Hansson: Austerity is Justified and for Some, the Only Choice
Newly sworn-in central bank governor Ardo Hansson, one of the architects of Estonia's 1990s monetary reform, has sounded off on this week's public clash over economic paradigms, underlining that a Keynesian approach may not even be an option for larger countries.
Hansson said on Vikerraadio that he did not consider "anti-austerity ideology" correct and said the current course of budget cuts is justified.
The debate, such as it has been, was touched off on June 6 by Paul Krugman, who asked in his blog whether Estonia should be viewed as a case study in the success of austerity. This drew a sharp reaction from Estonian President Toomas Hendrik Ilves, who pointed out that Estonia should not be faulted for complying with its duties as an EU member.
Hansson said that while it was an interesting discussion for a country with an ultra-low government debt such as Estonia, many larger countries had no choice but to cut and cut some more.
"In a situation where government debt is already so high and you have major difficulties financing it, it is irresponsible to propose that the economy should be stimulated further," he said.
"Austerity policy is currently justified. Estonia's experience also shows that if you act resolutely, head off the crisis, control the process and hit rock bottom and then start rising rapidly, optimism is created. On the other hand, there is the problem that if you are in a country where the economy has been declining for 4-5 years constantly, people truly don't see a chance of rebounding."
Hansson said practical monetary policy measures could have only a short-term impact on the European economic crisis, but the main topic is fiscal policy and structural reforms, which each country must resolve itself.
"The main obstacles lie in member states' domestic economic policy. There the key questions are whether it is necessary to liberalize the labour market, improve the entrepreneurial environment, cut some expenditures, and so on," said Hansson.
Kristopher Rikken