performing assets, but still higher than in some european countries in the aftermath of the global financial crisis. stability of the financial system requires sound banks and strict supervision – in particular under a currency board arrangement. here, again, foreign factors were predominant. over time, estonian banks were taken over by foreign banks, mostly based in scandinavian countries. today, foreign banks hold about 85 % of the banking system ’ s assets. fiscal policy was challenged as well. since restoring its independence in 1991, estonia has pursued a prudent fiscal policy centred on the formal adoption of balanced budgets. complying with this requirement was not easy. as governor muller just said : “ several decisions and reforms were taken at the time that were difficult and painful ” [ 27 ]. for example, estonia introduced sweeping and controversial tax reforms in the early 1990s, and it limited expenditure to the available revenue. through these measures, estonia achieved a financial surplus every year from 1991 through to 1995. so how did estonian monetary strategy fare? estonia followed a stability - oriented monetary and fiscal policy. while the median inflation rate in former republics of the soviet union stood at 880 % in 1993, estonia ’ s inflation was at a comparatively moderate 36 %. by 1996, inflation in estonia had declined to 15 %, compared with a median of 40 %. [ 29 ] fiscal policy remained conservative even when major shocks hit the estonian economy later on. about a decade after the beginning of the transition, estonia joined the eu ( european union ) in 2004, and it introduced the euro in 2011 as the first of the baltic countries. while it is hard to judge a monetary strategy, in particular as an outsider to the country, these two events stand for the success of the estonian model. stability - oriented monetary and fiscal policy requires sufficiently flexible markets, though, to accommodate adverse shocks and structural change. over the past 30 years, the estonian economy has faced four severe economic shocks. the first shock hit in the early 1990s with the disintegration of the former soviet union and the transition from central planning to a market economy. any transformation of this kind requires an adjustment of relative prices. with a flexible exchange rate, the impact of exogenous shocks on the domestic economy can partly be buffered through a devaluation. with a fixed exchange rate, however, relative prices have to adjust internally. this sounds rather technical. in practice, this can mean significant hardship for the population – in the form of lower wages and higher unemployment. the estonian economy and

european central bank : press conference - introductory statement introductory statement by mr willem f duisenberg, president of the european central bank, and mr christian noyer, vice - president of the european central bank, at the press conference, held in paris, on 19 october 2000. * * * today, the governing council met for the second time outside frankfurt. therefore, let me first of all thank our host, governor trichet, for inviting us to meet in paris and for the generous hospitality offered to us. our meeting was also attended by the president of the eu council, mr fabius, and european commissioner solbes. as usual, we conducted our regular examination of recent monetary, financial and economic developments and their implications for a monetary policy aiming to maintain price stability in the medium term. following this review, the governing council decided to leave the ecb interest rates unchanged. moreover, we exchanged views on achievements so far and the challenges ahead. let me briefly report on developments since the last meeting of the governing council before turning to our more general assessment. as regards the first pillar of our monetary policy strategy, no new data on monetary developments have become available since 5 october. turning to the second pillar, oil prices and exchange rates remained two important factors under examination. before coming down somewhat, oil prices had surged again as markets were concerned about the impact of political tensions in the middle east. meanwhile, real gdp growth over the four quarters up to mid - 2000 has proved to have been very strong. as mentioned at our last meeting, some uncertainty about short - term growth dynamics stems from oil price developments, as is reflected in survey or confidence data. while these indicators have weakened somewhat in recent months, overall they remain at high levels and underlying forces for continued robust growth remain favourable. this is also reflected in little changed bond market developments. as foreseen at the time of the governing council meeting two weeks ago, energy price developments have had a strong impact on inflation rates ; in september the hicp rate of inflation rose further to 2. 8 %, compared with 2. 3 % in august and 2. 4 % in july. this development did not come as a surprise and was already taken into account in our considerations on monetary policy action on 5 october. overall, latest developments underpin the message we stressed on 5 october, namely that monetary policy continuously needs to ensure that expectations remain firmly anchored in the maintenance of price stability, despite current inflation rates. in addition to commenting on more recent developments,