Hansson: state bond issue will not boost economy in long term
Speaking in front of Parliament on Tuesday, Bank of Estonia Governor Ardo Hansson commented on the bond purchase issue saying economic history does not prove state bond issue will lead to long-term economic growth.
“Long-term economic growth is out of the hands of the central bank. The economy could become bloated in the short-term but long-term growth can come from increasing productivity in the private sector or government economic reforms,” he said.
Hansson said the central bank can encourage investors to look elsewhere by buying up private sector assets. This would liven up the Eurozone and increase inflation.
But then the private sector must begin investing more, and they have to believe that economic growth is forthcoming, Hansson said, adding that only state economic reforms will boost the confidence to invest. “It is high tide for the governments of the Eurozone to implement reforms to build trust and increase investments in the economy.”
Hansson praised the financial policy of Estonia, saying low debt rates are an asset during hard times.
A recent project by the European Central Bank will see Estonia purchase three billion euros worth of bonds. As the Estonian government is not a keen issuer of bonds, public debate has opened up on the subject. Many, including a number of political parties, have said Estonia should issue bonds to keep the money in Estonia, especially as the resulting inflation of the euro will drive down loan repayments. Others have said Estonia should stick with its financial prudency, which has won it many fans outside its borders.