Estonia’s Prime Minister

Austerity Zeal from the Baltics

Taavi Roivas dpa
He's the youngest head of government in the E.U.: Estonia's Taavi Rõivas.
  • Why it matters

    Why it matters

    Increasingly confident euro members such as Estonia could re-shape some of the long-held alliances in Europe as they throw their weight behind Germany’s more austerity-minded way of thinking.

  • Facts

    Facts

    • Estonia, located in eastern Europe and bordering Russia, joined the euro in 2011.
    • The country went through a tough phase of austerity, shrinking its economy and budgets in order to join the common currency.
    • Taavi Rõivas, 35, is head of Estonia’s pro-business party and has led the government in left-right coalition since March 2014.
  • Audio

    Audio

  • Pdf

Taavi Rõivas had hoped to take a two-week vacation in July. Like many other European leaders, the Estonian prime minister found himself held back by Greece, a crisis that sparked another round of countless meetings in Brussels to hammer out the details of a third bailout package that would allow Athens to avoid bankruptcy and Greece to remain part of the euro currency. Estonia is one of the leading new voices from the Baltics, advocating a tough approach towards Greece that mirrors the tough reforms Estonia itself took to join the euro in 2011.

Mr. Rõivas sat down for an interview with Handelsblatt at the government’s headquarters in Estonia’s capital, Tallinn.

Handelsblatt: Mr. Rõivas, what’s your view on the compromise the European Union found last Monday to solve Greece’s problems?

Taavi Rõivas: Just a couple of weeks ago the situation was very pessimistic. The referendum, the acts by the Greek government didn’t help at all to reach the agreement. The situation by last Tuesday (July 7), when we first met, was very, very critical. But I’m very glad that by the early morning hours of Monday we reached an agreement, that the Greek government and prime minister (Alexis) Tsipras committed to fulfill the criteria, or, let’s not use criteria, to go further with the reform program. This is very much needed, not only for the creditors but it is needed for Greece itself.

Please explain.

It is quite clear that without those reforms it is impossible to be sustainable as an economy. It’s quite clear that at this level of expenditures in many fields it would be impossible to be sustainable as an economy. It is not a question of demands by creditors even though creditors have their worries and rights and so on. This is more about Greece becoming a country that can grow again and service its debts. I believe that these things need to be done. There is nothing in the agreement – most probably, there won’t be anything in it that other European countries haven’t done as well.

Estonia has been an anti-Greece in terms of fiscal policies.

Your own country for instance. Could you give examples?

Many of the things in the Greek program, Estonia has been doing without any external pressure. We have decided to raise our pension age, we have decided to lose our VAT exemptions, we have been liberalizing (the labor market). Liberalizing the employment market is very, very essential for Greece. All those things are actually rational things and need to be done. Of course, a lot is dependent on the Greek government and parliament now. I am glad that the opposition has shown a very strong commitment. This is very, very important, that they are showing that they can overcome the internal political differences and support the government, even though they don’t always support the government’s politics. I am really, really glad that this has happened, but there is still a long way to go.

After the financial crisis of 2008-2009, Estonia faced some huge financial problems and it implemented far-reaching reforms and budget cuts. How do you explain to voters Estonia now has to pay for Greece?

It wouldn’t be right to speak of problems. Throughout the crisis the Estonian budget deficit was never more than 3 percent and during the peak of the crisis Estonia met all of the Maastricht (budget) criteria. At that time there were only four countries fulfilling all the Maastricht criteria: Estonia, Luxembourg, Sweden and Finland.

Nevertheless, how do you explain Greek aid to your voters?

When it comes to telling the Estonian voters why we should help Greece, I do admit it is difficult. Greece has historically been doing a lot of things differently. Estonia has been an anti-Greece in terms of fiscal policies: We have the lowest debt ratio in the European Union, only making up ten percent of gross domestic product and our last year’s budget was in surplus – that’s not a thing you see very often in the European Union. Then again, Estonian people understand very well that if the Greek government is committed to reforms and budget cuts that are needed then we shouldn’t leave them out in the storm. But of course Estonian people want to see the commitment by the Greek government, this is very clear.

Willl there be much opposition in Estonia to the Greek aid?

Definitely, that will be a very strong. Just as in Germany, the discussion will be very serious. It is very popular to say: ‘Let’s forget about Greece,’ but it is not very rational nor European to do that.

 

Estonias Economy-01

 

How do you mean?

