important of these measures are liquidity provision by central banks and injection of public funds into financial institutions by governments. not all the problems would be solved immediately even if public capital were injected into financial institutions on an appropriate scale, however. that is because this would not immediately correct the imbalances and excesses generated in each sector of the economy as we found in japan ; a comprehensive framework for reinforcing financial institutions'capital by using public funds was established in 1998 in japan, but it was only after 2003 that the economy started to return to a full - fledged recovery path, with the resolution of the " three excesses " of production capacity, employment, and debt in the corporate sector, and the support of recovery in overseas economies. looking at the present condition of the u. s. economy, the sector that comes to mind first as having an " excess " is the housing market. housing prices are still declining and it seems that it will take some time for the adjustment in the housing market to be completed. while it is difficult to specify the amount of excess in the household sector's debts, the past trend seems to suggest the existence of a certain amount of excess. not only had the financial sector grown substantially, but also the overall financial activity in the economy had greatly increased. more globally, as symbolized by the recent case of iceland, the financial sector had been growing in recent years but is now shrinking. various adjustments to reduce the excesses are likely to continue for the time being, and during this period downward pressures will continue to weigh on economic activity. to enable such adjustments to proceed as smoothly as possible, it is important for the authorities to take necessary measures with determination, as steps toward ensuring stability in the financial markets and confidence in the financial systems. fortunately, the measures for achieving the stability and confidence seem to have been put generally into place. b. preemptive policy measures next, i would like to consider what policy measures are necessary to prevent the emergence and worsening of a financial crisis. the correct set of answers has yet to be found, but i would like to offer some tentative suggestions. 1. proper conduct of macroeconomic policy the first is to pursue proper macroeconomic policy. there have been a range of discussions on the causes of the subprime mortgage problem, and there is a view that it is a new type of financial crisis. i believe that, although there were complex new securitized products and changes in the mechanism of crisis generation,

the lower interest rates in the euro area mean that estonian companies and households can borrow more cheaply, and were it necessary the estonian state could also borrow more cheaply. if easier financing conditions spur on the european economy, estonian exporters will be among the winners, and this is the goal towards which the bond purchase programme is striving. in summarising the estonian economy i should say our economy has grown at a satisfactory speed overall, as there is no little uncertainty in the global economy and there are protracted problems with growth in several of estonia ’ s export markets. • the tensions in geopolitical relations last year, including the trade sanctions between the european union and russia, have left a mark on the estonian economy, though fortunately not a deep one. • estonian exporters deserve recognition for the flexibility they have shown in finding new markets. exports have managed to increase even as prices have been generally falling in foreign markets, while local production costs have been driven up by rapidly rising wages. that the market share for estonian goods and services in the trade with partner countries has increased shows that estonian export items are competitive in international markets. the work of eesti pank the eesti pank act has given us a wide range of responsibilities. our first responsibility is to keep inflation low and stable, setting a joint monetary policy together with the other central banks of the euro area and implementing it in estonia. secondly we must keep the financial system here stable, as strong and functioning banks are vital for economic growth. on top of this we supply the country with high - quality cash, produce timely and authoritative statistics, manage and invest the state foreign reserves, and act as advisor to the government. last year we succeeded in all of this. last year the previous riigikogu issued the central bank with a clearer mandate than ever before for macroprudential supervision in estonia, and we have started to act on this mandate. macroprudential supervision aims to increase the resilience of the banks and the rest of the financial system to systemic problems and to restrain the accumulation of major risks. • the first measure introduced by eesti pank was the requirement for commercial banks to hold a 2 % systemic risk buffer. the systemic risk buffer is needed to manage the banking risks that are specific to a small and open economy. the introduction of the buffer did not imply any major changes for the banks operating in estonia, as their capitalisation levels were already above that required. the measure was a pre