A new economic crisis has begun, with the question of how to minimize its consequences to weather it being key, according to Estonian finance minister Martin Helme (EKRE).
Figures demonstrate higher levels of decline than have happened since 2008 and which are likely to surpass that, with companies’ balance sheets contracting drastically and banks calling back loans or requesting additional collateral; all of this is a consequence of the effects of the coronavirus outbreak, and the Saudi-instigated crude oil price war, Helme said.
While finding ways to mitigate the effects is key, Helme said, the unpredictability makes planning virtually impossible.
“What we are seeing is everything happening in two months; in the European sphere, in two weeks. The first outcome is that we have not had as bad an outlook as that affecting the current economy. We cannot predict what will happen within two weeks or two months,” Helme said, speaking on ETV political discussion show “Esimene stuudio”.
Helme added that the crisis is likely to exceed that which began in 2008, so far as western countries are concerned.
“Both the global and European economies are in greater debt today than they were ten years ago. Unemployment is higher. Competitiveness is worse than it was right before the crisis of 2008. There had been talk of a fall. Now the bubble has burst with a big pop,” he continued.
At the same time, Helme noted that every cloud has a silver lining; in this case the EU’s budget rules, which normally impede government borrowing, do have in-fixed exceptions which would allow for that.
“There is a clear exception to the European budget rules, in the event of an unforeseen event, where these rules will not come into play. When a recession comes, you have a right to spend more and to enter into a budgetary deficit,” said Helme, who had previously said the current government would go into any crisis by saving and not spending.
“We are clearly in a phase of recession, and in this phase the worst thing to do when a country starts to contract is to amplify that downturn. However, a very large part of the economy revolves around public investment and public sector wages. If we go down that route [of not spending], we can only amplify the downturn, something we certainly cannot do,” he continued.
Public investment was a positive thing in itself; it would be a mistake to turn down any loan money at present.
“Nowadays this is cheap – the money supply from all central banks is massive, and Estonia is a sterling client. The budget rules give us leeway,” he continued, while saying pinpointing a precise figure for such loan sums was hard to do.
There are no anomalies or negative signs within tax revenues as at the beginning of the year, but we need to be ready now, he said, adding that the fastest way to ensure the functioning of business is to cut taxes – even over the short-term and possibly targeted at a specific sector.
“We can do that right away – it’s like a stimulating shot in the arm. No matter at what magnitude go for – 100, 200, 500 million [euros] will immediately reach the economy,” he continued.
According to Helme, no cuts are currently being considered and a so-called “crocodile commission” is not likely to convene any time soon.
“The dogma that existed ten years ago, which was that the most important thing is a balance of the budget so as not to go into the red, is completely alien to the current coalition. There will certainly be no crazy cuts,” he continued, referring to the fiscal retrenchment policy pursued by the Andrus Ansip (Reform) administration in 2009.
Helme also said that the current oil price low was temporary, and would recover to its previous level of $60-$65 per barrel within six months, though the ramifications were of greater concern.
The coalition would look after the oil shale sector in the meantime, Helme said, and had faced difficulties in the past but pulled through.
“I do not need to comfort [state energy company] Eesti Energia – I hope they will comfort me more in fact. They have buffered themselves in the past with reasonable futures and purchase agreements. I certainly do not agree that one of Estonia’s most important and largest export sectors will be allowed to go to the wall; ultimately there will be state aid in the offing where necessary.”