Lessons from the monetary reform: we again need solidarity and clear goals
Eesti Pank today celebrated the 30th anniversary of the entry into circulation of the Estonian kroon with a seminar where some of the key figures of the time and a foreign guest the Vice President of the German Bundesbank, Claudia Maria Buch, shared their memories and experiences of the reform.
“What an extraordinary and groundbreaking time it was”, said Governor of Eesti Pank Madis Müller in his opening speech. It was not just the times that were extraordinary, but so were the people. “Several decisions and reforms were taken at the time that were difficult and painful”, he commented. “The difficult decisions were taken despite ignorance and fear, as they had to be to lay the basis for Estonia’s success”. He said that the whole of Estonian society contributed to the success of the reform through their trust in the leaders of the reform and their faith in the new currency, and their readiness to make sacrifices so that vital changes could be made.
The importance of public support from society was also mentioned by Vice President of the German Bundesbank Claudia Buch in her presentation, which looked back at the road taken after the monetary reform in Estonia and what Europe today could learn from it. Europe again stands today at a crossroads and needs large structural reorganisations, for which the Estonian experience can give inspiration and encouragement. “This transformation has brought freedom and prosperity to many. But it also meant dealing with the hardships that any transformation process involves”, she said.
The choices made 30 years ago led Estonia to join the European Union in 2004, and to become the first Baltic state to join the euro area in 2011. “These two events stand for the success of the Estonian model”, said Ms Buch. A key factor in the success was a clear consensus in society on “what to escape and where to head in the future”, said Ms Buch, quoting the former Governor of Eesti Pank Ardo Hansson. What the chosen course means also needs to be understood, as there may be hardships on the way. “This is a lesson that is highly relevant, including at the current crossroads”, she continued.
Ms Buch also noted the importance of strong and credible institutions in managing change, and of preventative measures such as maintaining sound state finances. She said that the importance of European and international cooperation also needs to be understood. This is also shown by Estonia’s later experience of crises when comparing the measures that were needed to stabilise the economy and the financial system during the global financial crisis, when Estonia was not yet in the euro area, with the support that Estonia got from the Eurosystem during the pandemic crisis.
The presentation was followed by a discussion between the Governors of Eesti Pank chaired by President Kersti Kaljulaid, which considered the challenges and opportunities facing the Estonian economy today. The discussion considered the need for society to reach a new agreement on what the next major challenges will be and how they can be addressed. It is much harder to find consensus on topics like making the green transition in the fractured political and tribal Estonian society of today. “We must certainly try though”, said Madis Müller, noting that the worst of all is a volatile economic policy. The main task of the central bank, however, remains keeping the currency stable when faced with new challenges.
The second central topic of the discussion was that the fundamental truth from the period of the monetary reform still applies today, that you can only spend what you have earned. “The earlier understanding that everybody must make an effort for themselves has changed. People increasingly expect some sponsor to appear and help them. This attitude should not be encouraged”, commented former Governor of Eesti Pank Siim Kallas.
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