Estonian Prime Minister Taavi Rõivas on Economic Growth and Entrepreneurship

Estonian Prime Minister Taavi Rõivas on Economic Growth and Entrepreneurship

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Taavi Rõivas, prime minister of Estonia, joins CFR Board Member Blair Effron to discuss Estonia’s economic growth, regional security, and information technology sector. Estonia has been an European Union (EU) and NATO member for ten years; it has the lowest debt to GDP in the EU and a balanced budget. Rõivas describes Estonia’s thriving entrepreneurial startup community, its leadership in technology and cybersecurity, and the costs and benefits of the government’s secure digital identity system, on which health, voting, tax, and other systems are built.

EFFRON: Thank you for being here. Welcome to today’s Council on Foreign Relations meeting titled “Efficient Governance in a Turbulent World” with Prime Minister Taavi Rõivas of the Republic of Estonia. It’s my pleasure to welcome you here today to the Council.

Before we do that formally though, can we please remind everybody that – to turn off cell phones, including not having them on vibrate so it doesn’t interfere with the sound system. And also remind everybody that today’s meeting is indeed on the record.

So with that, let me turn to the honor of welcoming you again. Mr. Rõivas became prime minister of the Republic of Estonia just past March, but before that held several senior positions over several years, including among minister of social affairs, long member of parliament where he was chairman of the European Union Affairs Committee and a member of the Finance Committee.

Prime Minister Rõivas presides over a country that President Obama just two months ago hailed “one of the great success stories among countries that reclaimed their independence after the Cold War.”

The country has witnessed rapid economic growth supported by very low levels of debt and a balanced budget. In fact, the lowest debt to GDP in the eurozone. Robust free trade regime and strong per capita income, all of which has earned the moniker for the country 'Baltic Tiger'.

Just this week you were with Vice President Biden in Washington where the agenda covered a sweep of issues, everything from the crisis in Ukraine to NATO’s readiness action plan, energy security and TTIP, Transatlantic trade authority.

The Prime Minister leads a country that, back to today’s theme, one of the most wired and technologically advanced countries in the world, which is obviously a part of today’s subject. Again, let me quote President Obama. “The country’s become a model for how citizens can interact with a government in the 21st century.”

With that backdrop, Prime Minister, what we’ll do is have twenty-five minutes of Q&A and then I’m going to open it up to the group. But really as a first question, quite simply, I would love to get your take on where you think Estonia is today, its role, and as a relatively new administration, perhaps some of your agenda goals in the near term.

ROIVAS: Thank you very much. Well it’s true that I have been in office as prime minister for only eight and a half months, but we do have continuity in our government. And I think for the last twenty-three years, it is true to say – even ourselves saying that, but it’s true to say that Estonian developments have been very positive.

Twenty-three years ago, we decided to take road to have EU accession. We managed to reach that goal ten years ago. We decided that we will (inaudible) NATO. We became a NATO member ten years ago.

We have been committed members both in EU and NATO because it’s in our nature to think that once we take some commitments, we keep them. And this applies to in EU, for example, best well known are the – or the, let's say, most broken rule in the EU is – is the rule of fiscal discipline.

Estonia throughout the membership has kept to those rules and has kept the public budget in balance. And the same applies to NATO membership, where we have kept the promise that we all gave that at least 2 percent we have to contribute in order to be strong enough to defend ourselves.

So this is the history of twenty-three years which has also resulted not only Estonia being the most integrated country in the whole Nordic, as we are one of the few Nordic counties that is member of eurozone as well and so on.

So this has also been quite a vast economic success story. The economy has developed a lot. People can enjoy much higher living standard than ten, twenty years ago. And I believe that this journey has to continue. We have to keep up the pace of economic growth. We are still not there yet.

We have good examples very close by. Finland and Sweden are both countries that before Second World War and before Soviet occupation in Estonia were at similar level of living standard as Estonia was, and today we are still not there yet. So we believe that this is only fair that we are aiming at that, and we will reach that level of living standard.

It’s not a question if. The question is when. And in order to do that, we need to keep up this kind of business-favorable climate in terms of taxation, in terms of legislation, in terms of – of way of thinking, everything like that.

