Siim Kallas: Counting every red cent from Europe makes me sick

Siim Kallas
Siim Kallas Source: Erik Peinar/Office of the Riigikogu

Vice President of the Riigikogu Siim Kallas finds it insensible to give Nordica €30 million. The state should acquire a holding in a major regional airline to ensure continued direct flights from Tallinn. Kallas also says the EU joint loan has been all but agreed and that he is sickened by Estonians' willingness to count every red cent in the European budget.

Siim Kallas (Reform Party) also sharply criticizes, in a lengthy interview to Indrek Kiisler, the European Commission, the actions of which in the crisis he describes as weak, with several commissioners' bitterness for being overlooked for Commission president part of the reason.

Member state governments have opened the state aid taps, flooding airlines, for example, with support. The German government is giving Lufthansa €9 billion, while our government has decided to support tiny Nordica with €30 million. Can these things be compared at all? How to avoid larger and wealthier countries pouring colossal sums into their companies?

In truth, this kind of state aid is contrary to EU founding principles. Competition policy is fully the jurisdiction of the EU. That said, the situation is extraordinary in 2020 as we are basically dealing with a natural disaster. But colossal sums paid to Lufthansa or Air France make it pointless for Ryanair to operate. I cannot say whether it is possible to reverse any of it.

The situation is worrying. The EU aviation market has been free, with a few exceptions, basically since 1994, while the competition situation has completely changed now. We will have fewer regular flights, routes and charter flights. Airlines will initially offer very low prices to bring back passengers. Experts say aviation will recover in 2022-23 at the earliest. That is still a long time away. Cheap aviation fuel is also affecting the situation as there is oversupply. There is less demand for aircraft as companies are not procuring new planes that will cause factories to be shut down and bring a new wave of unemployment for these countries.

Estonian air links are already modest, while smaller airlines' chances of survival are problematic to say the least. We will also see considerably fewer flights.

Should we be pumping money into Nordica to give the national airline wings? Or is the European Commission keeping an eye on things?

It is, presumably. At least it was before the crisis. The agencies are still there. However, let us now take a frank look at each other and ask whether we are willing to contribute to Nordica as taxpayers? We would do well to remember it's our money, Estonian citizens' money. I will be clear in saying that I'm not willing to support Nordica!

Why not?

Their business model is questionable, while I support the old idea of the Baltic states having a common airline. Major players have powerful advantages. Having a single airBaltic for three countries would be sensible. The CEO of Nordica says the money will last them until next summer. What next? Where is the business model they hope can make them profitable?

It is based on a simple fact: we do not have enough passengers to fill proper and comfortable planes. We cannot service all lines and destinations. For example, it will never be possible to fly direct to the United States from Estonia. It could only happen with hefty subsidies.

The Nordics created SAS between three of them, while that is also on the brink today. Nevertheless, we need to ask that even if we invest €30 million in Nordica this year and €20 million the next, what then?

Siim Kallas. Source: Ken Mürk/ERR

Should those €30 million have been spent on acquiring a holding in airBaltic instead? Should Estonia have bought a part of the Latvian national airline, with the condition of airBaltic operating direct flights from Tallinn?

That is how SAS works. It is owned almost exclusively by governments. I know that joining SAS was very seriously considered in Estonia at one time, but SAS did not want to bring Estonians aboard. Any holding would have to come with the condition of regular flights from Tallinn. We could also have an agreement with Lufthansa. The group includes several airlines: Austrian Airlines, Swiss, Eurowings. Austrian Airlines decided to join Lufthansa and is operating very nice planes today. A consortium adds versatility. I once found myself in trouble with Nordica in Nice as our flight was canceled and we could only continue our trip the next day. A major airline can usually dispatch a backup plane more easily.

You mentioned Ryanair that has offered many important links for Estonians. Is Ryanair a good example of how a small country like Ireland cannot afford to finance such a major airline?

Ryanair is the largest strictly private airline in Europe. Ryanair wanted to acquire Irish national airline Air Lingus, but the Irish government categorically refused. I have flown with that airline once, and I will be honest in saying I never will again. Everything was so poor! The Irish government has never treated Ryanair as a national airline and it has rather been a complicated relationship, so they will not see any government funding.

