Estonia has one of the most open economies in EU

Adjusted data show that the current account of the Estonian balance of payments had a surplus of 205 million euros in 2014. Goods exports were smaller than imports, but the opposite applied for services, and in total the surplus of goods and services increased to 681 million euros. Revenues from European Union Structural Funds for infrastructure development were significantly lower in 2014. The outflow of capital from the financial account was 191 million euros larger than the inflow and the main channel for the outflow was portfolio investments.

Estonian exports and imports of goods and services stood at 167% of GDP in 2014. This is double the European Union average and shows that the national economy depends to a large extent on the external environment. The index of openness is usually higher for small countries than for large ones.

For more, see The Estonian Balance of Payments Yearbook 2014. The English version of the balance of payments yearbook for 2014 will be published on the Eesti Pank website on 30 September.



Source: Bank of Estonia (See better graph )

EU gives 30 mEUR to develop infrastructure of Helsinki-Tallinn maritime link

The ports of Helsinki and Tallinn together with the listed Estonian shipper AS Tallink Grupp have obtained 29.3 million euros in EU funding within the 2014 CEF Transport Multi-Annual Calls for proposals to finance their infrastructure investments.

The total cost of the planned investments is 97.6 million euros, the state owned company Port of Tallinn said on Monday.

The CEF (Connecting Europe Facility) program is a continuation to TEN-T, under which the initial TWIN-PORT project was started. The follow-up project is called TWIN-PORT II. The development of the Helsinki-Tallinn maritime link as part of the TEN-T North Sea-Baltic core corridor is of vital importance as it connects the northern parts of Europe with southern TEN-T corridors.

“This ongoing effective cooperation with Port of Helsinki and Tallink helps us to develop the link as a whole. It also supports the Twin City idea and the Rail Baltic project,” Ain Kaljurand, CEO of Port of Tallinn, said.

Kimmo Maki, CEO of Port of Helsinki, said the support for investment in the West Terminal building will have a significant impact on the comfort of passengers and smoothness of traffic on the whole Helsinki-Tallinn maritime link.

“The new LNG powered fast ferry will bring swift environment friendly operations to the busy Tallinn-Helsinki route. We are happy to see a successful collaboration between public and private companies that is supported by the European Union,” said Janek Stalmeister, chairman of the management board of Tallink Grupp.

The Helsinki-Tallinn line is one of the busiest international routes in the world, serving about eight million passengers per year, while trucks and trailers carry more than three million tons of cargo per year. The flows of traffic and passengers between the two ports have been constantly growing already for a decade. Therefore the project is crucial for both cargo and passenger flows to ensure smooth traffic between Helsinki and Tallinn.

According to the allocation of the support to develop the Helsinki-Tallinn maritime link from 2015-2018, Port of Helsinki will receive 19.2 million euros to develop traffic and port facilities related to Helsinki-Tallinn line traffic, which includes the new fast flow terminal, ramp constructions for the vessels, gate services and street connections. The total investment of Port of Helsinki amounts to 64 million euros.

Port of Tallinn stands to receive 5.3 million euros to develop several items in the Old City Harbor, such as the port’s sewage system to collect waste waters from ships, extension of terminal D, reconstruction of access to terminal A and connecting the terminals A and D, for a total investment of 17.6 million euros.

Tallink Grupp will receive 4.8 million euros to commission a new environmentally friendly LNG vessel costing 230 million euros to serve the Helsinki-Tallinn line starting from 2017. The investment under TWIN-PORT II is 16.0 million euros.

TWIN-PORT II will lead to maximum efficiency for this short sea line by optimizing port operations and infrastructure and will provide efficiency in a “door to door” approach, minimizing the costs and transit time, while increasing the cooperation and reliability of the transport service between Tallinn and Helsinki.

Source: BNS

EC to finance 82 percent of Rail Baltic project

European Commission has proposed financing the Rail Baltic high-speed railway in the extent of 82 percent which means that the three Baltic countries would have to finance the project with 97.2 million euros.

The European Commission announced on Monday it would grant the request of the Baltic countries for the financing of Rail Baltic in the amount of 540 million euros. Of that sum Estonia’s share would be 213 million euros, while Latvia is to get 281 million, Lithuania 28 million euros and the Rail Baltic joint venture 7 million euros, Rail Baltic project manager Miiko Peris said on Monday at a press conference. The resources can be used as of 2016.

According to Peris about 40 percent of the sum goes toward the preparation works and 60 percent would be used for railway construction.

The next Connecting Europe Facility financing round should take place at the end of the year and additional requests can be submitted for that, he added.

According to the initial schedule the railway should be ready by 2024 or 2025 and the period for using the support should last until that, Peris said. He added that submitting additional requests is definitely necessary.