Second big challenge of course is to grant our security. NATO is a big part of it, but – but not only. We are very thankful for the U.S. presence. We are very keen on being a very committed member of NATO.

But in addition to that, we think that it’s only fair and logical to develop our own strengths. And as I said, we contribute at least 2 percent. In actual terms, it’s slightly more than 2 percent we contribute to defense expenditures.

But inside that, we have emphasis on cyber, which is the small slice perhaps of competencies NATO allies have, but this is a slice that is becoming wider and wider. This is more and more important, you know? All our societies rely on something digital. And once we rely on something digital, we are vulnerable by cyber threats.

So this is something we discussed also with political leaders of U.S. couple of days ago in DC, that we have to take cyber seriously. Not only Estonia, not only in U.S. but everywhere. We have to take cyber seriously. This is the competence we have.

EFFRON: So perhaps we could stay with Europe and the economy just for a bit, really because your country early on following the downturn in 2008 was a big proponent of austerity. You successfully implemented it. The results since, for the country, have been outsized growth.

As you know, that’s a program that generally through Europe is not necessarily one that’s really been embraced. With new leadership with the European Union, what might you expect and what advice might you give?

ROIVAS: Well first of all, back in 2008 and ‘09, Estonia was hit a lot by the crisis. The international financial crisis reached Estonia so strongly partly because Estonia’s small and very open economy was very vulnerable for this coming from all sides. And – and we reacted very fast. That’s true.

And it was not only austerity, not only cutting costs. It was also structural reforms. I would even take the structural reforms beforehand. We made some very painful decisions. Raising pension age, changing lots of systems for more like – more liberalization of several – several things.

So we reacted very fast, and this resulted in – in very fast recovery as well. 2011, already Estonia was the fastest grower in the EU, and 2012 and ‘13 has been all growth years for us. And the unemployment that went up very fast went down in the same – same pace.

Which actually is something to study how that happened because usually if you have studied economics and business science, you do know that usually unemployment tends to go up very fast and then there is some slow decline perhaps. But we managed to do it very fast up and down. So we have to look at what were the right things that were done.

Estonians usually don’t tell others what to do, so this is in our nature. But – but coming from – or talking from our own experience, taking really good care of – of reforming your society, this is something you constantly have to do. This could work.

One – one colleague once told me – a colleague that has been in office for – for a very long time, not an Estonian colleague, a European colleague. And he told me that politicians are very, very good in giving promises and new tax incentives and new – whatever things every four years usually. This applies to all democracies.

You give those, you have tax incentives so that perhaps some part of education is – can be deducted, some other things can be deducted, millions of things can be deducted. But what politicians are not very good in – or at is – is losing those things that could make sense fifty years ago but don’t make any sense anymore. They don’t support those who actually need that support from government.

And this means that if you take care of those, if you really address those, you could get tremendous amount of resources for fighting the real problems that are in today’s world. So this one – one thing that I think many European countries could very well address.

And secondly, of course there is still a lot of – lots of – I’m looking for the word. What’s the opposite of flexibility?

EFFRON: Rigid.

ROIVAS: Exactly. Lots of rigidness in many of the systems, including employment market. Many, many things. So once you get more flexible, more transparent, that could (inaudible).

EFFRON: So turning to your neighbor, look at the map to the right...

ROIVAS: Finland?

EFFRON: Well that’s one neighbor. The slightly larger neighbor. Obviously Russia has—25 percent or so—of your population is Russian. Still an important trading partner. Given the instability in terms of the relationship there for the past year or globally, what has Estonia been doing to adapt to that changing relationship?

What do you expect, secondly, from your allies, supporting that?

ROIVAS: Well first of all, it’s true that 25 percent of people living in Estonia are not ethnic Estonians. Some of them are Russian and some of them are Ukrainian. Some of them are Finns. But that doesn’t mean that they all support the line Putin is having, and I’m very glad that they don’t.

Secondly, in terms of trade, yes, Russia is a neighbor. All neighbors are very important, but Russia is not as important a trade partner for us as is for example Finland, Sweden. Countries that are smaller by territory or population, but are for Estonia about 1.5 times more important in size of trade, each.

