European Commission President Ursula von der Leyen said at the Munich Security Conference that the European Commission is prepared to relax budget rules. What does this mean exactly?

I really hope this does not mean loosening the rules but rather interpreting them [differently] and I would closely follow that rhetoric. In any case, I will likely have the opportunity to speak on this in Brussels — at least I did last night. Just because there is a war does not mean there is more money. In fact, the problem is that we have ignored the rules, which is why we are now unable to respond effectively. /.../ The area where we could allow some flexibility in interpretation is defense spending. It should not be the case that everyone assumes there is suddenly more money, that debts have disappeared and that funds can now be thrown at every sector. We are already hearing such voices in Estonia.

We know that budget expenditures are set to increase across Europe, including in Estonia. If we look at the state's current budget strategy, everything is already in the red — every additional euro we allocate to defense deepens that deficit even further. What is Estonia's position on this? Will we exclude certain defense-related expenses from the budget calculations? Or are we instead trying to agree on a certain percentage, so that countries increasing their defense spending can count on not having to include it in that criterion?

No one really knows what the actual proposal will be and countries have very different approaches to this issue. I sincerely hope that this will not involve salaries. The goal is still to enhance overall defense capability, primarily through armament, ensuring that the money is directed more toward equipment, weaponry and direct combat readiness. Of course, the personnel numbers will also need to increase, but our human resources are limited.

The main thing Estonia must recognize is that ammunition and weapons need to be stockpiled quickly and we can no longer rely on the United States. It is clear that [the U.S.] gets along better with autocracies than with democracies. And Trump's focus has shifted to Asia. Regarding Europe, he has made statements that have caused considerable discontent across the continent.

What could that percentage be? We know that a 1 percent budget deficit amounts to approximately €400 million. Are we talking about 1 percent or are we talking about 2 percent?

Let's not talk about percentages at all. In order to survive, we need weaponry. Everything that has been mismanaged so far — our very loose fiscal policy — now makes it harder for us to defend our freedom. And yet, we are now considering this security-related relaxation of the rules.

The problem is already evident: credit rating agencies are raising concerns. This is not some partisan dogma but a real financial issue. If you find yourself in a wartime situation while running a deficit — which is essentially where we are heading — then responding effectively becomes difficult. Emergency measures will be taken, but they are not a true financial solution. The financial strain and the challenge of responding remain, the debt burden is still there and borrowing will likely become more expensive. But borrowing will continue to be necessary.

Should the purchase of weapons for defense purposes, for example, be excluded from budget rules?

I don't want to speak on behalf of Europe, as these discussions haven't yet reached a conclusion. Maybe by this morning, we will have made some progress. From what I have gathered in informal discussions, this is mainly being linked to existing defense expenditures, specifically additional costs.

In other words, my explanation might sound unclear because the situation itself is unclear. I would rather not focus on the details. The main thing to understand right now is that this will not generate additional funds. Europe must regret having let its budget slip out of control, but as an emergency measure — since U.S. support is starting to waver — Europe must now take matters into its own hands. There is also uncertainty about Ukraine's defense and what exactly the major powers will ultimately agree upon behind the scenes.

Is Estonia's position that all additional expenditures we need to make in the coming years for defense should be exempt from budget rules?

I can only say that we must approach this issue in that way. That is why I am so passionate about it. I fear that people at home assume there is now more money. In reality, the loans are still there and the budget deficit remains a problem. Even the defense tax will not cover the additional security-related expenses.

I will absolutely stand against foolish decisions — I have already heard some and it is painful to listen to them. That is why I emphasize that this should only apply to additional defense expenditures, not just to things that seem nice to have.

A few weeks ago, the prime minister publicly stated that defense spending should be increased to 5 percent of GDP. Whether this happens next year, the year after or at all is a separate issue, but should this money be exempt from budget rules?

Yes, that is one possible source. The 5 percent is seen as a vague target. By when? No one has specified. The idea is that the European budget will help and that this is the general direction. But we cannot force all of Europe to spend 5 percent, as their security experiences are entirely different.

Take Portugal, for example — I met with their commissioner yesterday. They acknowledge that they are passionate supporters of Ukraine, even more so than we are, based on demographic reasons. But if you ask them who they perceive as a threat, they don't see Russia as one. That's why it doesn't make sense to echo the 5 percent figure like a Trump-style slogan. What we need to understand is that Europe must raise its defense capability level and the main funding must come from a broad strategic shift. But this process is moving very slowly.

Germany has already exceeded 2 percent. When I was defense minister, they were at 1.1 percent. We have been telling Germany to increase spending for years, but given its complex history, they need to be understood, not criticized.

Our own challenge is fitting everything we need into a single budget year. Procurement simply cannot keep up. Everyone is scrambling for weapons and ammunition, not all contracts go through and deliveries don't arrive on time. Then the debate becomes about what percentage was met, but the real issue is getting the actual equipment, not a percentage target. So, 5 percent is a vague goal that, as a finance person, I wouldn't want to take on a life of its own. We have defense plans, real financial constraints and real supply chain issues that must be addressed in the process.

--

Follow ERR News on Facebook and Twitter and never miss an update!