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Address by Mr. Juhan Parts, Prime Minister of Estonia, in Berlin

24.11.2003

May 1, 2004 – Will Estonia and EU Be Ready?

Meine Damen und Herren,
Ladies and Gentlemen,

Es ist für mich eine grosse Ehre, hier zu Ihnen sprechen zu dürfen. Ich bedanke mich für diese Möglichkeit bei der Vertretung der Europäischen Kommission und dem Bundesverband der Deutschen Industrie.

It is a great honour to be here tonight and to address you about my country, Estonia.

A country, which is going to be a member of the European Union and NATO in the coming six months.

A country with many opportunities and possibilities to be seized, a country that has particular ties to Germany and German traditions.

Germany, in fact, is Estonia’s gate, window and path to Europe.

Our common history throughout the centuries has connected Estonians to the German cultural space. The German, or rather, the Baltic German element constitutes an essential part of the phenomenon called "Estonian culture".

The impact of the German cultural space, especially after the Lutheran reformation, is reflected in our cultural outlook, our intellectual self-image even today.

I will name some characteristic traits, just to prove my point.

Our vocabulary – there are many Germanic stems in the Estonian language. The greatest part of foreign language loans in Estonian probably originates from (Low) German, and this is possibly the greatest amount of loans from any Germanic language into a Finno-Ugric one.

There are German names for all Estonian cities, and nearly all our villages have a German name beside the Estonian one. Even many family names are purely German.

Another fact, not altogether insignificant: one of the national dishes in Estonia is pork with boiled potatoes and sauerkraut – doesn’t this sound familiar?

Our public law and order is built on the foundation of land law and Germanic law.

On this foundation, we have built a modern system of business law that is based on the German legal system. Believe me, in Estonia you will find the same Handelsrecht and Grundbuch as in Germany, and even in a perfectly functioning electronic version on the Internet. To the woe of some Estonian lawyers, our legislation appears to be somewhat less intricate than the German one.

Considering the above, what you will discover on the southern bank of the Gulf of Finland is more or less yourself – your culture, your law, common values and the understanding that there is no success without hard work.

Estonia is a country that, like Germany, belongs to the Baltic Sea region – the region with the fastest-growing economy in Europe. As the Prime Minister of the president country of the Baltic Sea Council, I am tempted to remind you of the first regional organisation where Estonia and Germany co-operated – the Hanseatic League. I would like to express my hope that the Hanseatic history of success – unique in its time – would now repeat itself in a completely new dimension.

In the golden Hanseatic times, the St. Olof’s Church in Tallinn was Europe’s highest building, built to keep merchants and sailors on the right course.

To what course is Estonia pointing today? What do we have to offer to German businessmen?

I would like to deliberate six issues:

First, monetary system with a currency board.

Second, our liberal trade policy.

Third, the economic freedom and minimum state interference.

Fourth, the low corruption rate in Estonia.

Fifth, our attractive tax policy, and

sixth, our competitiveness.


And now, let us have a closer look at all these issues.

First: our monetary policy. In 1992 we adopted our own currency – the kroon, and pegged it to the Deutsche Mark, now Euro, using a currency board mechanism. Today, all experts are recommending the very same currency board system to transitional economies as the best way to bring rapid stability and credibility to the economy and monetary system. Much of the credit for this goes to the very positive example of Estonia. This has been possible, of course, due to our very prudent and conservative fiscal policy and strict fiscal discipline. The results of our monetary policy are also characterised by the most viable and credible banking system in Eastern Europe and the fact that Estonia is seen as a country that can be among the first of the new members to join the EMU and start using the Euro. We want to be ready for this as early as in the second half of 2006.

Second. In the early ‘90s we decided to adopt a liberal trade policy and completely opened our market to imports. Until recently we have not implemented any customs tariffs towards third countries, including agricultural imports from the EU. This was a very bold step but it has proven to be a right step for Estonia. We very quickly integrated to the EU economy and this helped us to break free from the former economic ties and practices. As you all know, tough competition can be very painful, but at the same time it helps to increase competitiveness and productivity a great deal.

Presently, the Estonian economy is characterised by close relations with the EU countries, especially the Nordic ones. In 2003, the share of the EU15 in Estonia’s export was 70%, while in imports the corresponding figure amounted to 60%. Our main investors and trade partners are Sweden and Finland, followed by other European countries, with Germany unfortunately still too far from the top on the list of investors. The activities of the investors have been aimed at the EU markets, as well as meeting the European standard and quality requirements.