So the – the trade between Estonia and Russia is below 10 percent, which is important still. Now this practicality aside or trade relations aside, I would say that not only the immediate neighbors but all of Europe and all of international community has to make it very, very clear that we don’t tolerate any aggression against neighbors.

We don’t tolerate use of force in terms of changing borders in today’s Europe, and we don’t think that there is anyone else besides the people of Ukraine who can decide whether Ukraine takes the European Union path or not. This not – no one else can decide this kind of issues, only the people of Ukraine.

It’s true that whether Ukraine would have taken those paths already (inaudible) years ago like Estonia, Latvia, Lithuania and some other states, Ukraine of today would be different. That’s true as well.

But even if they had reached this understanding, no. Even if they have lots of problems with things like corruption, like many – many problems, this doesn’t give anyone the right to say that your country cannot choose your destiny. And I think the international community has done the right thing to tell it very clearly.

And there are several forms in which we can tell it. We can make our point clear by imposing sanctions. We can make our point clear by political dialogues. Different – different opportunities, but this is not so much an issue that the immediate neighbors of Russia or Ukraine should deal with, but I think this is something we have to deal with together in EU, but also U.S. as a global player has played a very important role. And I think this is the right thing to do.

EFFRON: So perhaps you could talk about the relationship with the U.S. and maybe in particular how it relates to support vis-a-vis Russia, and also some of the insights coming out of the meeting this week with the vice president and also members of Congress.

ROIVAS: Well U.S. is the most important ally for Estonia. There’s no doubt about it. Without U.S. support, we would never be members of NATO. The support of particular Americans was very, very important. And this is something we have discussed with both the congressmen and vice president, but also President Obama when he visited Estonia two months ago.

U.S. is not only the most important ally for Estonia, but I would say also for Europe because we know that the security situation without U.S. in Europe would be totally different and that the presence of U.S. is very much valued.

We think that presence should be slightly more at the borders of NATO. You know, if you have border guards just to deter or just to give the traffickers or trespassers away. You usually have those border guards at the borders, right? Makes some sense.

So the same applies to – to military forces. Same applies to – to NATO presence. I believe that more NATO presence could shift to the NATO eastern border or southern border. So these are things that can and probably will be changed in the future.

U.S. is also very important player in terms of trade. We discussed with Joe Biden and both speaker and minority leader of Congress also the perspective of TTIP. TTIP I believe could make both Europe and U.S. more prosperous because the only sustainable source for growth comes from more trade...also standardizations, things like that that really could matter.

And thirdly, what could I think really change the geopolitical situation in Europe would be U.S. shipping gas to Europe. Let me explain why. Even if you look at those maps that some newspapers sometimes do and say, okay, this or that big European country is only 40 percent dependent on Russian gas or only 60 percent or only 35 percent, in actual terms this is enough to – to have a risk – a serious risk.

And once you can’t leave the shipments of Russian gas – once you can’t say that, OK, if you don’t behave, if you don’t stop attacking your neighbors we don’t buy gas from you, then if you don’t have the power to say that, then you won’t say that and then you won’t make your point clear enough.

What Russia really is – is dependent on is revenue from oil and gas. This is self-evident. We have seen just yesterday the oil price dropping tremendously. This is having an economic effect on Russia very seriously. The same applies to gas. If Europe had power to say if you don’t – if you don’t stop your aggressions then we don’t buy gas, that would make a new situation—geopolitical—definitely.

And the solution for that should – or could be the shipments of gas or energy from – from U.S. This is again something that I have talked to all of the top U.S. politicians, and I’m glad that this idea is getting more and more support here as well.

EFFRON: So if we could, please, turning a bit to the title of the program, 'E-stonia'. Obviously the economy when it comes to technology, you have been at the forefront globally. Skype founded in your country. You have – the country, private sector, public sector well-wired, 4,000 institutions (inaudible).

Could you perhaps give us a sense of what it has meant in the eight, ten years or so that this has occurred in terms of tangible benefits in the economy? And then we’ll get to the other side of that, obviously what it means in terms of how you actually govern.

ROIVAS: Well the only secret we have is we have secure digital identity for each and every person living in Estonia. Totally secret. Many U.S. companies, many U.S. institutions have very, very good information systems.

