andres lipstok : overview of bank of estonia ’ s first year of the euro speech by mr andres lipstok, governor of the bank of estonia ( eesti pank ), at the presentation of eesti pank ’ s 2011 annual report to the riigikogu ( the parliament of estonia ), tallinn, 29 may 2012. * * * honourable president of the riigikogu, honourable members of the riigikogu, my mission today is to present you with an overview of eesti pank ’ s first year of the euro. i will first run through the activities of eesti pank in 2011. then, i am going to focus on the euro area economic and monetary policy, as well as on economic developments in estonia and the activities of the central bank against the backdrop of the euro area financial crisis. [ eesti pank in the year 2011 ] 1. 2011 was an action - packed year for eesti pank. first of all, the central bank had to carry out the work required for the changeover to the single currency. second of all, the transition to the euro bestowed eesti pank with new duties and a greater responsibility – the central bank became an equal partner in monetary policy decision - making in the euro area. our main task is to contribute to price stability in the euro area along with other eurosystem central banks. from the beginning of 2011, the governor of eesti pank partakes in decisions affecting not only the people of estonia, but also the 300 million residents of the euro area. third of all, we had to continue fulfilling the traditional central bank ’ s functions – ensuring currency circulation, maintaining payment systems, contributing to ensuring financial stability, collecting statistical data and analysing the estonian economy and financial system. 2. for a small nation, the transition to the euro can be considered high recognition. however, it was also a challenge. the smooth changeover required the joint effort of the entire nation. residents and retail traders, entrepreneurs and banks – we all managed very well. [ euro area economy and monetary policy in 2011 ] 1. monetary policy - making proved quite a challenge in the euro area in 2011. the second half of the year bore no resemblance to the first. the beginning of the year witnessed a continued, albeit slower, economic recovery, both on the global scale and in the euro area. liquidity was plentiful and oil and other commodity prices soared, exerting price pressures in the

, it has to be admitted that food and energy prices affect the cost of the consumer basket more than in older euro area member states. thus, consumer prices accelerated to 5 % in estonia. 3. estonia stands strong, compared to the eu average. in the midst of a crisis, we demonstrated our ability to quickly fix the balance in times of trouble. we now need to make plans for regulating our behaviour at times of joy. 4. our state budget strategy has set out a budget policy framework for the medium perspective. unfortunately, we have yet to see the binding nature of the document in the decision - making process. for example, the budget strategy prepared in the spring of 2011 set its sights on restoring the consolidated budget surplus. as at 2012, the attainment of the objective has been postponed. this is worrying. it shows that the current framework enables to change long - term goals too easily. the current framework also provides no solutions to managing the cost increase at times of growth. it would thus be reasonable to establish rules for restricting expenditure alongside the established rules for ensuring a balance. these rules would reduce the volatility of the cost increase, prevent unjustified expectations and alleviate the pains of cost - cutting. 5. at the beginning of 2012, the euro area heads of state and government resolved to launch the european stability mechanism sooner than initially planned. 6. in public relations, eesti pank has repeatedly emphasised that central banks are being forced to take on a role that does not suit them. functions that are alien to the eurosystem are best left to the european stability mechanism. there are two advantages to such a solution. firstly, establishing conditions for the award of financial support allows guiding the recipient country ’ s economic policy in the desired direction. as we all know, monetary policy measures cannot be used for eliminating the causes of the sovereign debt crisis. secondly, this will tighten the control of the member states ’ governments and parliaments over crisis measures and ensure a better overview of the costs of the crisis measures. [ to sum up ] 1. the right decisions can only be made when we understand the economy. it does not serve our interests to monitor just our own activities – we also need to monitor the development plans and objectives of other euro area countries ( and not only greece or portugal ). the european economic and monetary union already has all the good characteristics for the achievement of which the union was established to begin with. we now need to enhance the union ’ s efficiency,