Estonia's cut of EU recovery fund decreased by €130 million

Euros (photo is illustrative).
Euros (photo is illustrative). Source: (Marco Verch/Wikimedia Commons)

The European Commission announced in December that as Estonia's economy is doing fairly well, the country would not receive the full €1.1 billion it was promised from the European Union's COVID-19 recovery fund. The final amount will become clear by mid-2022, but Estonia's part of the fund was decreased by €130 million for now.

How the final sums of the European Union's Recovery and Resilience Facility (RRF) will be distributed between member states will depend up to 30 percent on how the local economy compares to the EU average. Estonia is ensured to receive at least €759,700,000 from the fund, if the economy does well enough.

In the start of summer, the European Commission calculated that Estonia would be allocated €1.1 billion of the €550 billion fund. When compared to most EU states however, Estonia's economy did far better, which led the European Commission to announce that Estonia could receive around €970 million instead.

Triin Tomingas, an adviser of the Ministry of Finance's state budget department, explained that the final sum will be calculated in June of 2022. "The real development of economic indicators may also differ from the latest forecasts, which would mean the final RRF sum could move in one direction or the other," Tomingas said.

Estonian officials have negotiated the use of the recovery fund with the European Commission since last October. When the commission announced it would lessen Estonia's part of the fund initially, the Estonian government still gave a directive that the sum of €1.1 billion should be considered when making plans going forward.

"The European Commission has also recommended going forward with overbooking. If the fund's capacity remains in the planned magnitude, then we would have more ripe projects behind it and those would be discussed with the European Commission," Tomingas noted.

But if the summer of 2022 tells Estonia that they would receive less than initially planned, the government in power would have to go over things once more. "And then decide if we can compensate the missing part from the state budget or if there are cuts to be made in the existing plans. Perhaps some things are implemented cheaper," Tomingas said.

Change of government will likely not affect plans

The European Commission directed Estonia to allocate 20 percent of the RRF for a digital revolution and another 37 percent for a green revolution. All projects must start by 2024 at the latest and developments must be finished by July of 2026.

In December, the outgoing government painted the general priorities down with a broad brush. In the digital sector, the government wished to contribute to final-mile investments and chatbots, the green revolution side sees many transportation projects such as the Haapsalu-Rohuküla railway and the tramline to Tallinn's Old Harbor. In healthcare, the construction of Tallinn Hospital is considered the main project with a few medical helicopters also in the plans.

With the priorities set, Estonian ministry officials met with European Commission officials to discuss the details of the fund. The commission tried to understand how the government's ideas would help Estonia in the long-term.

"After those thematic meetings with the commission, ministries have begun writing to open each topic to send more detailed material to the European Commission about each investment and reform plan," Tomingas noted.

The documents are slowly starting to come together and negotiations are starting to become more detailed and official. But the recent government crisis in Estonia could bring forth a delay. As Estonian ministry officials have negotiated based off the priorities of the previous government, they are currently awaiting what the new Reform-Center government thinks of the fund's use.

Reform MP Aivar Sõerd said that they are rather familiar with the negotiations so far and the prime minister party-to-be has no major complaints. He noted that all parties have a common understanding when it comes to things like digital development and insulation of apartment buildings.

"If we were to make any chages, it would not be to follow a party line, but rather views on if the sectors are in accordance with the fund's goals," Sõerd explained.

How to explain to the European Commission that Estonia needs a mega-hospital?

So, the change in government will likely not bring as many changes to the funding as negotiations with the European Commission can bring. A good example is the most expensive single project of the fund in Estonia - Tallinn Hospital - that hopes to receive up to €380 million. Estonia has discussed the hospital complex development with the EU before, even prior to the coronavirus. The commission was on the fence then, rather swaying to the negative side.

Since the RRF fund is meant to develop healthcare, it opened another possibility for the hospital. It is still not clear if the European Commission agrees to Estonia's plan of constructing the ambitious hospital in Lasnamäe.

Sõerd pointed out the tight schedule as the first problem. The hospital has not even been projected yet, but the commission regulated that construction should start in no less than three years. Another obstacle is more substantive, Sõerd explained that the European Commission periodically assesses each member state's economic situation and gives recommendations on which sector should contributed to more.

"It is also one of the inputs - the sectors we want funding to go to must be in accordance with the bottlenecks identified by the commission," Sõerd said.

Triin Tomingas noted that the European Commission sees other problems in Estonia. The commission has asked if the country has enough medical staff and has stressed the need to make primary care services more accessible.

"And now in these consultations that we have held for RRF, we have been reminded of these shortcomings and have been asked for solutions to solve the shortcomings," Tomingas said.

There is no official feedback for Estonia's proposals yet, but an official declaration has not been presented yet either. "The consolidation of medical institutions should also have an effect on manpower. Duplication would be eliminated and existing resources could be used better," Tomingas explained why the commission could support the hospital project in the end.

Aivar Sõerd added that even if the European Commission does not agree to the Tallinn Hospital development, the state has other options - such as the fund's €360 billion loan portion. "Meaning, Estonia can take out a loan up to €1.9 billion and perhaps build the hospital then. But there is also the question of perhaps getting a better loan from the market," Sõerd noted.

Estonia still hopes on the RRF fund for funding for now, but ongoing negotiations could change things. The public should find out more about it in March.

A rendition of Tallinn Hospital. Source: Tallinn City Government


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Editor: Kristjan Kallaste

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