Looking at setbacks in aviation both during economic crises and natural disasters, let us recall the volcanic eruption in Iceland and the coronavirus, can state aid render national airlines more sustainable?

National companies are less innovative and competitive than private ones. During the ash crisis, the solution was the opposite. Countries banned flights, while the European Commission put airlines in charge and flights resumed quickly. Rather, we should promote independence and decision-making.

Nordica's business plan still needs to be approved by the government and €30 million has not landed in the company's account yet. You would urge Minister of Economic Affairs and Infrastructure Taavi Aas (Center) to reconsider and weigh acquiring a holding in a larger airline? We are talking about Finnair, SAS, Lufthansa or airBaltic. Companies that are active in our region.

The government has made its decision and Nordica will be kept alive at least for a time. I doubt anyone wants my recommendations there…

One might be interested in what a former European Commission transport commissioner has to say.

Right now, I'm a member of the opposition. The past counts for very little in politics. And because my proposal is the opposition's proposal, it will not be heeded. But it would be sensible to look into such possibilities.

What will happen in 2022-23? We do not know how Finnair and SAS will come out of this situation, while we should consider joining a consortium. We will always have few flights because we simply do not number enough. It is a problem for all Baltic Sea countries, with mergers able to offer flexibility if only in terms of replacement flights.

There is an important national component here for Estonians. It's as if we don't want the market ruled by the Finns or, God forbid, Latvians! Would it be grander to be part of Lufthansa of SAS?

Those are emotions.

Emotions need to be observed in politics…

Yes, very much so. This one should be suppressed, but the trouble with companies like Lufthansa is that we would not be an equal partner there. Nordica is not Swiss or Austrian Airlines…

It is true that emotions should not be underestimated here as people snub their noses at the Finns or Latvians. Estonia is the center of the world, as we know.

Siim Kallas. Source: Ken Mürk/ERR

Let us leave aviation and move on to a more fundamental matter. The loan proposed by the European Commission that would be jointly guaranteed and repaid from the EU budget. Will it happen?

I do not know the details, but past experience suggests it will. The Commission would not have gambled with something as big as this. I believe there were long and serious consultations. Talks have been held with Germany and France as well as the so-called tight countries. The Commission would not come out with a proposal that could fail completely. I do not know the details and the devil in them, but I believe the matter has been thought through and discussed at length.

Allow me to give an example. There is already dissatisfaction with joint taxes, such as the plastic tax. In such a situation, the solution is usually to drop the common tax idea and leave the matter up to member states, while sums member states pay into the EU are simply hiked. National contribution is increased and the problem solved this way; some rules will be changed and joint borrowing will happen!

It needs to be emphasized that this is not an accounting problem but a purely political decision. Matters are solved behind the negotiating table in the EU and a decision is made in the end. That is also how it will be with this crisis. What I found most painful was the inability to avoid border closures when the crisis began, especially as concerns goods transport. The Commission's reaction was nonexistent. It is a clear-cut case of infringement proceedings and countries should have been punished straight away, by turning to the Court of Justice if necessary.

The financial power wielded by EU member states is immense. The European Commission greenlit €4.3 trillion in state aid during the previous financial crisis (2008-2009), while sums made available in the end were smaller. Turkey was given billions during the refugee crisis for Ankara to play ball. Such decisions require political will.

Allow me to give another example. The financial crisis in Greece in 2015. Back then, there was a prevalent sentiment of cutting Greece loose. I was also of the mind to let them go and get to work building a self-sufficient Greece. The position was even shared by most of Germany's influential decision-makers, but Chancellor Angela Merkel disagreed. She felt that if the Greeks want to save themselves, we should help them out. And we did! Their communist government carried out all the required reforms and paid for it by being voted out.

Greece's is a small economy, they have a little over 10 million people. Italy is home to some 60 million. Some fear that if large southern member states adopt national currencies to contain loan burdens, the European Union will collapse?

The European Union is interconnected in hundreds of ways and has developed without a joint currency. It would not be a disaster, while it will also not happen. The existence of the EU will be decided by the Germans. Let us presume Italy switching to its own currency would solve the problem. It was a possibility for Greece and it happened in Russia in 1998. Back then, devaluation left the population three times poorer – that is what it would mean.

