30 years of monetary reform in estonia : lessons learned for the decade ahead keynote speech dedicated to the 30th anniversary of monetary reform in estonia 20. 06. 2022 | tallinn | claudia buch ladies and gentlemen, thank you very much for inviting me to talk at today ’ s event celebrating the anniversary of the introduction of the estonian kroon. i feel very honoured to speak here today. it offers an opportunity to reflect on the past 30 years of monetary history in europe. the success achieved by estonia and other former transition economies is impressive : estonia has implemented monetary reform, established a modern financial system, and managed the transition from a centrally planned economy to a modern market economy. this transformation has brought freedom and prosperity to many. but it also meant dealing with the hardships that any transformation process involves. i would like to congratulate the estonian people for everything they have achieved over the past 30 years – and i wish you all the best for the next decades in the common house of europe and in the eurosystem. there are important lessons to be learned from the estonian experience for all of us. these lessons could not be more relevant for the decade that lies ahead of us. let me give an overview of the main points i would like to make : first, we are at a crossroads in terms of globalisation and cooperation in europe. globalisation is at risk, uncertainty is high, the climate transition is urgent. our economies need structural change – the experiences and the success of transition economies can be encouraging and inspiring. second, stable institutions are key to managing transitions, and they need society ’ s support. economic policy decisions shape the direction a society takes towards prosperity. they require a democratic consensus how society is willing to bear and allocate the costs of negative shocks. third, cooperation and international coordination are crucial. estonia has taught us the benefits of importing institutional credibility and knowledge. there was a consensus in society on “ what to escape and where to head in the future ” : [ 2 ] to “ return to europe ”. in this spirit, we need to secure and further deepen our cooperation in europe and in the eurosystem to overcome the challenges facing us. to learn from the past, it is worth taking a journey back in time to the early 1990s : where was estonia standing 30 years ago? like many central and eastern european countries, estonia was standing at the threshold of a major transition from a planned socialist economy to a modern market economy. the successor states of the

former soviet union were in fact facing a dual economic transformation : they had to introduce a national currency and build a nation while moving towards a market economy. on 20 june 1992, 30 years ago to this day, estonia was the first successor state of the soviet union to replace the rouble with its own currency. not only was the value of the estonian kroon pegged to the deutsche mark at a fixed rate ( 8 : 1 ) – the day also marked the anniversary of the introduction of the deutsche mark in 1948. let me put this decision into perspective : today, an inflation rate of 8. 1 %, which is the most recent figure for the euro area, is a cause for concern. [ 5 ] rightly so, because it is well above the european central bank ’ s medium - term target of 2 %. and the outlook for the real economy is weak. the growth rate, which is currently forecast to be 2. 8 % for the euro area in 2022, could drop, in a downside scenario, to 1. 3 %. but consider the situation policymakers in estonia were facing in the early 1990s : • in 1992 and 1993, estonia reported inflation rates of over 1, 000 % and 36 %, respectively. • estonia faced a seventy - fold increase in petrol prices in one year, amounting to a terms - of - trade shock of about 20 % in 1992 alone. [ 9 ] to compare this to the current situation in germany : between may 2021 and may 2022, petrol prices increased by roughly 35 %, while the price of diesel rose by more than 50 %. • in the first nine months of 1992 alone, industrial production in estonia declined by 40 %. • while real gdp ( gross domestic product ) growth stabilised relatively quickly, it would take another five years for inflation to decline to the single digits. in short : the transition that was required 30 years ago in estonia was much broader and deeper than the one we are experiencing today. the economic environment was not only highly uncertain, a sound institutional framework which would give guidance to policymakers, households and firms was also lacking. many decisions had to be taken that, today, we take for granted within an established set of institutions. but in those days, there was no blueprint to follow : • how should the markets for capital and labour be organised? • which institutional framework should be chosen? would the bank - based, european - style financial system best meet the needs of the