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How to move Estonia forward?

What about linking the wages to inflation? The buying power would be maintained, it would increase/maintain the income of the government and temper price hikes Reply to the comment answer
~maybe [10.12.2012, 16:18]
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Max, I hope you find it pleasant in Canada as around here we really prefer a state which just administers and takes as low a profile in the economy as possible.
The loan growth you talking is the favorite argument made by supply siders but in reality amounts to printing money. May I suggest some reading on the Austrian economic school, for example in around your own neighbourhood http://mises.ca/about/ Reply to the comment answer
~International Citizen [10.12.2012, 16:26]
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..as around here we really prefer a state which just administers....
LOL, around here just reaches 30km north of TLL and 150km south. Impressing sphere of economical stubbornness. Reply to the comment answer
~Eesti rules [10.12.2012, 17:37]
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Fire most of the bureaucrats, including Ilves and Unzip. Reply to the comment answer
~aaron [10.12.2012, 17:56]
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Looks like Mr. Max has invested heavily in Estonian real estate and is looking out for an exit. Estonian government policies are well in course. Govt. can very well expand revenues by introducing corporate tax. Reply to the comment answer
~Kratt [10.12.2012, 19:04]
It does seem like he has some other motive. He didn't mention declining birthrate (only emigration) and its effect on the population. Real estate is not a good solution in a country where demand is steadily dropping because the number of people is dropping.
~ameeriklane [10.12.2012, 19:29]
And to prove my point about the declining demand for real estate, I just did a search on City24.ee for apartments for sale in Valga county. There are more than 50 apartments for sale for less than 5,000 EUR, and some are right in the center of town in Valga city.

Why so cheap? Because people have been leaving Valga for other parts of Estonia due to lack of jobs, and the declining birthrate means there is no one else interested in purchasing the apartments.

Here's what 4,000 EUR can buy:

Next time you're thinking about buying a new car, think again -- you can buy 10 apartments in Valga for the same price!
~ameeriklane [10.12.2012, 19:42]
thank you for your comments, Top Connect is involved in Telecom and IT, so I personally have zero interest in Estonian real estate.
~Max [10.12.2012, 19:55]
Thanks for clearing that up. So what are your reasons behind trying to make it easier for people to buy real estate, when the values are likely to go down over time due to declining demand? Wouldn't that just result in people with low ability to afford real estate ending up with an asset that loses value? That seems to be exactly what caused the problem in the US in the first place.
~ameeriklane [10.12.2012, 21:35]
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I live in the U.S. but have been going to Estonia yearly since 1967. The Comments so far are correct, and, the Canadian is well intentioned. Knowing what we all know happened in the last decade, and since 1992 in Estonia, Latvia, Lithuania, Ireland (big time), and throughout Europe, was a building boom. In the U.S., in many cases it was low or NO down payment. People getting into houses they could ill afford on terms that would come to haunt them, the Banks, and the bail out by us tax payers. A 5% down payment might start a buying and construction movement but "BUBBLE" is the catch word here. Be careful, you might get what you wish for. The emigration and low birth rate are a big issue that stymies best intentions. When one does not have discretionary income where is it easy to cut,fewer kids. Putting off marriage. Seeking solvency and security. Finding meaning in "things" versus older family oriented values. Maybe something as simple as raising tax deductions for having children. Brain storm it, run things up the ol' flag pole. Reply to the comment answer
~Ken [10.12.2012, 20:10]
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Given Estonia's small size, I doubt domestic demand could be an important driver for the economy. Exports are key - and actually, Estonia is not doing too badly:


Estonia exports 5 times as much as it did a decade ago. Also, what comes to birth rate, there's 23% growth since 2000:


A few years ago there was indeed a bubble in the economy - not least in the real estate sector - which is not there anymore. In general, I wouldn't be very pessimistic about the outlook. There's room for improvement, but little reasons to make any 90 degree (not to talk about 180 degree) turns.

The government should remain lean and unobtrusive. Unfortunately the EU is not actually helping with this goal - instead, it's bringing along a number of different programs which help the state to become a more active player in the economy. Especially the innovation-related programs are frightening and should be foiled. Reply to the comment answer
~Jay [10.12.2012, 22:09]
I think the data you are looking at for births is birth _rate_ not number of births, so a declining population makes the birth rate go up, even if the actual number of births did not.

