President of Eesti Pank Andres Lipstok gave an overview of the 2011 Report of Eesti Pank to the Riigikogu today. Lipstok noted that this was the summary of the first euro-year of Eesti Pank. In his report, he spoke briefly about the activities of Eesti Pank in 2011, but also the economic and monetary policy of the euro zone and the development of the Estonian economy and the activities of the central bank against the background of the financial crisis of the euro zone. In Lipstok’s words, the adoption of the euro had brought new tasks and a greater responsibility. Eesti Pank began to participate as an equal partner in making the monetary policy decisions influencing the whole euro zone. Together with other central banks of the euro zone, the main task of Eesti Pank is to help maintain price stability in the euro zone. This means keeping the growth of consumer prices in the euro zone as a whole slightly lower than 2% per year on an average scale. At the same time, continuation of the majority of the existing activities of Eesti Pank had been ensured – to supply the state with cash, to run the payment systems, to guarantee financial stability, but also to collect statistics and to analyse the Estonian economy and financial system. The president of the bank admitted that the shaping of the monetary policy of 2011 had been complicated. As the functioning of the monetary policy transfer mechanisms had been disturbed and the capacity of commercial banks to grant loans to enterprises and households had diminished significantly, a number of extraordinary measures had been implemented as of August 2011: the bond markets were supported in order to avoid paralysation of the activities of banks, liquidity loans in unlimited amounts were offered to banks, loans with a three-year term on very favourable conditions were granted to banks, the range of securities suitable for application for liquidity loans was extended and the obligatory reserve rate for banks was lowered from 2% to 1% at the end of last year. Lipstok stated that, in the summary of the year, the growth of consumer prices in the euro zone had exceeded the desired speed and had amounted to 2.7%. “Inflation accelerated mostly due to the rise of raw material prices. This is confirmed by the fact that the basic inflation index remained below the 1.5% level which means that the consumer basket price rose that high with food and energy carrier prices excluded. Further inflation expectations are consistent with our long-term inflation targets,” he added.

Lipstok also spoke about the relation of the equity capital of Eesti Pank to monetary policy assets which is one of the lowest in the comparison of the central banks of the euro zone, and that the increasing of the capital and the creation of guarantees need more intensified action. “The equity capital level of Eesti Pank as compared to the Eurosystem will have to grow to be as high as the holding of Eesti Pank in the Eurosystem. This means that the equity capital of the central bank must increase from 0.37 billion euro to circa 1.3 billion euro. At present, the volume of the equity capital of Eesti Pank amounts to 0.07% of the equity capital of the whole Eurosystem. At the same time, the holding of Eesti Pank in the Eurosystem amounts to 0.26%,” the President of Eesti Pank said. He went on to say that, along with crisis prevention measures, attention should be paid to the creation of a stable ground of growth in a longer perspective. In view of the capacity of growth, structural reforms must be carried out which would increase the flexibility of the economy, competitiveness and employment. The main objective of the central banks of the Eurosystem, including Eesti Pank, is to maintain general price stability in the euro zone also in such a situation. “This is the best that monetary policy can do and that the central bank can do to promote economic growth and create jobs. When compared to the European Union average, the public finances of Estonia are in a strong position at present,” Lipstok confirmed.

Comments were presented by Members of the Riigikogu Aivar Sõerd and Kalev Kallo.

The Chairman of the Management Board of the Financial Supervision Authority Raul Malmstein gave an overview of the 2011 Report of the Financial Supervision Authority. Malmstein stated that the past year 2011 had been very complicated for financial markets. With the long term fiscal problems of several eurozone states, financial markets had lost confidence in the states’ ability to service their loan obligations. Although until now the dissolution of the eurozone and a decline of the credibility of the eurozone currency has been avoided, the situation in money markets remains worrying. “Despite the complicated situation, the Scandinavian banking groups operating in the Estonian market have successfully passed the stress test and thus the credibility of the Estonian banking sector remains high,” he confirmed. Malmstein spoke about the launching of the work of three supervisory authorities of the European Union – the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA). In addition, the European Systemic Risks Board (SRB) started work at the European Central Bank. The Financial Supervision Authority actively participates in the work of these authorities. To quote Malmstein, “In the common European legal and supervisory framework it is easier to prevent possible crises in the future and to ensure the reduction of cross-border supervisory arbitrage. At the same time, it must also be understood that the ability of member states, including Estonia, to domestically direct financial law is beginning to diminish significantly. Clearly, the Financial Supervision Authority will have an increased role in elaboration of directly applicable binding technical standards and their implementation at the European level.” He stressed that, for the Financial Supervision Authority, the year 2011 had been an important landmark in the approval of the authority’s new strategy by the Supervisory Board of the Financial Supervision Authority. The new strategy describes three important objectives where the financial supervision will need to make an important contribution in the coming years. First, enhancing the supervisory capacity of the Financial Supervision Authority; second, the Financial Supervision Authority as an effective cooperation partner and, third, the role of the Financial Supervision Authority in the consulting and orientation of financial services customers. In conclusion it can be said that the activities of the Financial Supervision Authority have become more Europe-centered.

On the motion of the Social Democratic Party Faction as the initiator, the second reading of the Bill on Amendments to § 32 of the Citizenship Act (164 SE) was suspended. The Bill provides the right of a person to maintain the Estonian citizenship granted to him or her erroneously. This provision does not apply in case when the source documents which were the basis for granting citizenship were falsified. According to the Act which is currently in force, the errors of officials made before the year 1995 can be resolved in a manner favourable to the person while the Act provides no such opportunity in the case of the identity documents of an Estonian citizen erroneously issued after 1 July 1995. The second reading of the Bill will continue.

On the motion of the Finance Committee, the Bill on Amendments to the Income Tax Act (208 SE), initiated by the Social Democratic Party Faction, was rejected at the first reading. 45 members of the Riigikogu voted in favour of the motion to reject and 40 members voted against. Thus, this Bill was dropped from the legislative proceeding.

Read more in the verbatim record of the sitting (in Estonian):

The Riigikogu Press Service