Minister: the EU budget must contribute to growth

The Economic and Financial Affairs Council, commonly known as the Ecofin Council, approved its guidelines for the 2018 EU budget today.

“The EU budget should help boost smart and inclusive growth. To achieve this, the budget should concentrate on new investments conducive to jobs and growth,” said the Minister of Finance of Estonia, Sven Sester. “However, steps should be taken to ensure that the red tape associated with the use of EU funds does not increase. Therefore, we urge all institutions, bodies and agencies to reduce or freeze their administrative expenditure as much as possible and to request financing only for justified needs.”

The guidelines by the finance ministers of the European Commission marked the start of the procedure for drawing up the general budget of the Union. During its term of the EU presidency, Estonia must lead the negotiations with the European Parliament, the Council of the European Union, which represents the governments of the Member States, and the European Commission preceding the adoption of the EU budget.

The finance ministers also gave the discharge to the Commission for the implementation of the EU’s budget for 2015. The discharge to the Commission was prepared in the light of an annual report from the Court of Auditors.

The finance ministers agreed on the general approach of the Anti-Tax Avoidance Directive draft (ATAD2). The new legislation will counter tax evasion and avoidance stemming from disparities between the taxation systems of different countries.

“Tax evasion and tax avoidance should not give anyone an undue competitive advantage,” said Sven Sester. “Estonia supports the fight against tax evasion and tax avoidance as well as the common approach proposed by Malta, holders of the current EU presidency.”

ATAD2 will be a supplement to the Anti-Tax Avoidance Directive adopted last summer, addressing hybrid mismatches with regard to non-EU countries. Hybrid mismatches occur where the same transaction or entity is treated differently in two different jurisdictions, providing an opportunity to avoid taxation in cross-border cases.

On Tuesday, Minister of Finance Sven Sester meet with Andrus Ansip, the European Commissioner for Digital Single Market and Vice President of the European Commission, following the meeting of the Council, to discuss matters related to the forthcoming Estonian EU presidency.

At the meeting of the finance ministers of euro area countries (the Eurogroup) on Monday in Brussels, the Minister also presented Estonia’s proposals for cutting red tape, including the entrepreneurial account initiative. The ministers discussed the ease of doing business in the euro area and the opportunities to improve the business climate. The discussions will continue in April.

ECB President Mario Draghi, the IMF’s European chief Poul Thomsen and ESM Managing Director Klaus Regling briefed the Eurogroup on the situation in Greece: the country has returned to economic growth and its unemployment rate is in decline for the third consecutive year. Greece has achieved the target of medium-term primary surplus set out in the last year’s economic adjustment programme.

The European Commission also presented its winter 2017 economic forecast to the Eurogroup.

Source: Estonian Ministtry21 of Finance

Estonia denies that UK offer to help with experts is influencing attempt

A high-ranking Estonian official responsible for EU affairs has denied claims alleging that the British offer to provide its experts to help Estonia with the EU presidency in the second half of next year represents an attempt to influence Brexit negotiations.

“The claim made in the Politico article to the effect that Brits are influencing us is a pure invention,” Klen Jäärats, director for European Union Affairs at the Government Office, told BNS.

American political-journalism website Politico reported on Thursday that the UK had launched a behind-the-scenes diplomatic effort to influence EU affairs during the Brexit process by offering to lend officials to Malta and Estonia, two small countries that will hold the bloc’s presidency next year.

The fact that Estonia will be borrowing experts for its presidency from other member states and EU institutins was known long before the Brexit referendum was held, said Jäärats.

Read more from ERR News

Estonia has received more direct investment than many other newer members of the EU

  • Estonia’s foreign direct investment position* at the end of 2015 put it behind only Hungary in volume among the newer European members from Central and Eastern Europe
  • The Estonian current account in 2015 posted its largest surplus since independence was regained
  • Both exports and imports of goods and services were down last year, but imports by more
  • The current account was affected by large dividends paid out by the banking sector

Adjusted data show that the current account of the Estonian balance of payments had a surplus of 447 million euros in 2015, the largest since independence was regained. This does not reflect the strength of Estonian exports however, so much as a general decline in the trade of goods. Although both exports and imports of goods and services were down, it was the faster decline in imports that led the surplus in goods and services to grow. The surplus on the current account increased because the outflow of investment income slowed as large-scale extraordinary dividends were paid out by the banking sector in the middle of the year, and the income tax paid on these dividends to the Estonian state principally slowed the outflow. A little more was received from the European Union Structural Funds for infrastructure development than in 2014. The outflow of capital from the financial account was one billion euros larger than the inflow and the main channel for the outflow was portfolio and other investment.

