OREANDA-NEWS. Speaking on Tuesday to the finance committee of the Riigikogu about the asset purchase programme of the central banks of the euro area, Governor of Eesti Pank Ardo Hansson said that economic history shows that central banks are not able to create long-term economic growth through large-scale purchases of government bonds.

“Long-term growth is not within the power of a central bank to create. The bank can boost an economy in the short term, but long-term growth can only come from increased productivity in the private sector and economic reforms from the government,” he explained.

Purchases of private sector assets by central banks can give investors the confidence to put their money elsewhere, and in this way revive the economy of the euro area and lift inflation, he explained. “The next step is for the private sector to invest, but for this to happen, investors need to believe the economy will grow and this belief can only be a result of economic reform. It is time for the governments of the euro area to introduce reforms into their economies to raise this belief and to promote investment.”

Mr Hansson mentioned Estonia’s fiscal policy so far, which remained stable during the recession, and noted that Estonia has managed to keep its state debt low. “This is an advantage for the country in more difficult economic times, and it is important that countries keep to the fiscal rules even with the debate now surrounding these bonds.”

He further noted that Estonia benefits from the asset purchases of the central banks because borrowing becomes cheaper for people and companies in Estonia.

At the end of January the Governing Council of the European Central Bank decided to start monthly asset purchases of 60 billion euros. It is planned that the monthly purchases will be made from March this year until September 2016, but they will certainly continue until a lasting correction in inflation is apparent that will be in line with the task of the European Central Bank to keep inflation in the euro area below but close to 2% over the medium term. The assets purchased will be bonds issued by governments of the euro area and European institutions.