beyondbrics

Estonia has made some tough sacrifices for the dubious honour of joining the euro from January 1, 2011. Just how tough was illustrated by new unemployment data released on Friday.

So how long before Estonia, and its neighbours, start asking whether the whole project is really worth the hassle?

The jobless rate  In Estonia leapt to an all-time high of 19.8 per cent in the first quarter, compared with 15.5 per cent in the previous three months.

The country’s economy has been in deep recession since the bursting of the Baltic credit bubble in 2008, contracting by more than 14 per cent last year alone.

The government could have softened the pain with stimulus spending. Instead, it kept a straightjacket on public finances as it battled to keep the deficit below the 3 per cent limit for euro entrants.

Tallinn got its reward on Wednesday when the European Commission gave it the green light to join. But there is more belt-tightening ahead for neighbouring Latvia and Lithuania as they aim for euro entry in 2014.

What about the neighbours?

Latvia’s unemployment rate was narrowly worse than Estonia’s in the first quarter at 20.4 per cent, according to figures released on Friday. That’s up slightly from the previous quarter and way up from 14 per cent a year ago.

Latvia is often cited as an example for Greece as it undergoes a brutal internal devaluation while keeping its currency pegged to the euro. But, while Riga has largely avoided the public unrest simmering in Athens, at least one Latvian has found a way to make his displeasure known.

Entering the euro matrix

A computer hacker known by the pseudonym “Neo” became a national hero earlier this year by exposing the sky-high salaries of high-ranking government officials at a time when most public sector workers are experiencing deep pay cuts.

In what is likely to go down as one of the least popular police operations in recent Latvian history, authorities said they arrested “Neo” in a house raid on Friday. Latvian media named him as Ilmars Poikans, a researcher in artificial intelligence at the University of Latvia’s computer science department.

A renegade computer hacker is unlikely to shake the commitment of Latvia’s ruling classes – or those in Estonia and Lithuania – to joining the euro, however much economic pain that involves.

For the Baltic elites, the appeal of the euro has always been as much about politics as economics – the ultimate symbol of integration with western Europe for three former Soviet states still living in Russia’s shadow.

But with the eurozone in turmoil while unemployment soars at home, ordinary people must be wondering whether it is worth the sacrifice.

Further reading:

The euro – Estonia’s in! Or maybe it isn’t – beyondbrics

Bad timing for Estonia’s diligent euro bid – beyondbrics

Estonian PM keen on euro, taxi driver not – beyondbrics