Its Freedom House democracy ratings remained steady, keeping Estonia near the top among the EU-10’s consolidated democracies. The government demonstrated great strength and commitment by effectively implementing deep austerity measures and cutting government spending and transfer payments without collapsing or causing riots. As a result, the fiscal deficit and public debt have remained low. Even with the effects of multiple negative external shocks, Estonia succeeded in joining the euro zone as of 2010.
Prime Minister Andrius Ansip’s and his center-right party’s reelection in 2011 proves Estonia’s success and commitment to bouncing back from the economic crisis, as governments that implement such severe austerity measures often receive low public approval ratings from their populations (which was the case in Lithuania). This determination to maintain economic success and become a full-fledged EU member, including participation in all of the major EU monetary institutions is very much apparent in Estonian fiscal policymaking. Prime Minister Ansip has been widely praised for the way he and his government met the challenge of the financial crisis.
Although unemployment remains high and growth remains low, democracy in Estonia proved its strength in the face of the severe stress test prompted by the economic crisis. However, the country continues to be affected by the ongoing euro crisis as a result of the great interdependence among the EU economies.
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