According to this Delfi article from last week, births to date in 2012 are at a 7-year low:

They are down by more than 500 compared to the same time last year, and that's a pretty sizable number considering that there were fewer than 12,000 babies born through the end of October this year (and 1,000 more people died than were born during that same period this year).

I guess it all depends on how you look at it, but I maintain that the population decline (through declining births and emigration) is serious and probably one of the biggest long-term issues facing the country.
~ameeriklane [11.12.2012, 08:29]
Ameriiklane, I was intentionally checking the birth rate, as I wasn't sure people are increasingly unwilling to breed due to "the current situation" (whatever it means for different people).

However, I share your concern about shrinking population. Selective immigration policy would be the way to go - your suggestions (in your reply to Max) make a lot of sense. The last thing Estonia should do is to adopt immigration policies from the Nordic Countries - those countries get what they deserve (which is not what they wanted) :(
~Jay [11.12.2012, 09:59]
"Selective immigration policy would be the way to go... The last thing Estonia should do is to adopt immigration policies from the Nordic Countries "

Except what does Estonia have that will attract these elite candidates who would pass these high standards? Why would they waste their time and efforts when there are so many other countries with higher quality of life that are clamouring for their skills? Estonia can't even (a) get their own "talent home" (b) stop talent leaving (c) get their own people to breed enough of this this "talent" and (d) can't attract talent from the continent wide EU, even from wretchedly poor countries like Bulgaria or Rumania.

So I am really curious what ace-in-the-hole it holds that will miraculously attract this elite class of immigrant.

This is not an argument for mass immigration by the way. I just always find it amusing hearing that somehow Estonia is going to attract only top-quality immigrants when even rich countries like the Nordics haven't quite mastered that neat trick.
~dreams of a contracting country [12.12.2012, 01:24]
"Except what does Estonia have that will attract these elite candidates who would pass these high standards?"

Estonia should forget about the elite candidates. However, there are trades - like shipbuilding, some areas of construction and IT, for instance - where it's difficult to recruit people. At the same time, it's very laboursome to recruit people from outside of the EU. I have seen myself CVs from people from Egypt, India, Nepal, Chile etc applying for positions advertised on Estonian recruitment portals. It should be made easier to hire these people. Of course, if they end up unemployed in Estonia or commit crimes, they should be sent back without hesitation.

Finland has attracted lots of students from China, India etc by offering free university education. The problem is - the students leave Finland immediately after getting their grade. Estonia could introduce a bit similar program, but expect the students to work for companies while studying. Or, university would be for pay, but after getting their grades the graduates would get their money back over the next 5 years - if they keep on working in Estonia.
~Jay [12.12.2012, 10:28]
Lots of proposals on here, some quite unnecessary ones and some good recommendation. If you want stable population growth you ultimately need to boost the birthrate, sure skilled immigration is fine but it's only a viable short term solution because if people don't have enough kids, the population will decline anyway (cases in point: Germany were the population is declining despite immigration due to low birthrates and Austria and Norway were only the immigrant population is growing naturally).

Russia seems to have managed to reverse their negative natural population decline in recent years and countries like Estonia and Belarus are on the verge of it. A few years ago, Poland, Slovakia and the Czech Republic were declining but the trend has since reversed. Personally, I would wait a few years to see if population trends do pick up naturally before resorting to any drastic proposals that may prove very unpopular and which might seem like a good idea now will only create more problems than they solve as in what we are seeing in Western Europe.
~Prodigy [12.12.2012, 21:17]
Oops. Posted that in the wrong thread, sorry.
~Prodigy [12.12.2012, 21:20]
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Hi ameeriklane,
Thank you for your comment.
I do not care about real estate as such, real estate is just a convenient and readily available tool to increase money supply and income levels. Same can be done with other asset classes, but real estate seems to be the easiest and most obvious. There are other investment vehicles which are less convenient in my opinion due to potentially negative economic value, such as "green energy". Overall I agree a bubble in real estate could develop at some point, but equally or more dangerous is a path of doing nothing. Reply to the comment answer
~Max [10.12.2012, 22:15]
I agree with you that doing nothing is a poor way to go into the future, though I don't think improving access to housing loans will solve the problem.

