But national policies across the world must take into account that the policy to take us out of the crisis must support the functioning of market economy, not constraining it. In this light, the growth prospects of the EU are very insecure. In the IMF's opinion GDP in EU countries will decrease 4% in 2009 and may decline by 0.3% next year. Industrial production in the EU has lowered to a level last recorded nearly ten years ago. Such pessimism contrasts rather sharply with the opinion quite widespread in the middle of 2008 – that Europe will not be hit very hard by the crisis. Reality, however, has turned out rather different. The EU has, on the one hand, been affected by loan losses suffered by major banks due to the financial crisis and, on the other hand, by drastic contraction in demand in its main export markets. The European Union is, for instance, much more open than the USA, thus the share of exports in its GDP is larger and its economy is more severely affected by dwindling global trade. In addition, banks in Europe have difficulties with financing enterprises, since on top of the losses suffered in securities markets, asset quality is also expected to deteriorate. To put it more simply, the share of bad loans will increase due to the recession. The economic crisis has affected EU Member States differently.
If we rely on strong macroeconomic policy, the principles of an open economy and future-looking investment, Estonia will continue to have all the possibilities for defeating the crisis. But what are the national economy level measures the government should take and how should they support the financial system? Here I start with a firm standpoint that the fixed exchange rate of the kroon to the euro is the pillar of Estonia's economic policy and the accession to the euro area as soon as possible is its logical continuation. The experience of the past half a year show that monetary policy that is based on the fixed exchange rate and the currency board supports economic stability also in more difficult times. But how does the fixed exchange rate help us overcome the crisis? First of all, it helps stabilise inflation expectations and stop price rises. Price corrections after the accession to the EU were sharper then we expected. The opening of the labour market and price rises of many goods in the global market had a strong impact on Estonia. This stage, which was, in a sense, unavoidable and paradoxically also the result of successful reforms at the start of the century, is now over. The price level is expected to decline somewhat both this and next year. Second of all, the currency board arrangement brought about a relatively fast correction in several sectors of the economy, which displayed clear signs of overheating after the accession to the EU.