Former Banker Takes Blame for Estonia's 2007 Crisis ({{commentsTotal}})

Erkki Raasuke Source: Photo: ERR

A former executive of Hansapank and Swedbank (the first was acquired by the second), Erkki Raasuke, said both banks and he personally are among those directly responsible for the economic crisis that struck Estonia a few years ago.

The following is an excerpt from a prime time ETV interview by journalist Indrek Treufeldt that aired Thursday evening. In addition to the discussion below, the two also talked about the erstwhile danger of the collapse of the Estonian kroon just years before joining the euro, and his concerns with next year's state budget.

Why did we abandon domestic banking and sell it off to foreigners?

We were just part of a bigger process. Estonia was by no means different from what was happening in the rest of Eastern Europe. There was a big wave of banks' expansion, which began in the second half of the 1990s and lasted basically until the beginning of the financial crisis in 2007-2008. Poland, Czech, Hungary, Romania, Bulgaria, the Baltics, even Ukraine […] the big banks of the West rushed into all of them with a tremendous speed. Of course, a competitive advantage emerged in the form of cheap financing, better skills and deeper pockets.

In that huge movement, it was inescapable.

So we couldn't have held on to [domestically owned banks]?

I think not. And even if we could have, then we know where we would be today. Volatility has been so enormous. I think it is probably even good that things went the way they did.

In another case, a major international journalism corporation [Eesti Meedia] abandoned Estonia and Estonians have recently bought it back. Would it be possible to do something similar with banks?

I doubt it. Balances can change over time, but they are still such big companies that it is hard to imagine that local capital will buy it out. We don't have that kind of wealth today. But there will certainly be changes and the power dynamic will be reorganized. A number of those that are fourth to eighth by size will at some point try to find an opportunity to do something together. I think we will see mergers as well.

How serious was the crisis [that hit Estonia in 2007]?

We began recognizing that there was a crisis in 2007 and at the end of 2008 it turned ugly. It was a really bad crisis. Considering the extent of economic contraction, it was about triple of what we could have predicted in the darkest of scenarios.

To what extent were the banks responsible for the crisis? After all, they were the ones who fueled the credit boom, creating a bubble in some sense.

[Their role] was quite big. If not for the influx of foreign money, the waves would certainly have been smaller.

In that sense you are also responsible for the crisis.

Absolutely. I think that ... there isn't even anything to think about here. Directly - and for the rest of my life.

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