For the Baltics Euro Area membership has become even more important with the uncertain US commitment to NATO. Some American politicians have made absurd statements about the Baltic States. Newt Gingrich, former speaker of the House of Representatives, told CBS that “Estonia is in the suburbs of St Petersburg […] I’m not sure I would risk nuclear war over some place that is the suburb of St Petersburg.” Statements like that from an influential US politician must be especially shocking for Estonians and all the Baltics, but also for all EU member states as well as for European NATO member states. During the election year 2016 President Trump said, according to the Washington Post: “Pulling back from Europe would save this country millions of dollars annually. The cost of stationing NATO troops in Europe is enormous. And these are clearly funds that can be put to better use.”
The Baltic states sought economic shelter in the EU during the 2008 crisis. But the cost was high with austerity and fixed exchange rate policy, a condition for euro adoption. Staying within the Euro Area is not easy. Tight fiscal discipline and a fixed exchange rate have not exactly proven to be a growth formula for transition countries wishing to catch up. But this formula seems perfect for stable stagnation. And the Euro Area crisis continues with incomplete fiscal and banking union. But the Baltics know that powers like Germany and France could not possibly tolerate an attack from Russia on the Euro Area. They would be forced to respond. So, the Euro provides external security for the Baltics, but the austerity policies fuel internal divisions and outward migration. [...]
Shelters can be a blessing and a curse for small states. For the Baltics, the shelter provided by the European Union in 2008 came at a high cost with fixed exchange rate policy and austerity programs. Foreign banking systems were saved. Iceland enjoyed no such shelter. Its currency depreciated sharply and the government ran large stimulus deficits well beyond the formulae prescribed in Brussels. Its local banks collapsed but its economic recovery was resounding.
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