andres sutt : emerging energy markets a€ “ key issues introductory remarks by mr andres sutt, deputy governor of eesti pank ( bank of estonia ), at the gic / mkm / eesti bank conference on emerging energy markets, tallinn, 21 august 2008. * * * mister minister, excellencies, ladies and gentlemen, dear guests, it is a great honor to welcome you here in tallinn. the issues of our conference on emerging energy markets are of great importance in today's world. we are very lucky to have an excellent lineup of highly distinctive speakers from both the public and the private sector, so our discussions will no doubt be interesting and useful. i also have to admit that that interest in the conference exceeded the organizers'most optimistic expectations. energy issues and related policy choices have come forward forcefully and en masse for policy makers and public at large. indeed, there is hardly any other area where choices that are made today will have a direct impact on the way of life of the generations to come. in this regard, i would like to briefly outline the key issues that will be discussed also today. first and foremost, human activity and energy consumption are, in all likelihood, having a direct impact on climate and, ultimately, on living conditions on the planet earth. while the direct effects of climate change on growth and prosperity vary, it is beyond any doubt that the challenges ahead are formidable. rich countries can and will adjust more smoothly to these challenges, but it will be the poor in the developing world who are going to have to bear the heaviest burden. naturally, changes in energy production and consumption as well as in energy markets structure have a special contribution to global action for coping with climate change. second, surging energy demand worldwide makes us see the issues of energy security from a new perspective. a frantic search for energy sources by asia's emerging economies, and the increasing concentration of production in the hands of sometimes unpredictable regimes, has deep ramifications for energy security in the advanced world, including and most notably in the european union. here, a forceful united approach is called for, based on integrated and well - functioning markets and european solidarity. third, high and volatile energy prices constitute a challenge for macroeconomic management. energy price developments have pushed up inflation in the advanced world with adverse effect on private demand and growth. on the other hand, windfall due to high energy prices poses challenges to fiscal, monetary and exchange rate management in the countries exporting

euro area. to maintain price stability, the governing council of the european central bank decided to raise the monetary policy rates. this was done in april and in july. 2. the tide turned in the second half of the year, when waning confidence and growing uncertainties in the financial markets started curbing global growth. this was brought about by market participants ’ concerns about the public finances development in several euro area countries. changes in the economic environment were accompanied by a sharp decline in consumer and corporate confidence in august. companies were cautiously optimistic in the first half of the year, but summer saw a postponement of investment and recruitment decisions. confidence loss slowed economic growth, easing inflationary pressures. in november and december, we thus lowered the interest rates to an all - time low. 3. under normal circumstances, changing interest rates alone would have sufficed to influence prices and economic activity. unfortunately, the crisis proved extensive bis central bankers ’ speeches enough to disrupt the functioning of the monetary policy transmission mechanism. the ability of commercial banks to issue loans to companies and households was thus significantly reduced. this compelled us to take various non - standard measures, starting from august. we supported the securities market in order to prevent paralysation of the activities of banks ; we continued the unlimited provision of liquidity loans to banks ; we offered banks three - year loans on highly favourable conditions ; we expanded the list of eligible collaterals for liquidity loans, and lowered the minimum reserve requirement from 2 % to 1 % at the end of the year. 4. looking back, it has to be admitted that the annual growth in consumer prices was faster than expected, amounting to 2. 7 %. inflation picked up mostly due to the price growth of commodities. this is confirmed by core inflation remaining below 1. 5 %. inflation expectations are also in line with our long - term goal. [ the price of crisis - time monetary policy for central banks ] 1. these bold and crucial steps came with a price – the risks inherent in the central banks ’ balance sheets have increased. risk analysis and buffer - raising will also be a challenge for eesti pank in the forthcoming periods. the central bank just finished its first year as a member of the euro area, with one of the lowest equity to monetary policy assets ratios among euro area central banks. we must bear in mind that the revenues and expenditures of monetary policy operations are shared within the eurosystem in proportion to the central bank ’ s participation in the