Estonia’s government deficit among lowest in EU

The general government deficit of Estonia in 2013, measuring 2 percent of GDP, was lower than in any other EU member state save for Luxembourg and Germany, which boasted a surplus of 0.1 and 0 percent of GDP.

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Euro area countries need to react flexibly to economic changes

Governor of Eesti Pank Ardo Hansson said on Saturday at the high-level Ambrosetti Financial Markets Workshop in Italy that the experience of the euro area shows that countries in a monetary union need to have a responsible economic policy and should be ready to react flexibly to economic changes.

Mr Hansson used his presentation to compare the advantages and disadvantages of a sharp adjustment for countries suffering an economic crisis.

He said that one advantage of a sharp adjustment is that the rapid reaction of economic policy makers means there is a shorter period of high uncertainty weighing on economic activity, especially on investment decisions. Another advantage is that a rapid adjustment frees up resources for new businesses and activities. Mr Hansson emphasised that a sharp adjustment can help avoid reform fatigue in a society and prevents debts from building up too far in both the public and private sectors.

At the same time, economic policy makers need to be careful that the speed of rapid changes does not create problems by forcing viable firms out of business. It is also important for governments to explain clearly to society why the changes are needed and what effect they will have. He showed a comparison of Estonia’s adjustment during the economic crisis with the reactions of four other euro area countries, namely Greece, Ireland, Spain and Portugal. The comparison makes it clear that the faster adjustment in Estonia helped the country exit the crisis more successfully in terms of economic growth, employment, fiscal balance and debt.

The relatively rapid long-term growth in the Estonian economy and its ability to adjust have been based on a strong fiscal policy, a flexible labour market and relatively low debt levels, particularly in the public sector, explained Mr Hansson. The ability of the Estonian economy to escape from difficulties was aided by well-capitalised banks, consistent structural reforms and the desire to adapt economic policy quickly to changes in the economy. Unlike Estonia, several countries in the euro area were hindered in their reaction to the crisis by an excessively large financial sector.

Mr Hansson said that Estonia’s experience in the economic boom showed that a strong external anchor in the form of a credible fixed exchange rate arrangement might lead to policy complacency. The experience of the euro area during the economic crisis has proved that the economic policy of countries in a monetary union needs to be responsible and ready to react flexibly to economic changes.

The Ambrosetti Financial Markets Workshop on Friday and Saturday in Cernobbio, Italy, was attended by leading decision-makers from the world of financial and monetary policy. Ardo Hansson gave a presentation in the Saturday morning session on the Agenda for Europe.

For more information on the conference, see http://www.ambrosetti.eu/en/news/2014/financial-markets-workshop

See the presentation here

Source: Bank of Estonia

Defence forces buy military equipment for 111 mEUR

Minister of Defence Urmas Reinsalu approved on March 14, 2014 the MoD’s 2014 procurement plan, under which more than 100 million euros worth of weaponry, equipment and ammunition will be procured for the Defence Forces this year.

On the basis of the National defence development plan prepared 2013-2022, the procurement plan has a total volume of 111.5 million euros, making up 29.04 percent of the 2014 defence budget.

According to Minister of Defence Reinsalu, the steady commitment to maintaining defence spending at 2 percent of GDP will ensure that Estonia can allocate one-third of its defence budget for procurements of new weaponry and equipment. “This distribution of the defence budget allows us to equip and arm the Defence Forces’ current wartime units and start developing the new major capabilities in subsequent years, such as, for instance, procuring new infantry fighting vehicles,” said Reinsalu.
The largest part of the procurement plan will be spent on purchasing wartime equipment and stocks for the Defence Forces reserve units, for which purpose nearly 45 million euros worth of communication equipment, trucks and other vehicles, ammunition, engineering equipment, night vision equipment, indirect fire control devices, uniforms, personal equipment, bulletproof vests etc will be procured.

More than 13 million euros will be spent in 2014 on the ammunition, anti-tank missiles, uniforms and explosives needed to ensure the Defence Forces’ peacetime training activities, and nearly three million euros will be spent on procuring equipment for the Defence League’s territorial defence units.

The largest one-time expenses in the 2014 procurement plan – over 6 million euros in the case of each procurement – will be spent on making the scheduled instalments for the Ground Radar 403 mid-range air surveillance radar contract signed in 2009 and the SISU XA-188 armoured personnel carrier contract signed in 2010. To a lesser extent, procurements for purchasing the navigational devices and other equipment needed at Ämari air base will continue.

Close to 14 million euros will be spent in 2014 on scheduled repair and maintenance of the Defence Forces’ existing heavy weaponry, vehicles and equipment.

Source: Ministry of Defence Public Relations Department via Estonian Review

 

Government endorses 5.8 percent pension rise

The Estonian government on March 13, 2014 endorsed 1.058 as the value of the index of state pensions effective from April 1, 2014, which means that pensions will rise by 5.8 percent on average.

The value of the index is calculated to the extent of 80 percent based on the change in last year’s social tax receipts and to the extent of 20 percent based on the change in the consumer price index (CPI). According to data of Statistics Estonia, CPI rose 2.8 percent last year while figures available from the Finance Ministry show that 7.3 percent more social tax money than the year before flowed into pension insurance.

The index endorsed for 2014 is smaller by 0.6 percent than the calculated index because in the crisis years 2009-2011 the calculated value of the pension index was below 1.0 but pensions were not cut. The State Pension Insurance Act obliges the government to add or clear the part of index that was not increased or reduced within five years, and the reduction of 0.6 percent this year is the last reduction to offset the effect of the smaller receipts in 2009-2011.

The pension increase this year is estimated to take 62 million euros from the state budget.

The change would raise the old-age pension of a person with 15 years of pensionable service to 209.37 euros a month. With 44 years of pensionable service the new size of the state pension will be 353.33 euros a month.

Source: BNS / Estonian Review

Andrus Ansip’s last day as Europe’s longest-serving PM

March 26, 2014 was the final day of Andrus Ansip (57) as Prime Minister of Estonia. He was PM just short of nine years, specifically 8 years, 11 months and two weeks, wrote Postimees.

In an interview to Postimees, Ansip said that he was very grateful to the Estonian people for their confidence in him.

“Last week Turu-uuringute AS published its survey of public confidence in institutions. It showed that the government is trusted by 46% of the population. This is very high, especially compared to the rest of Europe where governments are usually supported by around 25% of the population,” he added.

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President asks Taavi Rõivas to form next Cabinet

Taavi RõivasOn Friday, President Toomas Hendrik Ilves picked Taavi Rõivas, the Reform Party’s current and second choice for prime minister, to form the next government.

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Taavi Rõivas CV

Siim Kallas withdraws his candidacy as PM

European Commissioner Siim Kallas who was Reform Party’s candidate for prime minister announced today that he is not going to seek the job.

“A situation has arisen where instead of dealing with decisions that pertain to Estonian life, both my loyal assistants and I spend endless time countering accusations, suspicions, all sorts of questions, finally resulting in the opinion that the ‘explanations were not sufficient,'” Kallas said. “A prime minister cannot work effectively in such a situation. It’s a burden on the party, Cabinet and coalition partner.”

Reform Party announced later that their candidate for PM is Taavi Rõivas

 

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