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from MacroScope:

A small step back?

A reported 0300 GMT deadline, which Russian forces denied had been issued, for Ukraine’s troops to disarm in Crimea or face the consequences has passed without incident and in the last hour President Vladimir Putin has ordered troops that took part in military exercises in western Russia to return to base.

That has helped lift the euro but the situation remains incredibly tense. Russia’s stock market is up a little over two percent and the rouble has found a footing but they are nowhere near clawing back Monday’s precipitous losses.

The West may have no military card to play – and its ability to impose meaningful sanctions is untested as yet – but the markets reminded Putin in no uncertain terms yesterday that there is a price to pay for war mongering.

The rouble plunged, Russian stocks dropped 11 percent and the central bank raised interest rates by a full point and a half and then blew $12 billion of its reserves trying to prop up the currency, hardly an ideal policy response for an economy that is already struggling. If in the longer term foreign investment dries up things could get quite nasty. 

from Global Investing:

New frontiers to outpace emerging markets

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Fund managers searching for yield are increasing exposure to frontier markets (FM) as a diversification from emerging markets (EM), as the latter have been offering negative relative returns since January, according to MSCI data.

Barings Asset Management  said on Monday it plans to launch a frontier markets fund in coming weeks, with a projected 70 percent exposure to frontier markets such as Nigeria, Saudi Arabia, the UAE, Sri Lanka and Ukraine.

from Photographers' Blog:

Sauna marathon

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Otepaa, Estonia

By Ints Kalnins

Going to the sauna is an ancient tradition in Estonia. Almost every home owner has at least a small sauna in his/her house or backyard.

Going to a sauna has always been important for socializing, even in ancient times.

from Left field:

Both teams got the Euro 2012 playoff draw they wanted

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By Philip O’Connor in Stockholm

It wasn’t just Irish eyes that were smiling when the Euro 2012 playoff draw was made in Polish city of Krakow - some of the Football Association of Ireland (FAI) delegation appeared to be laughing out loud when they were drawn to face Estonia, with the winner heading to next year’s finals.

But despite the protestations of coach Tarmo Ruutli, Ireland probably represents the best possible draw for the Estonians, given that the other alternatives were Portugal, Croatia or the Czech Republic.

from Left field:

Euro 2012 playoffs renew recent rivalries

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 By Zoran Milosavljevic

The Euro 2012 two-legged playoffs should offer plenty of action and eight entertaining matches, with the last four berths in next year's finals up for grabs.

While Ireland will start as strong favourites against Estonia, the other three ties appear set to be nerve-jangling affairs in which two former Yugoslav repubics will be eager to avenge painful defeats against their respective opponents, while another is aiming to make history in only their second tournament as an independent nation.

from Global News Journal:

Playing with inflated numbers

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Most people would agree that the European Union and the euro single currency are part of a grand political and economic vision. But at times they are also a bit of a numbers game.

As Greece has shown with its less-than-reliable economic statistics, numbers can be fiddled to get budget deficits and debts down and meet the criteria to join the euro.

from Left field:

Former Estonian bouncer adds Baltic spice to sumo

Baruto throws his weight around

Baruto throws his weight around

After the nightclub fracas that toppled a Mongolian grand champion from grace who would have thought it would take a former bouncer from Estonia to help clean up the mess in the troubled world of sumo?

The soft-spoken giant Baruto gave the ancient Japanese sport a shot in the arm after sealing his promotion to the sport's second highest rank of "ozeki" with a 14-1 showing at the spring grand sumo tournament less than two months after "yokozuna" Asashoryu quit in disgrace amid a "booze rage" probe.

from Global News Journal:

Lapland’s part in EU foreign policy

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Last weekend, Finland's foreign minister gathered six of his colleagues and the EU's foreign affairs chief, Catherine Ashton, in the frozen far reaches of Lapland for two days of talks on the future of European foreign policy.

As informal ministerial gatherings go, it was a rather jolly (if cold) affair, complete with a 'family photo' taken with a pair of nervous reindeer, a chance to see the northern lights and activities such as skiing, sledging and snow-mobiling. Some of the ministers even brought along their families.

from MacroScope:

Lack of debt Estonia’s undoing?

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tallinnsonganddance

Low public debt would usually be a good thing, but it might throw a spanner in the works of Estonia's quest to join the euro zone.

The small Baltic country has a stable currency, its deficits and inflation meet European Union rules, and its top policymakers exude confidence the country will adopt the euro next year.

from Commentaries:

IMF thumbs-down to flat tax raises doubts

If the IMF thinks it's time for Latvia to move away from its flat income tax, that must surely signal some kind of sea change among free-market conservatives.
    Flat taxes have got the citizens of former Communist east European countries used to the idea of paying tax on income. But they have often not lived up to their billing for revenue generation or fairness. In hard times, the IMF's Anne-Marie Gulde concluded in Riga, social cohesion demands that the better-off make a bigger contribution to meeting the costs of the financial crisis.
    Latvia was in the first wave of more than a dozen ex-communist European countries that have implemented a single rate of tax for personal earned income. The so-called "Baltic tigers" enjoyed among the highest growth rates in Europe in the last decade. But all three face a severe economic contraction due to the unwinding of massive balance of payments deficits caused by a cheap credit binge.
    Now public spending cuts are reaching a political pain threshold, the IMF is keen to avoid past mistakes in Latin America and Asia by emphasising the need to preserve the social fabric.
    The flat tax was seen as business-friendly and attracted foreign investment, while persuading wary citizens to start paying tax and businesses to go legal. Bulgaria's rate, at 10 percent, encouraged employers to stop paying wages in cash. In developed Western economies, calls for a flat tax have mostly been a euphemism for cutting impositions on the rich.
    Supporters contend that a flat tax is simple and cheap to administer, discourages tax evasion and encourages employment. Opponents say it is regressive because it places an unfair burden on those in the middle (the poorest usually fall below a tax-free threshold).
    Flat taxes in eastern Europe often exclude capital gains, taxed at a lower rate or not at all, along with dividends, inheritance and other income.
    A 2006 study by three IMF economists (*) concluded that key arguments on both sides of the debate were not supported by the facts. In particular, the evidence that lowering taxes on the better-paid generates additional revenue, as theorised by U.S. economist Arthur Laffer, is inconclusive.
    The authors found "no sign of Laffer-type behavioural responses generating revenue increases from the tax cut elements of these reforms".
    It's too early to read the rites on the flat tax in eastern Europe, but the omens are not good. As the IMF researchers concluded: "The question is not so much whether more countries will adopt a flat tax as whether those that have will move away from it."
    * The Flat Tax(es): Principles and Evidence, by Michael Keen, Yitae Kim and Ricardo Varsano, IMF Working Paper, 2006 http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf

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