Europe: Where do we come from;
Where do we go from here?


Mr. President,
dear colleague,
Ladies and Gentlemen.

Two decades ago I wrote a book about the main historical and cultural factors which have shaped Estonia's identity. There was a period when Estonia was the northernmost agricultural region in the world; and even before that a period when Estonia's archeological artifacts speak of a striking influence of archaic Greek architectural forms. Working mainly with historical arguments I used for the first time the expression ''The Mediterranean of the North''. This term proved to be highly productive for describing not only the past, but even more for the future. With these words, let me introduce to you your new partner, Estonia.

Estonia is the northernmost Baltic State, situated south of Finland and north of Poland. It lies between the Gulf of Finland, the Baltic Sea and the huge Lake Peipsi, which has for centuries been the natural border with this part of Eastern Europe we nowadays call Russia. We are one of the smaller states in Europe: We have but 45000 square kilometres and a population of 1.4 million. Linguistically we don't belong to the Indo-European family of languages, but form together with Hungarians and Finns an exception, another linguistic group called the fenno-ugrians. Genetically our nation can be traced as far back as some 120 centuries; there have been no migrations to the Estonian peninsula, surrounded and protected from the West, East and North by water.

What has Estonia in common with Greece?

I think it is our coastline, 3700 kilometres long, if we take into account all Estonian islands. In the distant past a coastline and an archipelago on the horizon you could reach even with primitive means and without maps and compasses were the main information highways - just as nowadays the electronic highways. We can use a simple formula - the relation between the surface of a territory and the length of its coastline - to indicate whether a region had the advantage of being in the mainstream of cultural and commercial exchange or had the disadvantage of being sidelined. We can give for different periods even the speed of information flow, which in itself is a challenge for researchers, but let us concentrate on three conclusions which are much more important to understand in the context of an enlarging Europe.

The first conclusion is a very simple one: Europe has always been in the centre of an enlargement process. The process is our ultimate goal, an ultimate goal will not only be the end of a process, but the end of Europe.

My second conclusion: every exchange of information affects both ends: the sender as well as the receiver. The messenger is more important than the message. And only in a state of constant adaptation to new information, to new challenges have Europe on a large scale and subregions of Europe on a smaller scale been able to retain their identity. We are not a substance which is eternal, we are structures which constantly renew themselves. In very broad lines this is the historical experience Estonia shares with Greece. And in this context I am optimistic that the future of the European Union is rooted in an experience of constant enlargement.

Every enlargement will of course have limits set by nature. This is more than obvious for the small European peninsula with the Atlantic coast in the West, the Arctic in the North and the Mediterranean in the South. I think these coastlines should however be viewed only as limits for a horizontal enlargement. The vertical enlargement of our new Europe is the improvement of the quality of life, of the quality of European structures. These two go hand in hand and they are both vital for Europe.

Permit me then to examine these various aspects of enlargement.

First, I will look at horizontal enlargement

Second, I will address vertical enlargement

And third, I will provide a view of what Estonia and Greece can do together.

My first point.

Often we look at the horizontal enlargement issue from the vantage point of some Marshall Plan-era philosophy: If instead of 15 21 want to eat from the same pot everyone will remain dissatisfied.

I am afraid that this simplistic conclusion is totally wrong.

Enlargement will have the contrary effect. Enlargement, if managed carefully, both in the west and in the east, in the North and in the South, can bring benefit to all concerned.

I am not the first one to make this point. The European Commission made the same point in its Agenda 2000 when it was published in 1997. It stressed that EU enlargement - despite the difficulties associated with it - will be a financially viable undertaking, which can be carried through without increasing the budget contributions of member states. This view was affirmed by the March EU Summit in Berlin. Of course it is true that the applicant countries are still poorer than the EU average, but economists often emphasise that it is much more important to look at the structure and performance of an economy than at its present numbers. Speaking about Estonia I can but say that our numbers, our GDP, is a result of 50 years of Soviet occupation and central planning. The structure of our economy today and its performance during the past seven or eight years shows what we are capable of.

Estonia has been successful in reforming its economy as well as its political system, thereby performing one of the most successful turnarounds in Central and Eastern Europe. In most aspects, Estonia is now ready to join the EU immediately, though we see year 2003 as a more realistic time.

This is confirmed in a study commissioned by the Austrian Foreign Ministry. The Austrian institute of economy (WIFO) ranked EU aspirants and other East European countries according to economic and financial indicators. Estonia finished a powerful second, ahead of such competitors as Hungary and Poland.

The main facts about our reforms are:

1. Our constitution requires the Parliament to pass a balanced budget.

2. Our monetary system is based on a currency board with 8:1 peg to German Mark.

3. Estonia has one of the most liberal trade regimes in the world. Estonia has free trade agreements with the European Union, EFTA, and most of the former Soviet bloc. Last week Estonia's entry into the WTO was approved. The free market for Estonian goods encompasses 600 million consumers.

