On Thursday, Läänemets said that the era where the free market decides everything is over and the government must play a bigger role in the economy.

His comments were widely discussed and criticized by the media and politicians.

Michal commented on Friday afternoon, playing down Läänemets statements and laying out his own view.

"This morning I met with entrepreneurs, and I can confirm that the market economy is in good health. Business is still being driven by entrepreneurs, not by the state controlling the economy," he said.

The prime minister said Läänemets was misunderstood at yesterday's press conference: "I think the minister of the interior may be slightly misrepresented in terms of what he actually meant to say. His intention was likely focused on economic growth and supporting industries, something we are already actively doing, especially in the defense sector against the backdrop of the war in Ukraine."

He pointed out the state still plans to privatize state-owned companies, reduce bureaucracy, save money, and has a strong relationship with the private sector.

However, this has not always been the case, he said, highlighting the coronavirus pandemic and times when it cost very little to take out loans.

"Even in Estonia, there have been people with these views, saying 'just keep borrowing, loans cost nothing, and they do not need to be paid back'," the politician said. "In reality, loans come with interest, and those interest payments must be covered. I would rather say that under today's government, the state's role in practices, rules, and regulations is set to decrease."

At the same time, Michal spoke about supporting businesses highlighting new investments in the defense sector and industry – totaling €400 million over four years, and changes to public procurement rules. He said the state invests "primarily to address market failures" such as "lack of access to capital or the high cost of capital."

"But, the general idea that the state will start managing the economy and business decisions on a daily basis is unlikely. What we can do, and what other countries and smart nations are doing, is supporting research, development, and innovation," the prime minister continued.

He said these activities are "understandable" and do not conflict with the principles of a free market economy. 

Estonia does not have to subsidize its industries or production just because others have done so, Michal added: "We can't keep up with the larger countries in this race of subsidies."

Instead, the country must focus on the "right" areas and support for business should be linked to the country's goals.

"We have a very strong digital sector. We have the opportunity to develop defense, energy, and materials industries. Many other sectors are booming, so we have industries where we can leverage our strengths. Our choices should be focused there," said the prime minister.

On Thursday, Läänemets said his comments were misinterpreted by the media but then reiterated the same view. His adviser Vootele Päi (SDE) wrote online that the minister's words had been deliberately misinterpreted.

But Minister of Education Kristina Kallas (Eesti 200) said she and Minister of Economic Affairs Errki Keldo (Reform), who were present at the press conference, both interpreted his comment in the same way.

"It's possible that Lauri actually meant to say that it's a good thing we've started discussing economic matters in the government and are making decisions that improve the environment and foster economic growth. However, he didn't correct himself later and instead held firm in the debate, emphasizing that it's indeed a difference in worldview," she said.

Both Minister of Finance Jürgen Ligi (Reform) and former Minister of Finance Maris Lauri (Reform) were critical of Läänemets' comments.

Ligi said the government has not decided, either on Thursday or at any previous time, that the era of the market economy is over.

"Nor has any Estonian government ever decided that the market will take care of everything. But the government has decided never to put either proposal onto the agenda," he said.

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