TALLINN - Estonia will receive a massive injection of money from the European Union to improve its infrastructure and economy 's more than 53 billion kroons (3.4 billion euros) over the next seven years.
The huge financial windfall is expected to boost growth by up to 2 percent each year, but it will also inflate the current account deficit and push up inflation, making it even harder for Estonia to join the euro currency zone.
On Oct. 11 the European Commissioner for Regional Policy Danuta Huebner approved Estonia's structural fund application. It has been over two years since Estonia began formulating its proposal, which sought money for a diverse range of projects to help bring the nation further into line with its Western European counterparts.
It is the largest amount of money ever granted by the EU to Estonia, and it is intended to be the last. Kadri Uustal, Estonia's Finance Ministry representative in Brussels, said it was up to Estonia to spend the money "as effectively as possible and be ready to become so rich by 2014 as to not need aid in such amounts any more."
"We are still in the catch-up phase. We will reach 76 percent of EU gross domestic product in 2008, so we are not yet equal. The money will go into hospitals, retraining the unemployed, education systems, roads and many other projects," Uustal told The Baltic Times.
Estonians are already familiar with seeing the EU logo on project signs across the country. Uustal said such signs would become even more common. "The money has effectively doubled, on a yearly basis … We have only just gotten started with these projects."
Along with the EU's 53.3 billion kroons, the Estonian government will contribute another 10 billion as co-financing for the various projects, which focus on infrastructure, research and development, and human resources.
Minister for Economy and communications Juhan Parts compared the influx of cash to the sale of Hansabank, which brought 4.5 billion kroons into the economy and helped boost growth from 6 to 10 percent.
Professor Raul Eamets, head of the Tartu University Institute of Economics, agreed that it would boost growth, and predicted it would act as "a buffer for recession."
"The whole economy is slowing down. This should make any recession less severe. This will be a factor for increasing growth and inflation. It will keep some industries very busy, such as construction," Professor Eamets said.
According to the Ministry for Economy and Communications, growth will increase by two percent annually per year. However Mario Lambing from the ministry's economic analysis division said the impact on inflation would be marginal.
"Our rough estimation shows it will increase inflation by 0.12 percent." Lambing said.
"In the short term it will have some negative effects, but the long-term positive effects are much larger."
The EU grant will be divided into yearly allocations and will be given to the government as reimbursement for funds spent, rather than up-front money.
Under the government's plan, the funds will be used to achieve the goals of increasing the competitiveness of the economy, improving social cohesion and making sustainable use of the environment.