I'd say instead the government can reduce spending, and then focus that money on programs to directly improve quality of life, or give that money back to taxpayers.

Here is how I'd do it:

1. Eliminate all local governments, except for the 5 largest cities in the country by population. For everyone else, local matters will be handled at the county level. Towns of 3,000 or less, like Abja village, simply don't need an entire local government in place.

2. Close all elementary and high schools with fewer than 30 students per grade level. There are schools out there with 2 kids in the 3rd grade.. this is neither efficient nor a good education for those kids.

3. In universities, remove funding for all free spaces to study skills that are not needed in the current job market, and instead spend that money to offer more free spaces in high-demand fields. Students can still study subjects like "Semiotics and Cultural Studies" and "Russian and Slavonic Philology" (both are actual majors at Tartu University), but they'll have to pay. If they want to study computer science, engineering, or any other in-demand field, then they can study for free.

4. Reform parliament. Drop it from 101 members to 51 members, and lease a standard car for each of them, and they can drive that or pay for their own car. Re-link their salaries to a multiple of the average wage in Estonia (it was de-linked a few years ago). Require that if you are elected, and you decide not to serve in the position, then your seat will be vacant until a new election is held, instead of allowing your party to insert someone who was not actually elected by the people. This won't save a big amount of money, but I think it will help to restore trust in government and eliminate many potentials for scandals and corruption.

5. Use a points-based immigration system, similar to Canada's. In that system, as long as you have certain skills or connections to the country, you can move there.

6. Drop Estonian as the national language so that there is no national language (similar to the US), or add English as a national language. This will encourage immigration.

I realize some of these proposals are drastic, but those are the types of decisions needed to turn the country around. Even with some of the more positive projects from the Statistics board, and the Estonian population will drop by around 100k by 2050. That's the number of people living in the 2nd largest city in the country. Can the country manage if the population Tartu disappeared?
~ameeriklane [11.12.2012, 08:47]
Great insight and advice ameeriklane; too bad such advice will never be considered by the eesti good ole boys club. The reforms you suggested would upset their control over the government and the people. Sad but true.
~zebber [11.12.2012, 10:40]
Fully agree with ameeriklane.
~knut albers [11.12.2012, 11:05]
Same time, let's not forget that none of the above by ameeriklane is ever going to happen in Estonia. Not with the government at least.
~knut albers [11.12.2012, 13:55]
Now that is a flag pole to brain storm on I'd say. Lots of good ideas. Plus, many others in the thread above. By the way, with many relatives in Estonia, I am impressed with their extremely generous benefit that has one of the parents being allowed to stay home with the new baby for over a year, while they still keep their jobs and seniority. The man or the woman can be the caretaker. I think I have that right. That seems like an incentive to have kids I'd say.
~Ken [11.12.2012, 22:58]
Ken: That's what is interesting about the benefits for having a child. They added those generous benefits in a few years ago, and yet we still see a decline in the number of children being born.

The theory I have heard is that it causes a temporary spike in the number of children, only because people seize this benefit as they think it will be discontinued later... but it doesn't change the number of children people have, but merely when they have them.

I can see how that theory makes sense. Having a child is extremely expensive, and even a generous family leave policy doesn't come close to covering all the costs involved.
~ameeriklane [12.12.2012, 01:52]
Why should any country "drop" their national language in favour of English just to score globalization points? Sweden gets more immigrants per capita than the UK and they don't have English as an official language, also I feel sorry for any country that would get the kind of immigrants Sweden gets, same with the UK. You've been living too long in America, "Ameeriklane." By your logic a country like Iceland should just "give up" because they are so small population-wise and adopt English as their national language!
~Dude [12.12.2012, 15:56]
Also, Germany's population is going to fall by 15 million over the next 5 decades even though they've had 4 decades of immigration. The proportion of young people is the same as in a country like Poland which has had no immigration in the last 4 decades. What do you suppose the Germans should do, oh great "Ameeriklane?" Perhaps adopt English and Mandarin as national languages?
~Dude [12.12.2012, 16:03]
Germany is a world language and the most widely spoken first language in the EU. It is taught in schools around the world. Estonian just doesn't compare.

