Economic Policy Of The Republic Of Estonia And The European Union

Two decades on from the start of the ‘Singing Revolution’, and five years on from the Baltic States’ entry to the European Union, the time is ripe to take stock of Estonia’s remarkable transition from Soviet Republic to EU member state and address the challenges - some new, some ongoing - and uncertainties that have arisen following the country’s entry to the EU. This book locates the post-accession period within the broader sweep of post-communist transition and diagnoses the problems facing Estonia as the global economic downturn takes hold and a new mood of pessimism reigns in Central and Eastern Europe. Until recently, Estonia enjoyed an international reputation as an emerging high-growth ‘tiger economy’ and reform pioneer, not least in the sphere of IT. This economic success story, however, masked the continued problematic political and social legacies of the Soviet period, including the issue of ethnic integration, which again hit the headlines following riots in Tallinn in April 2007. This fully up-to-date appraisal - the first in English - covers all of the key issues, and will appeal to specialists in Baltic and Central and Eastern European politics and society, as well as to anyone with an interest in European integration more generally. This book was published as a special issue of the Journal of Baltic Studies.

This Selected Issues paper analyzes income convergence and medium-term growth potential for Estonia. Estonia’s potential growth is projected to average some 3 percent over the next five years and 2.75 percent over the next two decades, implying continued income convergence with European Union levels, albeit at only half its historical pace. A number of policy enhancements could lift growth above this central projection. These include a greater operational policy focus on raising productivity growth, scaling up a number of envisaged pro-growth programs, supporting the upgrading of traditional industries as a second leg of innovation policy, and fully restoring Estonia’s high investment.

"Economic integration that leads to the convergence of incomes and living standards is at the heart of the EU accession process. The assumption is that trade integration combined with institutional harmonization will lead to sustainable capital flows from European Union member countries to acceding countries ...'" Estonia's case for accession is built, to a large extent, on a record of sound economic management. Indeed, since regaining independence in 1991, Estonia has successfully implemented a broad agenda of stabilization and structural reform policies. This commitment to sound economic management has yielded positive results. However, at present, Estonia is experiencing a sharp economic slowdown as a result of two major external shocks, the Asia and Russia crises. This country study emphasizes areas where there is greatest overlap between the accession agenda and measures to strengthen economic management. These areas of overlap include upgrading financial sector supervision and strengthening budget management. It also includes reforms in areas where there is complementarity between reforms designed to facilitate accession and structural reforms that will support long-term growth and economic integration. These are the modernization of public administration, the adherence to EU quality standards, the continuous improvement of the operations of the customs board, and the completion of land reform. Finally, the last two chapters of the study examine areas where implementing the accession agenda entail either a fundamental change in Estonia's trade policy regime, or have high compliance costs. These are the adoption of the EUs Common Agricultural Policy (CAP), as it evolves, and complying with EU environmental standards.