Third: Estonia is on the 6th place in the world by the index of economic freedom, calculated by the Heritage Foundation. This means that we are one of the most open economies in the world, being thus more influenced by the events of the world economy but also guaranteeing a lot of flexibility for the investors and entrepreneurs. This means that Estonia is an attractive country, which is not over-burdened with economic regulation and leaving a lot of freedom of decision to the economic operators. And all this has been achieved within the framework of the EU legislation, the acquis communautaire.

Fourth. Another important factor for business is the implementation of legislation and the rule of law. Well, according to the assessments of the European Commission, Estonia is the forerunner among the future member states. More importantly, it is often perceived that the societies of the future member states are much more corrupt than those of the present member states. Wrong! If we glance at the latest Corruption Perception Index by Transparency International we note that Estonia is on the 33rd place among 133 countries. This is obviously an important factor not only from the investor point of view but also as an indicator of the general development trends of the whole society.

Fifth. One of the aspects of our economy that we are particularly proud of is our attractive tax policy. I consider tax competition among European economies as healthy and favourable to the overall European competitiveness. I strongly disagree with those asserting the opposite. A few weeks ago the UK Prime Minister Tony Blair and I published an article in the Financial Times, where we both advocated the need for and the benefits of tax competition in Europe, which clearly is a tool for stimulating economic growth. We wrote: “At a time when we need to make Europe’s economies more responsive and nimble, harmonising tax or welfare systems would be a giant step in the wrong direction. Making everyone follow the same tax rules would soon diminish the competitiveness of the whole of Europe – killing jobs and stifling growth.”

Estonian tax policy is simple and treats everybody equally. The personal income tax in Estonia is currently flat 26%. The company tax on dividends is 26 %, but it is 0% on reinvested earnings! We introduced that in 2000 and the first results have been encouraging – during the first year Estonian companies boosted their investments by an average of 8%; investments of small companies rose by a total of 30% and annual foreign investments increased 1,5 times.

Sixth: In the light of all that we are a competitive economy. According to IMD (International Management Institute), Estonia is on the 17th place in the world among countries with less than 20 million inhabitants. This is the highest position compared to all other future member states, and Estonia is in fact considered to be more competitive than some of the present member states. This only proves that the basic elements of the Estonian economic environment have been well chosen and stimulate the growth of companies. The strengths of Estonia’s competitiveness are: macroeconomic stability, tax policy, low cost of living, equal treatment of investors, fast growth of productivity.

To enhance Estonia’s competitiveness even further in the coming years, we are focusing on future-oriented solutions in the quality of labour force. Connecting education, both regular education and vocational training, with the needs of the economy, is the Estonian Government’s domestic policy priority number one.

Last but not least, I would like to tell you about our achievements in using IT solutions. About half of the Estonian population is regularly using Internet, 62% of all bank customers do their transactions via internet, about 36 % of the citizens filled their income declarations electronically via internet this year, and 74% of the population have mobile telephones. Mobile phones have also rapidly become means of payment, as it is possible to make purchases and park your car paying via the cellular phone, altogether in 760 different places. The latter is a unique possibility in the whole world. So if you would like to pay your bill via your cellular phone – come to Estonia, check it out! All those examples illustrate that if there is some extremely positive trend in the society the Government must show its commitment to that.

This also increases transparency and makes it possible for the citizen to communicate with the state via Internet. This in its turn enhances the general competence, efficiency and the struggle against bureaucracy. The state must be simple and the relationship between the state and the citizen must be simple too. This is my goal, and I believe that everybody benefits when it’s accomplished.

Here I would also like to remind you of the fact that throughout the past decade Estonia has experienced very rapid growth figures, an average of 5% per annum. This is natural as we have a lot to catch up with. Currently our GDP per capita is around 44% of the EU average and it takes at least the next 20 years of rapid growth to get us there. I assure you, the determination is there, and the odds are in our favour. I believe that it is possible to reach this goal in two decades, but we also need a bit of luck and… more German investments. The forecast for the next 5 years is a steady growth between 5-6%. I think we could do better than that but this depends, of course, much on the development of the European economy. Here I hope we could also contribute ideas in some areas of the economy that could address this issue.


Let me try to share a few with you!

First and foremost, Estonia will be strong supporter of the Lisbon process, i.e. the economic reforms of the European Union, aiming to make the EU the most competitive knowledge-based economy in the world. Having always been a forerunner in liberalisation and market-driven economic policy, Estonia has had the Lisbon goals as the centre of its economic policy for a long time already. It is our firm belief that only such actions can make the EU more competitive in the world and a forerunner in technological progress. We believe in the need to deregulate the overregulated EU economy, and here Estonia can serve as a good example.

