Greece is too used to western living standards to endure the austerity needed to emulate the success of the Baltic region’s rebound, said the head of Estonia at SEB AB (SEBA), the second-largest bank in the three former Soviet states.
“In Greece, they have lived for at least two generations over their running ability to keep up the social welfare,” Riho Unt, the chief executive of SEB Pank AS, said in an interview in Tallinn yesterday. “They don’t have a reference point and then it is really much more difficult to adjust your behavior.”
Estonia, Lithuania and Latvia contracted more than any other nation in the world during the 2008-2009 crisis. Latvia, where output shrank 18 percent in 2009, needed a bailout led by the International Monetary Fund to survive. Yet the austerity measures tied to that loan were tolerated by a population that had endured shortages of food and basic necessities, along with hyperinflation before the collapse of the Soviet Union in 1991 and in the early years of transition to capitalism.
Estonia’s $19 billion economy grew 3.9 percent in the first quarter, preliminary data from the statistics office show. First-quarter goods exports rose 9 percent from a year earlier, down from 54 percent in the same period of last year.
A decision by Stockholm-based SEB and Swedbank AB (SWEDA) to stay in the region paid off as the Baltic economies rebounded to deliver growth rates in excess of 5 percent last year.
“In Estonia, even in the severe moments of the crisis, you compared it to pre-independence and you understood that your life has improved,” Unt said.
Greek Exit Talk
Greek efforts to form a government after a May 6 election have failed after voters rejected pro-bailout parties, prompting policy makers in Europe to speak openly about contingency plans in the event of a Greek euro exit.
Greece’s economy will shrink 4.7 percent this year after contracting 6.9 percent in 2011, the European Commission said this month. Its debt load will reach 160.6 percent of gross domestic product, versus a euro-zone average of 91.8 percent, the commission said. The debt load will be 10.4 percent in Estonia and won’t exceed 50 percent in any of the Baltic states, according to the commission.
Estonia, which adopted the euro in 2011, has won the trust of the European Union as a nation able to commit to its budget pledges, helping it achieve better financing terms, Unt said. The newest euro-area member had the EU’s fastest economic growth rate of 7.6 percent last year on renewed export demand from its Nordic trade partners.
“If you are earning the trust, you can really agree on new terms,” Unt said. “You really can reach a situation where you can leverage off the good behavior and everyone is more ready to make concessions, but you are not really able to do that upfront because there is no trust.”
The spillover from a Greek exit from the euro area would pose the biggest threat to Estonia’s economy, Unt said. Such an event would trigger a credit freeze that would contaminate funding costs as far as Sweden, where SEB is based, Unt said.
“SEB is building huge buffers these days to really meet whatever circumstances can occur,” he said. “Therefore our customers are generally pretty safe. But you never know how deep it can go.”
Estonia’s euro entry has pushed down bank funding costs as much as 100 basis points, or 1 percentage point, below those paid by lenders in neighboring Latvia and Lithuania, Unt said. Lending margins to companies are also below those in Sweden and Finland, at 150 basis points above the euro area interbank offered rate, thanks to tight competition, he said.
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