Plenty of countries have adopted English as an official language, including Hong Kong, Philippines, and Singapore. Rwanda even switched from French to English a few years ago.

I'm not proposing that Estonian be eliminated. However, groups like the language police (officially the "language inspectors") that go around and fine companies for not having a sign or document in Estonian, even if their customers don't care, is in no way productive. Nothing is gained by forcing lounges in Estonia to rename to "sohvabaar" because "lounge" is not an Estonian word (that's a true story).

I do indeed think the language rules are a barrier to immigration. Yes, Sweden has plenty of immigrants, but Sweden also has a lot more to offer than Estonia. If Estonia puts up barrier after barrier to immigration, things are going to go downhill fast.

As I commented on the ERR report today, the census report published today shows the population of Estonia declined by more than 75k in that last 11 years. That's the same as the populations of Parnu, Viljandi, and Paide _combined_. The government should be doing everything possible to reverse this trend, or we'll have another few cities' worth of people disappear in the next decade too.
~ameeriklane [12.12.2012, 16:28]
OK, I'm sorry if I sounded a bit harsh in my initial comments. Realistically, I think the only labour market that is feasible is Russia. And yes, I know this is not going to be a popular proposal, but think about this, there are more skilled Russians looking to emigrate than there are people in Estonia. Russians are (despite what some nationalists claim) actually quite close to Estonians culturally and Estonia already has a large Russian community, so importing a few extra skilled labourers wouldn't be much difference.

Poorer Southern Europeans and non-Europeans from Asia and elsewhere are going to move to Western Europe (for better wages among many other reasons), so realistically I think if Estonia wants to attract immigrants, countries like Russia, Belarus, Ukraine, Moldova, Kazakhstan, Georgia and Armenia are the most realistic options (and of course I'm talking about skilled labour, we all know what happens with large numbers of unskilled labour arriving in a country).

Ultimately this would also be a cheaper proposal than trying to completely rework the country with things like changing the national language which won't go down well with the general population.
~Dude [12.12.2012, 16:58]
To add to my comment, if you look at current migration trends, Russia is currently Estonia's #1 source of immigrants and in recent years there have been more Russians moving to Estonia than leaving it (check Statistics Estonia and Eurostat if you don't believe me).

Russia is also Estonia's third largest trading partner, I understand Estonians' fears of Russia, but a healthy working relationship like Russia has with for example Finland would be more productive than the current one.

And no, I'm not Russian nor am I affiliated with Keskerakond or Edgar Savisaar!
~Dude [12.12.2012, 17:04]
Lots of proposals on here, some quite unnecessary ones and some good recommendation. If you want stable population growth you ultimately need to boost the birthrate, sure skilled immigration is fine but it's only a viable short term solution because if people don't have enough kids, the population will decline anyway (cases in point: Germany were the population is declining despite immigration due to low birthrates and Austria and Norway were only the immigrant population is growing naturally).

Russia seems to have managed to reverse their negative natural population decline in recent years and countries like Estonia and Belarus are on the verge of it. A few years ago, Poland, Slovakia and the Czech Republic were declining but the trend has since reversed. Personally, I would wait a few years to see if population trends do pick up naturally before resorting to any drastic proposals that may prove very unpopular and which might seem like a good idea now will only create more problems than they solve as in what we are seeing in Western Europe.
~Prodigy [12.12.2012, 21:18]
It should be also said that the decline of the population in Germany is not as critical as in Estonia, as they do have a lot more human capital "reserves" and they also do still have a net migration rate surplus (not that impressive anymore since 2003 though).

I agree with ameeriklane that the decline of one of EU's smallest populations (and geographically speaking already the most depopulated region) is indeed Estonia's primary long term concern, meanwhile Germany's biggest long term concern are their debts per capita that will be harder to manage when facing a declining population.

Economically speaking that means Estonia faces long term limitations in extending its relative low commercial welfare (in EU comparison), meanwhile Germany will face a general drop in its relative high commercial welfare level.