Estonia was behind only Hungary for the foreign direct investment position among the newer European members from Central and Eastern Europe, and at the end of 2015 the direct investment position in Estonia was almost the same as the GDP of the year.

* Direct investment data for Estonia cover the period 1993-2015.

Figure. Direct investment position in Central and Eastern European countries at the end of 2015 as % of GDP
Direct investment position in Central and Eastern European countries at the end of 2015 as % of GDP

Sources: Eurostat, Eesti Pank

See better graph here

EC: government aid to Estonian Air was illegal

The Estonian national airline will fold following a decision by the European Commission that funding given to the company by the Estonian government was not in line with EU regulations. The company, founded in 1991, does not have the funds to pay back the state and will declare bankruptcy.

The Commission began an investigation into Estonian state aid to the company in 2013, with Estonian authorities waiting for a decision ever since.

Today, on November 7, the Commission ruled that the around 90 million euros given by the Estonian government to the company, gave the company an competitive advantage over others. This means the government must demand the full amount, plus interest, back from Estonian Air. The state had also earmarked a further 40 million euros, which would have been given to Estonian Air in case of a positive decision. That money will now go to the Nordic Aviation Group.

Commissioner Margrethe Vestager, in charge of competition policy, said: “Companies should compete based on a sustainable business model rather than relying on continued support by the State to stay in the market. Estonian Air has repeatedly received public subsidies over the past five years but did not carry out the necessary restructuring to become viable as a business. It would not be a good use of taxpayer money to keep Estonian Air in the market artificially – nor would it be fair to competitors, which have to compete without such support.”

The crunch question for the Commission was whether a private investor would have acted the same was as the Estonian state, pouring in as much money on the same conditions – if the state aid corresponded with market conditions.

The Commission ruled that Estonian Air received support three times, although EU regulations allow state aid to be given only once a decade. The Commission also ruled that the company did not have a credible restructuring plan and that measures aimed at limiting the distortions of competition were not sufficient.

The end

The government has set up two companies, which will begin to take over from Estonian Air. One (Nordic Aviation Group) will manage Estonian Air’s routes, while the other (Transpordi Varahaldus) will take on lease contracts.

Economy Minister Kristen Michal said on Friday that if a negative decision is made, then the Estonian Air fleet will be grounded from Sunday.

He said those at their destinations will be flown back home and those with tickets for future flights, will receive compensation. Those with an Estonian Air ticket have been asked to go to www.estonianair.ee or call +372 605 8888 for more information.

The board of Estonian Air today decided to halt all business activity from Sunday, November 8.

The company serviced around 500,000 people annually in the last few years, giving employment to 200 people.

History

It is a sad ending for a company, which became a symbol for newly re-independent Estonia at the beginning of the 1990s.

The company was founded during turbulent times but helped Estonia establish connections with the West. In 1995, the company purchased two brand new Boeing aircraft, giving a boost to a nation trying to rebuild from over 50 years of occupation.

Between 1996 to 2010 the state relinquished controlling shares in the company, and only purchased the company back in 2010 to ensure it did not go bankrupt.

Since 2009, the government has handed around 135 million euros into the company in capital injections, state aid and restructuring aid. The last time the company earned a profit was in 2005.

In 2012, losses amounted to over 50 million euros, from a turnover of less than 100 million. Until then, and after, losses were far smaller. The reasons for 2012 losses were in the company’s drive to expand. In 2011 the state hired Tero Taskila, a Finnish expert who came with a much criticized 30,000 euros per month salary, to take the company to another level. Yet, the plans to expand the company failed. Estonian Air was also hit by higher fuel prices, troubles with aircraft and salary increases.

In 2013, the company embarked on a large-scale restructuring path, cutting its fleet and the number of destinations. Staff numbers were halved.

Source: ERR

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