Estonia needs to acknowledge that its dependence on the European Union support measures is a problem, says University of Tartu Professor of International Business and Innovation Urmas Varblane.
The idea of structural aid for lagging regions was first developed in the early 1970s. With the accession to EU of poorer countries – Greece (1981), Spain and Portugal (1986) the regional funding became a major instrument of bringing the wealth of these countries up to the average level of Europe.
In 1994, the Cohesion Fund was created with the aim to encourage economic convergence between the member states of the EU. Currently, the three Baltic states are among the top beneficiaries of the EU structural funds. During the next funding period 2014-2020, Estonia will receive by capita the most financial support. Lithuania in the third and Latvia in the fourth position. Even more significant is the EU support relative to the GDP of the Baltic states. In 2012, they obtained net support of almost 5 percent of their GDP. Hence, for them the financial assistance from the EU structural funds could become a stimulus similar to the Marshall plan for Western Europe after World War II.
The Baltic states have seriously benefited from the support of EU structural funds. It allowed Estonia, for example, to go through the recent economic crisis without increasing public sector debt. The reduction of Estonian tax revenues by 400 million euros in 2009 was covered by the more intensive use of structural funds in the same amount. Structural funds play a central role as the source of funding for public sector investments. From 2010-2012, the EU funds accounted for 79 percent of Lithuanian, 70 percent of Estonian and 61 percent of Latvian public sector investments.
From 2008-2014, the Estonian public funding of research nearly doubled (from 80 to 150 million euros), but the share of EU structural funds contribution increased from 12 percent in 2008 up to 54 percent in 2014, or 59 percent if we add required co-funding. Consequently, the whole field of research funding depends enormously from the outside support.
During the EU funding period 2014-2020, the Baltic states will receive another chunk of funding, which will subsequently dry up. It is of utmost necessity to think now about the strategy on how to reduce its dependence on EU financial support. The first and most urgent need is to improve the quality of using the EU support funds in all three countries. Hence, we need to position the support funds into areas which support the long run productivity growth and increase the competitiveness of the Baltic states. Precondition is that instead of short run view in coalition treaties of Baltic governments, the long term strategy how to move toward the knowledge intensive economies is needed. It is not sufficient to mention it as a goal, but also funding of research and development activities and innovation must be among the priorities of the budgets.
Urmas Varblane is the Head of the Division of Humanities and Social Sciences, Estonian Academy of Sciences. The article is based on his talk at the XIV Baltic Conference on Intellectual Cooperation, which takes place in Latvia, April 20-21.