In any case, a controlled increase in migration levels of skilled workers seems to be the most feasable option for both countries to resolve their primary problems, as an increase in birth rates can not be forced and on top, extremely expensive programs would be required and anypossible positive results would not apply economically before 18-20 years from now, even if the birth rate levels would suddenly reach sustainable levels in both countries.

Just make sure to avoid the same mistakes of uncontrolled mass immigration Germany did back in the sixties and seventies, the country is still struggle to cope with due to lack of a proper integration process back then.

Just make Estonia become a country of positive immigration with a good mixture of cosmopolitan, but patriotic integration measurements - not chauwinism and nationalism of superiority that scares the potentials away from here.

If Estonia currently lacks something, then this is a national feeling where it is common sense that this country is for everyone worth to breath, live and to defend by anyone living here regardless of their cultural background.
~knut albers [13.12.2012, 12:36]
"I'm not proposing that Estonian be eliminated." To compromise on this, it should be respected that Estonia is an Estonian State as a domain for Estonians (like Israel is a Jewish State), where Estonian language always shall be the primary official language and its culture shall be preserved (which is anyway constituted already).

See, my child is Estonian by birth and it would be ridiculous to undermine the culture my child is growing up with.

This to be said, however, doesn't mean that Estonian shall be the only official language in a region, where different langauges and their cutlures are taking place, nor that this country is for Estonians only.

If English is the language culturual minorities can agree on as a secondary official language (which makes economically most sense anyway in a global economy where English is the primary spoken language of int'l trade), then why not go for it.

Also there could be official minority languages on top of that, because if we consider the language and cultural rights of Estonians to be especially important, then I do not see why this should not apply to immigrants and their language and cultural rights as well.

At the same time, we shall also demand, that all peoples living here, respect and are devoted to this country and its basic roots of existence, but that also requies a climate that enables people to be proud of this country, for being able to do what they want and be who they want to be, because it is a country of choice, not a country of force, for instance.
~knut albers [13.12.2012, 13:10]
Good comments, knut. I think you've outlined everything quite good, I just have one thing to add, you said: "Also there could be official minority languages on top of that"

As far as I know, Estonia has two very small minorities, Ingrian Finns and Estonian Swedes (both communities less than 1,000 people each, but with roots going back hundreds of years in Estonia) who have their cultural autonomy recognized. I think Noarootsi vald in Western Estonia even has Swedish as a co-official language with Estonian, though in practice there are so few Swedes there everybody speaks Estonian.
~Dude [13.12.2012, 14:00]
"I think Noarootsi vald in Western Estonia even has Swedish as a co-official language with Estonian, though in practice there are so few Swedes there everybody speaks Estonian."

I believe these minorities are just to smalls to reason administrative assistance.

I would also never come to the idea to demand administrative assistance for my ~2,000 German fellows over here as this just doesn't make any sense and anyway we are widely scattered all over the place and therefore do not share our cultural heritage frequently and do not understand ourselves as a minor ethnicity, but usually simply as "expats" (for temporaries) or "emigrated" (for long term settlers) where the cultural care is limited to the private sphere with relatives in Germany or some friends and in a small group of regulars.

If most of your mentioned group settled in the same region, I do believe that there is a lot of cultural care going on privately in their communities and they also would get some culturual support from their home country and that is probably enough to them.

But I do believe it makes sense for larger communities where a common language is spoken in the first place that would be not covered by Estonian and English language (in a somewhat semi-official way in self administration, which exxentially would mean meanwhile Estonian and English would be the only official languages used for overall administrative tasks, there could be somewhat what is called in Estonia an "ombudsman" who deals with the people in their language and forwarding this then in one of the official languages - everything beyond would be also to costly, ineffective and would cause to much confusion, and btw, there are a lot of Estonian communities that do not need to run a bunch of full governance local insitutuions either, but recources could be shared/ combined with other or larger communities).
~knut albers [13.12.2012, 15:43]
Well knut, as I'm sure you know Germans have been living in Estonia for centuries and have made some pretty significant contributions, so I'm sure the German community could get cultural autonomy if they applied for it, but you are right, they are probably too geographically scattered and unorganized. Also, both the Swedish and German communities are now only a shadow of what they once were, of which the Soviet Occupation is to blame since the majority of people of both communities left or were forced out at the end of WW2.

