Governor of Eesti Pank, Ardo Hansson, said to the Parliament that the central bank could not create long-term growth by buying sovereign bonds.
At the end of January, the Governing Council of the European Central Bank decided to start monthly asset purchases of 60 billion euros. It is planned that the monthly purchases will be made from March this year until September 2016 and the bonds issued by governments of the euro area and European institutions will be purchased. This decision sparked a debate in Estonia whether the country should also issue bonds and use money to finance large infrastructure projects, for example.
But the Eesti Pank chief is not in favor of the program. Speaking to the finance committee of the Estonian Parliament Riigikogu about the asset purchase program of the central banks of the euro area, Hansson said that economic history shows that central banks are not able to create long-term economic growth through large-scale purchases of government bonds.
“Long-term growth is not within the power of a central bank to create. The bank can boost an economy in the short term, but long-term growth can only come from increased productivity in the private sector and economic reforms from the government,” Hansson said, according to Eesti Pank.
Hansson said that Estonia’s fiscal policy has remained stable during the recession and noted that Estonia has managed to keep its state debt low. “This is an advantage for the country in more difficult economic times, and it is important that countries keep to the fiscal rules even with the debate now surrounding these bonds.”
Hanson added, however, that Estonia benefits from the asset purchases of the central banks because borrowing becomes cheaper for people and companies in Estonia.
Editor: S. Tambur