“According to information known to us the Commission plans to carry out an additional financing round each year. The interest of the Baltic countries is to definitely take part in that but for that we have to show that the project is moving and activities are being carried out,” Peris said.

Source: Baltic News Service via Estonian Review

Governor of Eesti Pank about the euro-area economy

In 2014 the economy of the euro area as a whole grew, but the situation varied a lot between different countries and overall growth was slower than had been forecast, said Ardo Hansson, Governor of Eesti Pank in his speech to the Estonian Parliament on May 26, 2015. Data from the start of this year suggest that economic activity in the euro area is staging a modest recovery.

The competitiveness of the euro area has improved during the recovery from the crisis, but again the situation varies between countries. There are countries that have successfully introduced reforms, but there are also those where reforms have stopped or even gone into reverse.

  • Here I must emphasise that long-term economic growth can only be built on reforms that raise economic competitiveness.
  • The central banks of the euro area are able to offer support to economies in the short term, but there is a price to this, and such support can only be for a limited time. Central banks are not omnipotent and the responsibility for making reforms and explaining the need for reforms must fall squarely on the shoulders of governments and parliaments.

Monetary policy in the euro area had an eventful 2014. Inflation in the euro area was falling last year and the expectations for inflation among market participants were on the downside, which led the central banks of the euro area to maintain their accommodative stance on monetary policy. The accommodative monetary policy has three main elements:

  • The Governing Council of the European Central Bank took the decision to cut the interest rates at which commercial banks can borrow from the euro-area central banks to their lowest levels ever under monetary union.
  • Targeted long-term loans were offered to the commercial banks in the euro area. It is important that low interest rates be passed on to the real economy and that good business projects be able to get funding from banks on reasonable terms.
  • Purchases of assets held by the private sector started and large-scale purchases of sovereign bonds were started in March this year.
  • It is no secret that I am no supporter of the plan to purchase government bonds. Although the first small signs of success are apparent, we must still remain vigilant about the accompanying risks. Above all there is the moral hazard that would emerge were some government to lose its appetite for reform. The falls in interest rates provoked by the massive purchases of bonds will lower interest rates temporarily on government borrowing and this must not be used as an argument for pushing vital but painful reforms to some point far off in the future. Interest rates are only favourable for a short time and will support governments while they are making changes. If governments were to ignore the budget rules agreed in Europe and were to start to increase their debts further, the measures taken by central banks would be of very little help.

The other main task occupying central banks alongside monetary policy last year was the launch of single banking supervision. Starting supervision and carrying out a thorough and comprehensive assessment of the assets of European banks needed a lot of work from central banks and financial supervision authorities. The successful conclusion of this work let us say with confidence that the biggest and most significant banks in a range of countries in Europe are now assessed and supervised on the same terms. In Estonia, Swedbank and SEB Pank have come under single supervision.

Source: Speech of the Governor of Eesti Pank to the Riigikogu at the presentation of Eesti Pank’s Annual Report 2014

Household electricity prices in the EU rose by 2.9 pct in 2014

In the European Union (EU), household electricity prices rose by 2.9% on average between the second half of 2013 and the second half of 2014 to reach €20.8 per 100 kWh. Since 2008, electricity prices in the EU have increased by more than 30%. Across the EU Member States, household electricity prices in the second half of 2014 ranged from €9 per 100 kWh in Bulgaria to more than €30 per 100 kWh in Denmark. It cost €13.3 per 100 kWh in Estonia.

Household gas prices2 increased by 2.0% on average in the EU between the second halves of 2013 and 2014 to hit €7.2 per 100 kWh. Since 2008, gas prices in the EU have risen by 35%. Among Member States, household gas prices in the second half of 2014 ranged from just over €3 per 100 kWh in Romania to above €11 per 100 kWh in Sweden. It cost €4,9 per 100 kWh in Estonia.

Taxes and levies made up on average in the EU 32% of the electricity price charged to households in the second half of 2014, and 23% of the gas price.

When expressed in purchasing power standards (PPS), an artificial common reference currency that eliminates general price level differences between countries, it can be seen that, relative to the cost of other goods and services, the lowest household electricity prices were found in Finland (12.4 PPS per 100 kWh) and Latvia (13.7).

Read more from Eurostat, the statistical office of the European Union

European economy and the rouble

The flash estimate from Statistics Estonia shows that the economy grew in the first quarter by 1.2% year-on-year and declined by 0.3% quarter-on-quarter. This is weaker than was expected in the Eesti Pank December forecast, though it is still only a preliminary estimate. Lower growth than in the fourth quarter was partly a reflection of the depreciation of the rouble in November and December against the euro.