Estonian taxpayers’ exposure to Greece – excluding the central bank’s – is above 2 percent of (Estonia’s) GDP. That is one of the highest (in the euro zone). If we would slam the door closed, which could have happened if Greece hadn’t committed themselves, then we definitely would lose some money rather soon, that’s logical in terms of bankruptcy. The possibilities to get your money back would be very difficult. So it would immediately create cost. On the other hand, if we reach an agreement with the Greek government, our exposure to Greece will further increase but the hope is that if Greece bit by bit delivers, that could reduce the risk of costing money for all European tax payers. But on top of the purely rational arguments there are also arguments that if on the European continent someone really needs support and if they are helping themselves – this is very important to stress – then we don’t turn our backs. This is a very clear principle of the European Union and this is the only way possible to function as a union.

How convinced are you that you will get support in Estonia’s parliament for another Greek aid program?

It depends on the program, it depends on how committed the Greek government is, it is possible. And if I’m convinced that the Greek government and parliament has found a consensus, like a national unity coalition to support the plan and the plan is approved by the institutions of being sufficient to help Greece out of this, then I think it’s possible to get the support from the parliament.

Do you think the measures taken in Brussels to solve the Greek problem are enough to avoid the same situation in one or two years?

If they stick to the plan it will be enough probably. If there is a lack of delivery then there will immediately be problems, this is very closely related. You have to keep in mind that by the end of last year, Greece was actually on the right track. The previous government was very much committed to reforms even though we didn’t go without problems there as well. But we saw hope. The last half year has been very costly for Greece and this is due to the policies of the Greek government that was elected at the beginning of the year. I really hope the government has changed the way they feel and they are committed to help their country back on track because there really isn’t another way. The only way for Greece is that the government has to be very committed to do what is necessary.

What have been the consequences of sanctions against Russia for Estonia?  

I think the impact of sanctions have been felt in European countries as well, especially the counter sanctions, but it would be very cynical to put a price tag on Ukraine’s freedom. Even if there is decrease in trade, which there has been, Ukrainian freedom for us is priceless. Russia used to be our number three trade partner and now it has dropped a couple of places. The sanctions have been felt in Russia and this is very important. It has to be very clear in today’s Europe that if you attack your neighbor and intervene in sovereign countries’ business this doesn’t come for free, this doesn’t come without consequences. The international community including the European Union reacts to that.

 

Roivas with Tsipras, Hollande, Rajoy dpa
In the same boat, but not the same trouble anymore: Mr. Rõivas, r, with Spain’s Mariano Rajoy (2nd r), Greece’s Alexis Tsipras (2nd l) and France’s Francois Hollande (l). Source: DPA

 

You have quite a large Russian minority in Estonia. Do you feel Moscow might call for help?

They like it in Estonia. Firstly, they feel at home here. Secondly, the living standard is clearly ahead of the Russian living standard. People in Moscow might be richer in some streets than the posher streets of Berlin but ordinary Russian people live rather poorly, with much lower salaries and pensions. This is only one part of the story. The other part is that life in Russia lacks all kinds of freedoms that we in Europe are very much used to, which we take for granted: Freedom of speech, freedom of expression, freedom to move, economic freedom, things like that. It’s quite clear that Estonians living in Tallinn or Berlin don’t want Putin to come to the rescue.

What should the West do to solve the crisis with Russia?

Well, it’s a very difficult question. Our task is to continuously say and show that attacking neighbors doesn’t remain unanswered. So we have to continue with the sanctions, the sanctions have started to work, this is quite clear. And, of course, helping with the political dialogue is important as well. And I think in this respect the ball is really in Russia’s court. They are the ones who can pull back their troops.

Do you see any signs of this happening?

Unfortunately not, Russia is clearly violating the Minsk agreement. We see every night tens, even sometimes close to hundreds of episodes of firing, also with arms that shouldn’t be there according to the Minsk treaty. So unfortunately I think we are far from the Minsk treaty being fully implemented.

Another international problem: Large numbers of refugees are coming to Europe. How should the European Union deal with this?

The crisis has become so large that it cannot be only a problem of border states. There is a clear need to help others. I’m glad that we’ve reached an agreement and that everyone is contributing. And the agreement that will be announced today (July 20) most probably will be proportionate and adequate, so that everybody is doing their job and nobody is trying to avoid what they have to do.

How many refugees will Estonia take?

The number will be decided today so it’s a bit early to say. But I believe the numbers that have been discussed for all the countries – they are in very good proportion to the country’s size. Estonia has voluntarily announced that we would take our share of the European population and if needed a bit more.

Discussions are taking place in Estonia about taking up an additional 150 to 200 refugees. Is that sufficient when it comes to the 60,000 which have to be divided across Europe?

As I said, it will be proportionate to the country’s size. Estonia has 1.3 million citizens; we are fifty times smaller than Germany in terms of population. I believe most probably the proportion of refugees coming to Estonia will be somewhat similar. I think we will take a little bit more than our share in the European population, but it will be proportionate anyway.

 

Helmut Steuer covers the Nordic and Baltic countries for Handelsblatt. To contact the author: steuer@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!