Interview with Ardo Hansson, Governor of Eesti Pank
Interview with Süddeutsche Zeitung
Ardo Hansson, Governor of Eesti Pank
Conducted by Markus Zydra on 20 November
Published on 24 November 2012
SZ: You have been working at the Governing Council of the ECB for six months. How was your first appearance in a meeting, what did Mario Draghi, the ECB’s president, say to you?
Ardo Hansson: He said welcome in a very friendly way. I do not know what I expected then but it was a very nice and friendly welcome without many words.
SZ: Besides the words “Welcome Mr Hansson”, was there nothing more?
Hansson: I guess he then said, let us start work. The meetings are very businesslike, very technical and highly professional.
SZ: In an Estonian newspaper you were presented as being close to Mr. Draghi.
Hansson: We get along extremely well, but I do not want to comment on that quote in the Estonian press, it was taken from a gossip column.
SZ: You studied in Harvard and most recently worked as a China expert for the World Bank. Does Mario Draghi rely on your advice about the big picture?
Hansson: Every member on the Governing Council has different backgrounds and knowledge, as for China I can contribute something.
SZ: You were born and raised in the US. Why did you decide to return to Estonia in 1991?
Hansson: My parents were refugees during the Second World War. I had a very European and Estonian upbringing in the US. After the collapse of the Soviet system I wanted to be involved in rebuilding my country.
SZ: Now you are the governor of a small central bank in a small country. Do you feel small at the ECB’s Governing Council?
Hansson: Yes and no. I feel small because we have the smallest staff in the Eurozone. Our team is doing a great job, but you feel there is the difference that all small central banks in the Eurozone face: the challenge that you cannot get involved in all issues at great depth. Many issues are extremely technical.
SZ: But you speak up on the ECB board?
Hansson: If you are constructive and you have something to offer, a member from a small country does not ex ante get treated differently. But the more experience and technical expertise you have, that bit better prepared you are to contribute.
SZ: German politicians complain about small central banks like the Estonian one having the same voting weight as the Bundesbank. What do you think?
Hansson: It has been set up that way, we are all appointed by central banks, but we go there as individuals and Europeans, and that improves the atmosphere of the discussions. It seems to work fine with the current voting rights. And if you changed it, it would not change for the better.
SZ: Why is that?
Hansson: Because it would destroy the idea of each member representing Europe as a whole. Different voting rights could mean the ECB becoming more political.
SZ: The former French president Valéry Giscard d’Estaing said the other day that Europe needed a political union to match China in global negotiations.
Hansson: In trade policies we already have this union, so Europe sits at the table.
SZ: What can we learn from China?
Hansson: What I liked in China was that it was very pragmatic. Deng Xiao Ping famously said it does not matter whether it is a white or black cat – as long as it catches mice. So, some problems might best be solved on a European level, others on a national level. In the ongoing Euro-crisis the bulk of what needs to be done is on the national level.
SZ: The national governments need help in this. The ECB has started to buy government bonds under certain conditions in order to lower the interest rate burden for Spain. Therefore the ECB needs to decide at which interest rate to intervene. How do you define that?
Hansson: We should not lock in a number, there is no formula. The rate will be changing over time; it is just that extreme risks should be removed from the equation, like unwarranted fears related to the future of the euro. You are not going to guarantee a certain maximum yield. Some countries may see their yields rising simply because the wrong policies have been followed, and this is not something one should reward.
SZ: The ECB is claimed to be the only potent actor in this crisis because politics is too weak. Is that right?
Hansson: The ECB is a well-functioning EU-institution, we are more ready than most other EU-institutions. I hope the ESM will play the same role.
SZ: The euro rescue fund, the ESM, has 500 billion euros and is authorised by parliament. So it is the ESM, and not the ECB, that is responsible for the rescue?
Hansson: Yes, since it is about financing budgets it is basically a government thing. The ESM should be ready to act.
SZ: Estonia first joined the Euro area in 2011 and shortly before that the country experienced a sharp recession from which you recovered yourself – without any help from the ECB or IMF.
Hansson: Yes, it is possible and in some ways it is the best option. Politicans can always create a strong fiscal package and accept a sharp recession.
SZ: And then lose elections?
Hansson: Then they must tell the people we will have two bad years and at the same time convey confidence that we will make it. You reach the bottom quickly and you are out of trouble faster.
SZ: Was Estonia worse off in 2009 than Spain or Ireland now?
Hansson: We had a deeper and sharper recession than any other Euro-country today. The economy shrank 14.6 percent in 2009, but after 1.5 years we were back on a track of growth. And we did not devalue...
SZ: ... since you had pegged the kroon first to the D-mark and later to the Euro. Many Germans find the ECB should not start printing money.
Hansson: Every country has its history and justified pride in what was achieved before. But in this global crisis all larger central banks in the world are looking to do things a little differently than they would have done otherwise. We needed this pragmatism, for it was all about rebuilidng confidence.
SZ: The ECB buys government bonds if the countries who benefit implement reform programmes. How important is the OMT-conditionality?
Hansson: For me this conditionality was fundamental and central. It is not a blank cheque and we decide independently.
SZ: Would the ECB really say no to bond purchases and put a Euro-member back into crisis mode?
Hansson: This is a challenge and we have not tried it yet. But yes, we have to stick to it.
SZ: Is it possible that the Troika could say that the conditions have been met – and that the ECB could then say no to market intervention?
Hansson: It would not be acceptable if the Troika told us how to set monetary policy. Some might find this frustrating, but none of our decisions are ever precommitted.
SZ: What is the major political difference between Estonia and the rest of the Eurozone members?
Hansson: The most striking difference is public debt. Ours is now at less than ten percent of GDP and our government has enough cash reserves to pay it back immediately.
SZ: So Estonia is basically debt free?
Hansson: Yes, we did not have to spend our reserves even though we had a sharp recession. That attitude is very strong here, not putting all the costs onto future generations. All parties and different governments agreed on it. We have the reserves to act when times get really bad. Other governments in Europe have lost their policy space due to financial constraints.
SZ: What is your advice?
Hansson: One should not fear a period of recesssion to get back on a good path. The decline is hard but this is a temporary price to pay. You should not resist the process because that is where the economy is trying to get to.