A hospital nearby, New York Presbyterian – not so nearby, but close enough. New York Presbyterian has very good ehealth systems inside their hospital. And this is a big hospital, so this is a big scale already. But once we go downtown to the other hospital, they don’t know anything about your medical record if you haven’t been there.

So what we have is – or what we have unique, is that we introduced digital identification for each and every Estonian or person living in Estonia, and this is – technically it’s rather – rather simple. It’s an ID card. Most of you have ID cards of – of some kind. It looks just like driver’s license, this piece of plastic.

This has also this chip on it, a smart card. And once you plug it into your computer, you can attach this reader to your USB, then this together with your PIN makes sure that this is a state-authorized identification.

And each and every party on the other side of the web, if you can say so, knows for sure that this is that citizen, and legally whatever he tells or whatever he does is him telling it. It’s the same as usually you go to some official and show your document, show your ID.

So in addition to that, the next technological solution is even more simple. We join that card inside our mobile phones. Everybody’s carrying the mobile phone with them all times. And the SIM card that’s issued or confirmed actually by the Estonian authorities together with the PIN code you enter here, you don’t need – you don’t need to plug anything into anything.

This works simply as the phone you’re carrying. And with that, you can again log into anything or sign documents digitally. By signing, I mean leaving 100 percent equal signature as your handwritten signature, but this card inside here plus a PIN leaves you any file this kind of stamp.

I would compare it to stamp that is written. It can’t be faked. It can’t be hacked. It’s very, very strong cryptography behind that, and it also has this timestamp that can’t be changed. If you’re – if you sign a physical document, you can put another date on it very easily. But with that, you can’t change anything, and you can’t change the document once it’s signed. You can’t fake it.

So this gives a huge number of possibilities for products to be built on. If you know for sure that if you log in you have the right to know your data, the government can build all sorts of information registers that should not be open for you because you shouldn’t see her information but are open for her if she logs in securely.

This is the register of where you live, how much taxes you pay, how you pay the taxes. Actually the paying of the taxes is done online with five clicks. Usually it takes you – the official thing we say is five minutes, but you have to be really slow to take care of taxes in five minutes in Estonia. Nobody’s that slow I think.

Then voting. You can do that if you log into the information system of election board. You log in. You use your office computer. Identify with this – or this card. Then you choose whoever you want to vote for and then sign it with your digital signature. This is how we vote.

Twenty-five percent of all voters last spring – last spring we had EU elections all over Europe, EU parliament elections, and 25 percent of people voted online. Seventy-five percent of people still prefer the old-fashioned way, going to the kiosks. And this is kind of a social activity as well. People go voting, meet their neighbors. It’s a nice thing to have. But if you are a very practical person, you don’t have time for that and you prefer to have your Sunday with your family.

So these are just a couple of examples how this kind of – what – how this e-identity for everyone has benefited us and has created a potential to create e-services. Because e-services can be also private. E-banking, internet banking is done identifying with those same things. Everything is a link to that.

We have calculated—as very practical people— we have calculated that it’s about – only the e-signature, electronic signature, digital signature, only this gives us 2 percent of GDP savings each and every year. Two percent.

This is every – every working person saves one week a year because of this digital signature. And I sign all my documents. If I have some symbolic signatures-- if I give autographs or sign diplomas or something like that, but all the documents I sign digitally. And already by doing that and sending those documents digitally from my office to the parliament 300 meters away gives us magnificent savings in time and money. So this is the secret. Now you know.

EFFRON: OK. We can all do that. That’s great. One more question. Then we’ll turn it over. How do deal with the security question, and related to that, obviously privacy, globally. Issue of the day. How do you have a sense of faith among you constituents to go along with it?

ROIVAS: It’s a very, very important question because why most EU countries at least are hesitating in doing something like that, it’s especially linked with privacy and security.

So from scratch, all those systems have to be very secure and have to be also, you know, all kinds of frauds have to be traceable so that it doesn’t make any sense to commit a crime. In Estonia, looking at the data that doesn’t belong to you is a crime, and this is not a very – very – very logical crime to commit because there is 100 percent certainty that you will be caught. And I will explain again why.