Italy would have to drop their currency rate to make the country competitive. This means cutting salaries and pensions. It meant cutting everything in half in calculations for Greece. So, the Italians do have a choice.

It also needs to be kept in mind that Italy is a diverse country, it's not just Naples and its little songs, a region where nothing has ever worked. It also holds one of the most developed regions in Europe – Northern Italy, and the people there know full well what's at stake and where to lean.

You do not subscribe to the theory according to which Merkel only agreed to the joint loan because she knew the "tight countries" led by the Netherlands would sink it anyway? It is not just an attempt to try and please the south?

I do not believe that as it makes very little sense. It would be a colossal risk in terms of one's reputation.

What is she risking, however? She can just say that Germany was in favor, while the little mean men in the north did not go for it…

I don't believe that. I believe a number of phone calls took place before Merkel's statement and the Commission's proposal. Looking at the reactions of the heads of these so-called tight countries, such as the Austrian chancellor, the Dutch finance minister or the Swedish prime minister, their reactions have been cautious and restrained. None have told the EU to take a hike.

I believe this suggests there is willingness to discuss it. I'm sure they have not approved the plan, but they have been brought to the table. That is how these things work in the European Union; it's difficult to reach agreements between 27 participants. If Viktor Orban is saying it is unacceptable, I would remind him that Hungary is a net recipient. Failure to join means no money.

Siim Kallas. Source: Ken Mürk/ERR

The reaction of political forces in Estonia has been hesitant, except in the case of the Conservative People's Party (EKRE). Theirs is entirely self-explanatory. But I noticed that criticism died down as soon as it turned out Estonia will still receive more from the EU than it has to pay in. Increased sums for the next budget period silenced critical voices…

We have always been money-grubbers. And it makes me sick. Obsessing over whether we'll get those three extra red cents.

We need to be able to see the big picture. Of course, one must fight for one's interests and we always have, successfully. By the way, smaller member states have always been more successful when it comes to receiving things. Large member states have always contributed more and not just in absolute terms. This join borrowing is a political project the aim of which is to exit this crisis as a whole. Just like EKRE's opposition to it is political because their goal is to take Estonia out of the EU. Every wedge they can drive into the EU machinery corresponds to that political goal. Again, it is not a financial but a political matter also for them.

The proposal will likely be tuned at several summits, it will not be passed in a hurry. We clearly have a special status, we have a nonexistent national debt compared to other countries and can afford to borrow on more favorable terms ourselves. What should the Estonian PM ask for us during the Council meeting?

What would we want?

I don't know, I'm asking you. When the Greek loan was on the table, Finland asked for the Greek islands as collateral. Should we be asking for something like that?

The Finnish example is a poor one. They did not get the islands as surety. I was standing in for then finance commissioner Olli Rehn at the time who was off home campaigning. Let us be frank – The Finns made fools of themselves and were ridiculed. Asking for such conditions is meant for domestic consumption. We need to be clear on what we need the money for. Whether it's border construction, the migration topic that is still on the table, the hospital network or something else. Practical experience shows clear plans have a greater chance of being supported. But what is our plan? I have no idea.

Let us talk more about the European Commission. Insane truck queues on EU internal borders were partly due to the Commission's inaction. Is the reason that the Commission is weak or, to use your words, "problematic"?

The current Commission is weak. I managed to visit Brussels, meet my former colleagues and walk the halls so to speak before the coronavirus crisis. The feedback I got suggests the Commission is not united, that there are strong differences. It has people who sought the presidency and were left bitter.

We must admit that while the offspring of the founder of the Kreenholm Manufacturing Company (Commission President Ursula von der Leyen) is a nice person, it is a very difficult job. She was not a top minister in Germany and cannot be compared to Jean-Claude Juncker as the latter had served as both finance minister and prime minister. Recent Commission presidents have all been prime ministers. You need sufficient political capital in that position. And von der Leyen doesn't have it.

Even though everyone remains polite on the outside, she is not taken seriously. Perhaps things will improve over time, but if the people under you also feel they should be in your shoes, it's very tough. My former colleagues at the Commission were rather worried about the situation.


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Editor: Marcus Turovski

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