Photographer: Simon Dawson/Bloomberg

The Corner of Europe That's the Very Opposite of Greece

Estonia's government hasn't issued bonds since 2002 and has no plans to start anytime soon

In one small eastern corner of the euro area, there's no risk of investors dumping government bonds because there are no government bonds.

Four years since joining the single currency bloc, Estonia is the anti-Greece. 

Government debt is forecast by the European Commission to be just 9.6 percent of gross domestic product this year. That's the least in the euro area at barely a tenth of the 94.4 percent regional average and a fraction of Greece's 170.2 percent. 

Even with record-low bond yields elsewhere and the European Central Bank's plan to start buying sovereign debt, the former Soviet republic responsible for just 0.2 percent of the euro-zone economy is showing little sign of borrowing in financial markets any time soon, let alone binging.

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It has shunned issuing bonds since 2002 even though as one of the five poorest users of the euro, it could probably do with the cheap cash. Instead, the government prefers to access loans from the European Investment Bank.  

"We can't borrow for ongoing costs," Finance Minister Maris Lauri said in an interview. "These tend to get entrenched and we have seen where Greece has ended up or how Russia fared in 1997-98."

Not all are happy with the prudence. When the ECB announced its quantitative easing program last month, local entrepreneurs and academics urged Estonian policy makers to sell debt to invest in highways and railroads.

No dice. In addition to being fearful of a Greece-style borrowing spree, the government argues it needs to keep its powder dry for when it no longer qualifies for a large chunk of European aid and needs to raise funds from elsewhere. That will happen when GDP per capita passes 75 percent of the area-average. It's now at 73 percent.

"Estonia is indeed an odd man out in the euro zone," said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. "No other country comes with such a strong instinct in how larger macro problems are rooted in the real economy."

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