Michal says EU will provide funding for Rail Baltica

Estonia will be able to use European Union funding instead of costly loans to pay for Rail Baltica, and the necessary EU money will be secured, Prime Minister Kristen Michal told public broadcaster ERR.

Delaying some construction spending would allow Estonia to use EU funds during the bloc’s next budget period, which runs through 2034, Michal said. He argued that this would avoid borrowing the money and paying interest on it.

The comments came as Michal defended the government’s budget plans. Estonia’s deficit is forecast to reach 4% of gross domestic product next year, requiring the country to borrow an additional two billion euros. Michal said the government had reduced planned spending by 235 million euros in the new budget, following cuts over the previous three years.

He said the government had also cut permanent and operating costs, including staff numbers at the Unemployment Insurance Fund and the Land and Spatial Development Board. Michal added that rising defence spending, now above 5% of GDP compared with less than 1% in 1995, had required other sectors to scale back.

Michal said further reductions in the deficit by future governments could ease pressure from debt.