The Estonian Solution To America’s Fiscal Cliff: Cut Spending

by Matthew Melchiorre on November 20, 2012

Real austerity brings real growth. That’s the story of Estonia, which broke the common European mold of tax increase-based economic retrenchment by taking an axe to its public sector. Economic data for the third quarter just released last week indicated that the small Baltic state was the fastest growing in the Euro Area.  I explain in USA Today how Estonia has succeeded, as well as what America can learn from its success and the rest of Europe’s failures. The Estonian government implemented an austerity program in 2009 composed two-thirds of spending cuts and one-third of tax increases. These were real cuts, too—cutting into public employee wages by 40 percent and slashing total government spending by 16 percent by 2011. Estonia’s economy contracted severely in 2009 but bounced back with 2 percent growth the following year and, for the past two years, has expanded more than twice as fast as that of Germany.  To Read More…..