Abnormal year, “Euribor” rates up, Estonians’ long-term plans

Commenting on the graph of the “Bruegel” think tank, which portrays the investments of European countries to overcome the energy crisis with respect to gross domestic product, the participants in the program highlighted several aspects. The calculations of “Bruegel” show that Great Britain far surpasses all other countries with its support – 6.5%, while Latvia with 1.1 billion euros is in fifth place behind Great Britain, Croatia, Greece and Italy. The Lithuanians are in the middle, fourteenth, and the Estonians are fourth from the end. According to Mārtiņš Bitān, Deputy Head of the Monetary Policy Department of the Bank of Latvia, the “Bruegel” chart shows that “this government support actually has very little to do with inflation, because we know that the level of inflation in Estonia it is equal higher than that of Latvia. Every problem has its solution and its tool. At the moment, we are basically dealing with inflation with interest rates. ” Bitāns said that, both next year and looking forward to 2024, we should look even more at what is happening in the economy and try not to lower growth to a negative level and avoid recession.

When asked how he assesses the statement made public by the Central Bank of Estonia a couple of weeks ago, which states that both the bank and the government must jointly fight against inflation, also aware that the increase in public spending will stimulate inflation, the representative of the Bank of Latvia noted that theoretically the following incentive exists, but against the background of the overall impact, the percentage of energy support is not so large. According to Mārtiņš Bitān,

“If we look, inflation is 22%, but we spent 1.5 billion on all energy support. And we calculated how much it influenced in the direction of reducing inflation. And that’s one percentage point out of twenty-two. All this. support, which the government has failed, has relatively little impact on inflation. “

A much greater impact on inflation, he said, will be what central banks do. Mārtiņš Bitāns also admits that increasing public spending under normal circumstances always stimulates inflation. The position of the Central Bank of Estonia is not wrong, but we are talking about the long term, and “when we talk about inflation, we also think about the year 2024, because it is clear that whatever we do now, inflation will not decrease. year and, most likely, also in 2023. It will remain at a fairly high level “.

“We need to ensure that this inflation returns within more or less reasonable limits in 2024.

And the same with the budget, we know that in 2023 the situation will not be so normal that we can say that we are currently in danger of overheating. Therefore, if we think about fiscal consolidation and its normalization, 2024 is the time when we should start thinking. 2023 will still be a very transitional year, when the situation will not be normal and therefore we have to think about how to avoid the recession. “Mārtiņš Bitāns, Deputy Director of the Monetary Policy Department of the Bank of Latvia, asked that the reserves also be allocated for unforeseen cases, as surely there will be.

Speaking about Latvia’s state support for the population and its impact on the economy, Mārtiņš Āboliņš, a member of the Fiscal Discipline Council, economist of “Citadel”, noted that the last 400 million, which were at the end of September in 1.5 billion. “We started the year with quite generous support right at the beginning of the year, when we actually cut electricity prices even below the previous level for everyone below. The history of Estonia is very specific, because Estonia does not operate natural gas central heating. If we look at natural gas as an energy resource, it has become incredibly more expensive than everything else. ” Natural gas prices have fluctuated so much this year that, for example, what seemed expensive in the spring now turns out to be a very low price. The first priority is to ensure energy security and it costs a lot in the short term.

Furthermore, the chairman of the Ādažu council, Māris Sprindžuks (“United List”), stressed that

“we are on this gas needle, we don’t have a plan B and the prices of our energy resources in the Baltic countries are generally the highest in Europe. This structural flaw needs to be addressed as soon as possible. And we don’t have many tools for that.”

Springjuk did not oppose the support of citizens in the energy crisis, but noted that we are not competitive in the business environment. “Families must do their part in terms of energy efficiency: a second oven for a private house, an alternative fuel and insulation for an apartment building. And then this money will become a fishing rod.”

Speaking about the graphics of the “Bruegel” think tank, the director general of the Confederation of Latvian Employers, Līga Menľelsone, said that this picture shows how strong the economy of Latvia, Lithuania and Estonia is. “In fact, this shows that the Estonian economy is quite strong and their resilience to crises, whether it be covid or the energy crisis, is much greater. It is inversely proportional. And so we go back to how strong and muscular ours are. companies. And here is the question of taxes on labor and, of course, also of energy resources “. Inflation, in her opinion, is externally induced and we cannot influence the fact that more money has been printed than there is work and services in exchange. Mengelson expressed doubts that the European Central Bank simply raising interest rates will reduce inflation.

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