Nasdaq Tallinn stock exchange chief: Estonia has wasted years

Kaarel Ots.
Kaarel Ots. Source: Priit Mürk/ERR

Estonia wasted a decade when credit money was cheaper and could have been invested in problem sectors, Nasdaq Tallinn stock exchange management chair Kaarel Ots told ERR's "Otse uudistemajast" Wednesday webcast.

"Given the current climate, where interest rates are rising and the demand for investment is screaming, it seems to me that ten years have been lost during which we could have made very important investments, primarily with borrowed money," the chair said.

Energy sector, which is essential for the green transition, as well as health and education, came up as the areas most in need of additional financing.

"I can't imagine such a favourable situation returning at the moment," he said speaking about the time when money markets could offer negative interest rates.

"An optimist might say that real interest rates are negative even now, as we borrow at 4 percent, while inflation is 20 percent. But let's turn it the other way round: if we, i.e. the state, had loans they would be much easier to repay today," Ots said.

About the suggestion that at least three major highways from Tallinn could have been built with borrowed money, Ots said that this topic is brought up before every election, but the main argument against it has always been that it would lead to higher inflation.

However, he said, this mindset has shifted somewhat since the U.S. and European central banks began printing money following the last financial crisis, distorting the economy.

"In 2020, when the ECB released every break and printed €2.5 trillion in two years, things had gone very strange. This was an unprecedented situation," he said.

Not war but money printing caused inflation

In response to a suggestion that inflation was caused by Russia's war in Ukraine, Ots said that he disagreed and that the primary cause was money printing.

"This is a common explanation. /—-/ It is the most immediate consequence of the central banks going solo. However, regular citizens must now sacrifice a lot. The money [printing] trick has never ended any other way than what we are witnessing right now. It has gone even worse. To believe that things will be different soon is wishful thinking," Ots said.

If Estonia were not a member of the Eurozone, the present inflation would result in a devaluation of the national currency, he added.

"Milton Friedman said that this is the only tax that can be imposed without changing the law," Ots continued. "It is also a psychological phenomenon. Real estate and stock markets have experienced rapid growth in recent years, which experts attribute to property price inflation. This suggests that people wanted to get rid of the cash they had in their possession or in their bank accounts because it was no longer worth what it used to be."

Ots said that he does not see how the inflation can be contained by increasing interest rates whether it is caused by rising energy prices, Covid or supply concerns.

"So the usual explanations do not apply—these were not the causes of the inflation," he said. "The reason remains that money was created out of thin air, spent as if there was no tomorrow, and now the consequence is here."

Green turn implementation, wrong start

The present greening trend that focuses excessively on lowering CO2 emissions is not cost-effective, Ots continued.

The European Commission's plan to make the European Union climate neutral by 2050 is a "fantasy," he said. The green revolution is mainly about a circular economy and more sustainable living, whereas we have a "tunnel vision" and are only concerned with CO2 reduction.

Ots is also skeptical that Estonia will be able to offer climate-neutral electricity by 2030, as promised, because such fundamental changes should have been preceded by a thorough cost-benefit analysis.

"After all, we're the ones footing the bill. Obviously, it's worth discussing," he said.

Ots added that he has heard major leaders say at multiple seminars that the green transition will not occur at the expense of the economy. "And they also say that the middle class must tighten their belts. As one of the speakers remarked, high costs motivate people to act."


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Editor: Kristina Kersa

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