Russia has only a limited influence over the Estonian economy as a whole. However, exports to Russia have still halved compared to what they were earlier and this has hit sectors that were exporting mainly to the Russian market or intermediating goods bound for Russia. Evidence of this comes from the transport sector acting as the biggest brake on growth in the first quarter. The impact of the rouble depreciation is also indicated in the survey of manufacturing companies organised by the Estonian Institute of Economic Research, which found there were more companies in January that perceived a deterioration in competitiveness outside the euro area than those that perceived an improvement. As the rouble strengthened against the euro during the first quarter, there were more companies by April that perceived an improvement in competitiveness. After the initial shock of the fall in the rouble, exports to Russia have started to pick up again.

The strengthening of the European economy supports growth in Estonia. The turnover of goods exports was about the same in the first quarter as a year earlier with exports to the European Union growing by 5% and exports outside the European Union declining by 14%. The expectations of people and of companies for faster growth in Europe have also strengthened in recent months. The economic confidence index for the euro area, which combines the indicators for the outlook in several sectors, was at its highest level in March since August 2011.

The fall in the oil price has had a dual effect on the Estonian economy, but mostly it has been positive. The fall in the oil price at the end of 2014 contributed to the fall in consumer prices and through this it supported growth in consumption. The negative effect of the oil price fall is seen in the shale-oil extraction industry. The seasonally adjusted output of the oil industry was a quarter smaller in the first quarter than in the fourth quarter. The effect on the economy of the fall in the oil price dissipated during the quarter as the oil price rose and the euro depreciated.

Domestic demand has increased mainly because of increased consumption. The volume index for retail sales rose by around 8% in the first quarter as inflation was low and wage income increased. However the trend for investment was probably similar in the first quarter to what it was in the second half of 2014. Investment growth has been held back by large investment projects coming to an end in certain sectors, particularly energy, while investments in other corporate sectors have increased. However there was a fall in the first quarter in the utilisation rate for production capacity, which indicates that the economy still has some room for production volumes to increase even without an increase in investment.

The main domestic risk to economic growth continues to be wage pressures, which may cause unemployment to rise if labour productivity fails to grow at the same time as wages and employees do not move to more productive sectors. The negative effect of wage pressures on the economy as a whole has not yet been significant however. Despite the wage pressures, manufacturing companies feel that their competitiveness in the European market has strengthened in the past half year.

Source: Central bank of Estonia

Author: Kaspar Oja, Economist at Eesti Pank

Estonia preparing for EU presidency

In anticipation of Estonia assuming the presidency of the European Union in the first half of 2018, the preparations have begun. Matti Maasikas, the Estonia’s Ambassador to the EU, told ERR that holding the presidency is like a “matriculation exam” for the country.

The task of the presidency is to ensure coordination and consistency in the decision-making process of the European Council and to facilitate negotiations with the European Parliament and European Commission.

Estonia will employ approximately 1,300 dedicated civil servants to accomplish this task – about 1,000 of them will deal with the policies and 300 as supporting personnel. The army of professionals will have to lead 200 working groups, make preparations for processing between 500-700 bills, and organize 1,600-2,000 official meetings.

Half of the 1,000 officials will be working as group or deputy heads, and about 200 will have to be based in Brussels, doubling the number of Estonians currently working at the Estonian representation to the EU. However, despite increasing the number of civil servants in Brussels, Estonia is not planning to expand its existing one, or rent new offices in Brussels – more people have to share the same floor space.

During the current coalition talks between the Reform Party, Social Democrats and IRL, there have been discussions about creating a European affairs’ minister position in the new cabinet, with the special responsibility of preparing for EU presidency.

Matti Maasikas is convinced that in order to ensure smooth presidency, Estonia needs a dedicated minister. “Holding the presidency of the EU is like a matriculation exam for Estonia and it needs an excellent outcome. None of the ambitious projects in Estonia have succeeded, nor will succeed, without a political lead. And none of the countries previously holding the EU presidency have done it without a minister of European affairs,” Maasikas said.

The former EU commissioner Siim Kallas is rumoured to be one of the candidates for the job, but this would effectively rule him out running for President of Estonia, when the position becomes vacant in 2016.

The presidency will cost Estonian tax payer at least 74 million euros, most of it will be spent on organizing meetings and events in Estonia, but 4 million euros will be allocated for presenting cultural events in Brussels and other European capitals. By comparison, Estonia’s neighbour Latvia, who is currently hosting the EU presidency, spent 9 million euros for cultural programs and bought a new residence for its representation in Brussels.

In addition to EU presidency, Estonia is also celebrating the centenary anniversary of its independence in 2018, adding extra pressure for various institutions.

Source: ERR News via Estonian Review


Get every new post delivered to your Inbox.