Actually, I think German is the most spoken foreign language after English among young people nowadays (I could be wrong on that, though), Russian is still easily the most spoken foreign language for the older generations.
~Dude [13.12.2012, 16:58]
Sure, and ultimately it should be up to those people wether they want that status or not.
~knut albers [14.12.2012, 14:07]
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From the Baltic Course web site: Against the background of the weak foreign demand, the domestic demand contributed substantially to the economic growth in Estonia (Q3, 2012). The domestic demand grew by 11% in the 3rd quarter.

Here you go, looks like domestic demand really is kicking in for now. Reply to the comment answer
~Jreb [10.12.2012, 23:48]
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Hi Jeb,
The economy is bouncing back from the lows reached in 2009, if economy collapses by 50% then it has to grow by 100% next year just to reach same plateau level, its a simple math formula.
If we look at the performance since 2009, then we notice Estonian GDP is still below its pre crises level, so there is not much to cheer about. Reply to the comment answer
~Max [11.12.2012, 00:21]
Max, given that the pre-crisis level in Estonia was pretty much about unsustainable debt-driven domestic demand (not least related to real estate), there's a lot to cheer about. The exports are doing better than ever before.
~Jay [11.12.2012, 21:07]
Max, Your suggestions are flawed on many levels. Both from an Aggregate Supply and Demand side as well as a an IS-LM approach.

You are taking a mix of Austrian and Keyensian approaches that in reality would have an almost opposite effect of building a bubble instead of sustainable growth.

I am well aware that you are good CEO and know the IT and Telecomms markets.

But that said, when an economist comes to you and suggests how to run your business, you scoff and say they do not know the details. Same here... Stick to your subject matter, just because you are a CEO does not make you an expert on everything.

It is the classic case of the lawyer who thinks that once they are a laywer, they can make judgements on Chemistry, Physics, Statistics, and Medicine.

So Aitah for your article, but at the same time you are muddling the waters with policy ideas that will not work outside of building a bubble that will burst.

In order to implment real growth, focus on the following issues:
1. Technology.
2. Capital.
3. Labor.
4. HCI.
5. Reducing overhead costs.

Ameriklaane is correct but that said, we all know that none of his policies will be enacted due to short-term political ramifications.

That said, BBN, why do you not give Ameriklaane a monthly editorial???

Really, you publish Les Nemethy's innnane drivel, but do not ask Ameriklaane or Knut for their rather well documented and informed opinions? I really cannot comprehend how your editorial article selections work.
~@ Max [12.12.2012, 10:08]
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Ditto @Max on comment about "more from Ameriklaane" Reply to the comment answer
~Ken [12.12.2012, 13:51]
Also possible editorials from Knut along with Ameriklaane!
~Ken [12.12.2012, 14:34]
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Dear BBN,

~A4A+K [12.12.2012, 15:44]
I agree to a point but ameeriklane tends to go on about emigration when he married an Estonian and then proceeded to MOVE HER TO THE USA. A bit hypocritical, is it not? However, I have to agree that he is by far the best overall poster here because he backs his opinions up with good sources and doesn't resort to juvenile insults like some others do.
~... [12.12.2012, 23:28]
Actually I'd say it's the opposite of being hypocritical. If I was the cheerleader for Estonia and said nothing was wrong, then indeed moving out of the country would be hypocritical.

That's not to say the US is perfect, as it certainly is not (particularly the dysfunctional Congress lately). However, in my opinion, the US has a better long-term outlook than Estonia, and that's one of the reasons I moved.
~ameeriklane [13.12.2012, 12:27]
Ameeriklane, wait a second. Are you seriously comparing the US to Estonia when in a prior comment you just dismissed the comparison of Estonia to Germany as irrelevant since Germany is so much larger than Estonia? In that regard, isn't the comparison to the US even more outrageous? Just an observation.
~Prodigy [13.12.2012, 14:04]
I'm comparing the US to Estonia in terms of my decision for which country to live in, since those were the two main options open to me.
~ameeriklane [13.12.2012, 16:07]
Oh, I see.
~Prodigy [13.12.2012, 17:01]
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