Hansson: structural reform, not finance policy behind long-term growth

Bank of Estonia Governor Ardo Hansson Photo: Postimees/Scanpix
10/5/2015 11:03 AM
Category: Economy

Bank of Estonia Governor Ardo Hansson said that finance policy, which has seen Estonia avoid large-scale borrowing, and keep the budget balanced, will not influence long-term economic growth.

Hansson said experts agree that in the long run, the amount of money has little effect on economic growth, adding that it does impact the stability of prices. The aim on central banks in Europe is to keep inflation below 2 percent, but not much lower.

“The independence of a central bank is paramount to keeping inflation in check, as history has shown that if the government is allowed to print money, then often inflation skyrockets,” Hansson said.

Budget and finance policy can be used to smooth over effects from economic cycles, he said.

“Despite the increased role of central banks in economic policy, it is important to understand that finance policy is no substitute to structural reform. Investments into human resources and fixed assets are more important in the long-term and for economic development. Reforms improve competitiveness and develop the investment environment,” he said.

J.M. Laats

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