Innovation, as well as research and development – the goals of the Lisbon process – are to be pursued in all sectors, especially by the new economies. We should focus our efforts on widening even more the use of information technology. IT offers numerous opportunities for entrepreneurship and brings more efficiency and user-friendliness to the work of organisations, including government institutions. That creates a basis for the development of knowledge-based economy and e-state. Extensive IT usage in the society presents wider opportunities for communication, education and work. It also creates new forms of business, improving thereby the efficiency of the public sector and the economy as a whole, as well as improving the living standard of the individuals.

We should be bold in promoting frontier technologies, especially in biotechnology, as well as in environmental and material engineering. Estonia’s accomplishments in the field of biomedicine cover diagnosing and treatment of diseases, application of biomedicine technology, studies on risk factors of specific diseases, elaboration of medicines and creation of innovative platforms in environmental engineering. Accomplishments in the field of biomedicine provide a basis for the future establishment and elaboration of a high-tech industry.

In material engineering, small- and medium-sized high-technology enterprises can achieve considerable success in niche- and knowledge-intensive sectors. New solutions in material science and engineering will ensure competitiveness for enterprises in several knowledge-intensive fields (electronics, machinery and equipment building, communications, medicine, energy systems, national defence, etc.) and guarantee economic management.

We need also to make an effort in creating a real European Research and Innovation area and pairing this with a joint area of education. This would accelerate the transition to the knowledge-based economy in the whole Europe.

In order to maintain our competitiveness and make full use of the EU accession on the economic plane I have launched a process called “Estonian success 2014”. This is a set of measures for us to move from the current investment-driven economy to economy driven by knowledge-based innovation. In broad terms in can be seen as the implementation of the Lisbon process in Estonia. We are keenly committed to the Lisbon targets and see that the implementation of these targets would guarantee our economy’s full integration to the EU economy as well as boost economic growth and employment. I assure you that the implementation of this process is the best guarantee of stability and long-term development of the Estonian business environment – something that the investors usually are particularly keen upon.


Ladies and Gentlemen, meine Damen und Herren,

I would like to return to the beginning of my speech, to the sea that unites us. This is the Baltic Sea. Both of us, Estonia and Germany, are Baltic Sea States – we should make full use of this fact, and see it as a significant feature of our common identity. Today the Baltic Sea area is the fastest growing region in Europe and, I quote my colleague, the Swedish Prime Minister Göran Persson, who said that he believes that in 15-20 years it will be the fastest growing region in the world. And both our countries are part of that region.

It is a region of 100 million consumers and a lot of potential, especially if we keep in mind also the economic ties with Russia and the Northern Dimension. The importance of the co-operation between the Baltic Sea States is obvious and most beneficial to the whole region. This is also the area in Europe with the most developed companies in the spirit of the “new economy” and innovative approach to business development, as well as strong support to the Lisbon process. In a few years’ time the Baltic Sea Region will be a true home market for all the companies operating there.


Dear friends, liebe Freunde,

I have tried to give you a picture of a small Northern country, with strong historic ties to Germany, and about to join the European Union very soon. I hope that this has also increased the interest towards Estonia and its opportunities.

Do you know what our greatest hardship has been in the past decade? It has been the prejudices towards us; we have always been shadowed by those. I have made an attempt to disperse some of these shadows here tonight, but there is only one way to banish them forever. There is an old saying – “seeing is believing”. So you have to come down to Estonia yourself to check it out. This is the only way! There is much more potential for business and trade between our two countries that go back a long way together. Germany, today, is not even among the top 5 investors in Estonia and I am sure that there are a lot of possibilities to improve the situation. Improve it considerably.

I hope that I have inspired you to learn more about Estonia’s prospects. And once you have arrived in Estonia and set your eyes upon the ancient Old Town of Tallinn, I hope you may wonder – with a shade of regret – why you had not come sooner.

And finally, I would like to answer the question raised in the title. From May 1, 2004, Estonia and Germany will be together in a Union based on common values and principles... Estonia will be ready – to join. The EU will not be ready - as it should always face new tasks and challenges. Thus, Estonia as a member of EU will not be ready, as the Union is not a mission completed, but always on the move, always in transformation, influencing the lives of hundreds of millions of people.

Vielen dank für Ihre Aufmerksamkeit!

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