Estonia: the euro doesn’t bring happiness

TALLINN Estonian adopted the euro in January 2011, in the middle of an economic crisis. The common currency was popular before its adoption, but the inflation rate in the country and high prices in the shops have contributed to a change of heart with the population. The currency change has greatly affected the daily lives of Estonians.

By Enora Regnier

The rise of the prices has been more important than what the Estonians thought. Photo: Enora Régnier

Red hair carelessly tied, black sweater and nose piercing, Kaidi, 28, is working on her computer. It is 9 p.m., time for her to start a 12 hour night of work.

Smiling and dynamic, the young girl checks in two new guests in the hostel where she works. Hard to believe that she’s already been working for more than 12 hours. “I worked the whole day in an IT company, and I will work again tomorrow morning, she explains. “It’s 36 hours without sleep. It is hard but I need money.”

Like the majority of the Estonians, Kaidi is experiencing financial problems due to the euro. The adoption of the euro last year has led to the increase of the prices in the shops.

The country has the highest inflation rate in the Eurozone, averaging 4,9 percent in 2011. But it is also its poorest country. The average monthly salary in Estonia is 809 euros. Thus, the country offers to the investors the cheapest labor in the EU.

“Everything is 25 percent or 30 percent more expensive with the euro,” says Kaidi. “To survive, people just buy less. They don’t buy clothes or shoes as they used to before.”

The food prices are primarily affected by the inflation. For example, a liter of milk now costs 0,62 euros, while it used to cost 0,55 euros. It’s a cheap price for a western country, but expensive for middle class Estonians.

The fruits and vegetables imported from other countries can sometimes reach incredibly high prices. It is especially the case for tomatoes, those can cost 5 euros for one kilo.

“I lived in Germany for a while and I can say that here, some products are more expensive while our salaries are much lower than the German ones. We have to pay more but with less money. It is hard,” explains Kaidi.

A severe policy of austerity

To understand what the Estonians are experiencing, we have to go back two years. After the violent economic recession that hit the country in 2008, the government managed to revive the economy in the country and to reduce its public debt. The country then bound to a target of joining the euro zone, a place it coveted for years.

To meet the Maastricht criteria, the Estonian government set up a strict austerity policy in 2010. They cut 10 percent of the wages in the public sector and 20 percent for the ministers, put higher taxes on consumption, put a freeze on public spending, used pension reform etc.

A tax on the income of 21 percent  is mandatory for everybody, no matter what they gain. The lowest salary that can be taxed has been fixed to 144 euros. Those taxes allow the country to strengthen its economy.

Thus, with 8 percent growth of its GDP in 2011 and a public debt of about 6 precent, the country is one of the best students of the Eurozone. While the purchasing power of the Estonians is still increasingly lowered.

To pay more with the same wages

If the economic growth of Estonia is one of the highest in Europe, the GDP of the population is still one of the lowest, with only 10 350 euros anually, per inhabitant.

The increases of the prices in the shops were expected but for some Estonians, the surprise was to see that their salaries didn’t increase as well. Or at least, not as they expected.

“For years, the government told us that our situation will be better, that with the euro we will have more money, better salaries, better life,” explains Vaido Niinesalu, director of a school near Tallinn. “But the reality is different. One of our teachers has to work in two different schools, so he has two times more work. But, like he says, he doesn’t have the choice if he wants to eat.”

 

Prices in the shops before and after the adoption of the currency (in euros). Graph: Enora Régnier

“In three years, my salary didn’t change”, explains Anet Lam (26). “I think the only people who have better salaries are the people who work for a big company or for banks. But for the ordinary people, it is hard. Everything is more expensive with the euro, especially the food. Before, I used to pay 7 euros if I wanted to eat in a restaurant. But now, if you want to find cheap food, it’s at least 10 or 15 euros.”

In reality, the salaries are increasing each month and are now 3,9 percent higher than they were in 2009. But because of the inflation rate and the numerous taxes people have to pay, the purchasing power is lowered. That has already been going on for two years.

High costs of production

A reason that can explain the high inflation in the shops is the fact that Estonia doesn’t produce a lot. That small country of about 1,3 million inhabitants has to import a lot from other countries, either food or clothes and energy products. Thus, the prices are made by the companies who export. Estonia is dependent of the other economies and the international trade.But it is not the only explanation.

“Even the products that we produce here in Estonia are more expensive. For example the cheese is ridiculously expensive. Same thing for the meat. And we produce it. So it’s not the problem of the imports and prices on the international market,” complains Annika Pau (24), a student teacher.

In 2011, the production prices in the country increased of about 5,2 percent. They have a direct effect on the prices in the shops. Add a lack of price controls displayed in supermarkets, and you get prices too high prices for people with low wages.

In January this year, a commission of Consumer Protection controlled the prices in 25 supermarkets in the country. They found that 34 percent of the prices in the shops didn’t match their output prices. Sometimes they were cheaper, but in most cases they were actually sold for a higher cost.

Photo: Enora Regnier

A feeling of inequality

High prices in the shops and high taxes make some people want to leave the country. “Men have to leave to work in another country like England, Norway or Sweden,” explains Vaido Niinesalu. “So a lot of families divorce because they are apart.”

“That’s a thing in Estonia,” adds Kaidi, “People move to Norway or Finland to work and come back one weekend a month to give money to their families.”

What prevails among the poorest workers is a feeling of injustice and inequality.

“Greeks have better salaries than us, they have more money, but we have to pay for them. Why? How is it solidarity? We need more money than them,” says Vaido Niinesalu.

“A lot of international companies come here because it’s cheaper because they don’t have to pay taxes. So they gain a lot of money but not for Estonia, because the money goes back in their countries,” explains Annika Pau.

A question of mentality

But despite their complaints and their hard feelings toward the government, they were re-elected in March 2011, after the adoption of the euro.

And the Estonians who openly say they are against the common currency are very few. Even if you ask them directly.

“I don’t know if I am for or against the euro, I never thought about that,” says Anet Lam. “I would say I am against. Or no, I am for. Well actually, I’m not even sure if someone in this country is really happy with that currency.”

For Kaidi, the problem is now somewhere else. Her IT company has to close because of the crisis.

“I am moving to Malta in April, with half of the other workers from the company. They couldn’t keep everybody. I have been lucky. I guess. I’m not really excited about going there, my home is in Tallinn.”

But like the other workers, she accepts the situation without complaining. Like the other Estonians, she struggles with the cost of life and her money troubles in silence.

“People are not happy with the euro but they just don’t strike and don’t protest because it’s not in our mentality. And anyway, what could I do? The answer is simple: nothing,” says Kaidi.

About eregnier