4. Estonia has a universal value added tax, and a flat rate corporate and personal income tax of 26%.

5. There are no restrictions placed on foreign ownership of business, repatriation of profits or ownership of land. Over two thirds of Estonian GDP comes from the private sector.

The European Union absorbs 64 per cent of our exports and delivers 56 per cent of our imports.

This has been rewarded by investor confidence. On February 19 Moody's Investor Services assigned a rating of A1 to Estonia's kroon bonds. In 1998, Estonia received seven billion kroons in foreign direct investment, which amounts to about 325 dollars per capita.

So much about Estonia. Horizontal Enlargement of the European Union will in the end expand the EU's internal market to include more than 100 million additional consumers with rising incomes. Economic growth in Central European countries - after their joining the EU - is expected to be between 4 and 7% annually.

Enlargement will support the newly liberalised market economies in Central Europe by opening up markets in goods and services between east and west, north and south.

Increased trade will stimulate economic, and thereby also job-growth in Europe as a whole.

This is not an exhaustive list of benefits arising from horizontal enlargement. There are several non-economic bonuses as well, such as increased co-operation in the fields of justice and home affairs, improved environmental protection and last - but certainly not least - an increased feeling of security and stability in Central Europe arising from EU membership.

But what of the quality, some will say. Won't the rapid enlargement eastwards of the EU bring with it a general decline in the quality of the Union? My anwer is ''no'', because we have already seen that horizontal enlargement has acted as a catalyst for vertical enlargement.

This brings me to my second point.

While it would be difficult to clearly link the prospect of horizontal and vertical enlargement and the reform processes underway within the Union, I believe that you will nonetheless notice that a certain correlation does exist. While an EU constructed for six nations and housing by now 15 was in need to reform itself even without any external pressure from Central Europe, the imminent enlargement to the east undoubtedly helped focus peoples' minds. The prospect of six or ten or even fifteen new members joining has acted as a catalyst for the relatively rapid development we have seen within the Union during the past few years. Even the Maastricht and Amsterdam Treaties can be traced back - albeit more indirectly - to the pressures arising from imminent eastward enlargement.

As we all know, even before the fall of the Berlin Wall the EC was in need of reform. It was clear to many that the member states simply don't have the resources to continue existing financing policies in perpetuity. As Sweden, Finland and Austria entered the EU it was realised that a Union with 15 member states needed to reform structures and working methods that were established for a Community of 6. However, the immediate prospect of having an additional 10 members in the Union certainly acted as a catalyst. If structures built for 6 might with some slight, albeit not always elegant, modifications still work for a Union of 15 they would certainly not work for a Union of 25 or more.

The enlargement process focused minds, but what of the future members themselves, what of their view of a vertical enlargement?

Estonia on its part has been a vocal advocate of changes in the EU's decision-making process and of the need to strengthen the European Union. This is an opinion shared by most, if not all, Central European applicants. Our own recent past convinces us of the need to move forward with political union as a means to strengthen Europe's capacity for action in what is still a very uncertain world. The history of the countries of Central Europe gives us a different perspective of the world than that which comes out of 50 years of security under a NATO umbrella. We do not believe in the ''End of History'', because we have seen history happen around us. We, the survivors of totalitarianism, are the history of Europe. Europe is not a finished project and never will be. The messenger will always be more important than the message. What is essential is that it continuously expanded and improved. Central Europe has had the misfortune of being the marching ground for many armies over the ages. We have also experienced ethnic cleansing on a scale unknown in the West. This is - unfortunately - not a uniquely Estonian experience. The same experience was also shared by the many nations of newly independent Russia.

This is why I am convinced that Central Europe has a great deal to offer the present members. We believe. We believe in freedom. We believe in justice. Above all we believe that everything is possible. We will bring this idealism, this conviction into the European Union.

Ladies and Gentlemen,

My last point: where do we go from here?

The European Union already is the most important trading block in the world. New members will add to this weight. The advent of new members also has the potential of increasing EU competitiveness by diversifying the wage structure and by bringing into the Union this fresh spirit of entrepreneurship which has arisen in the east. Nonetheless, an oft-cited lament is that Europe may be a giant economically but it is a midget politically and militarily. That Europe is not pulling its weight.

I believe we all agree that things are evolving. The recent WEU ministerial in Bremen is but one example. And here once again the enlargement of the Union presents an opportunity: the applicant countries all want to be a part of building these structures. I outlined some of the reasons above. But it is certain that with the entry of the first new countries from Central Europe we will see a substantial strengthening of pro-Community sentiment within the EU Council. We tried to go it alone and did not succeed. Now we want to do things together.

Ladies and Gentlemen,

I commenced by drawing a line between the Mediterranean and the Baltic Sea. Today the ways of transportation are infinitely more rapid and information is transmitted within instants. Today the Baltic Sea and the Mediterranean form part of the blue band, which unites our common Europe. Greece and Estonia have started from different historic experience, which however has brought us to similar conclusions.

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