Any doctor – any doctor on Estonia can look at my medical data. This is because if something happens to me, if I faint here – well not here but in any place in Estonia, then – and I’m taken to a doctor and I’m not conscious, they need to know what’s my blood type. They need to know if I have allergies. They need to know what conditions I have. And if I’m unconscious, I can’t tell them what kind of medications I take.

This data about me is in the system. Because if I go to my family practitioner, they put this case summaries. If I – basic data is all there. If I go to surgery, the data will go there and so on. So actually it’s positive for me if the doctor that needs to know about me can check it out.

Now there is a risk if I’m like – name a celebrity.

EFFRON: Beyonce.

ROIVAS: Beyonce. That’s good. Alicia Keys.

EFFRON: (Inaudible).

ROIVAS: Beyonce. If you are Beyonce and some tabloid is constantly looking at your data or hiring doctors to do that, this could be a problem. So what we have done against it, first of all you can block this or close it so that no one except yourself sees it. This is a possibility. This is very easy to do. This is one certainty.

The other one is this is – even more important, is that any doctor can check your information, but once they do, there will be a stamp. At that time, this doctor looked at this part of the data. And if your dentist looks at the data that’s related to your – some other – some surgery that they shouldn’t know about or shouldn’t look into, then you can file a complaint and press criminal charges.

And there haven’t been – not once during the last couple of years we have used the system, there haven’t been any cases, so you can really rely on that. So this is one example how to make the system safe. You have to build on all of those things, and trust is a very big part of it.

And secondly of course is the level of technology behind it. We use very, very state of the art cryptography. This is something that – that is self-evident. If you become digital, you use the most modern ways of doing that. And Estonia is a country that also has lots of companies that are very, very good in cyber defense, in ICT, that can provide information security. So that’s a positive thing that we have.

EFFRON: Thank you. So we’ll open it up to members now for questions. Remind everybody that we are on the record. And when you ask, please give your name and affiliation and keep it if we could to one question at a time.

QUESTION: Herbert Levin. I’m a Council member. Could you tell us please – Estonia, Latvia, Lithuania, what do you feel you have in common that you cooperate on? And without saying anything that would make the other countries unhappy, can you differentiate what their problems are as contrasted with yours and their objective situations? Thank you.

ROIVAS: Very interesting question. I think there are many fields of cooperation. Infrastructure—we are currently on our way to build a common railway that connects us to western Europe. This is a big project that’s on my table, and I – I really – hands-on – hands-on approach to that.

Then energy. We used to be an energy island and in some respects still are, but we have already connected ourselves with Finland and Poland in terms of electricity, and Sweden also. And we still need to build common energy market in gas to link ourselves also to Finland and Poland. So this kind of strategic cooperation things.

Political cooperation is very, very close. We have this format to meet regularly with our Baltic counterparts, as we have with our Nordic – Nordic friends, Finns, Swedes, Danes. So I would say that the countries are very close.

We took actually a similar path twenty-three years ago after the Soviet occupation. There have been differences in details. In one or another political choice has been done differently, but this is not an issue of huge differences.

We have been slightly – slightly faster in economic growth—or somewhat faster I would say. It’s visible. But on the other hand, I’m happy that Latvia and Lithuania are doing great economically now. And this is a positive thing for us as well.

In terms of defense cooperation, there is a lot of that. Latvia and Lithuania are not there yet at the 2 percent level of spending. Their spending is a lot less, but they have committed to 2 percent and this is a very positive thing.

So in general, I don’t have anything that I wouldn’t – or anything that – that I don’t like about my neighbors or I would criticize them. There is no need to criticize them. They are very good neighbors and our cooperation is very close.

EFFRON: We’ll start here first.

QUESTION: (OFF-MIKE).

ROIVAS: This is a very difficult question. Now of course Estonia, as a neighbor of Russia, would enjoy very much if Russia was developing economically and who was peaceful and who has same kinds of similar freedoms as we take for granted. That would be favorable of course.

It’s not only in our hands as an international community to influence that. This is first and foremost in the hands of those who run Russia, and the current course is not 100 percent in – in this – in this direction.

I don’t think there is a very clear long-term strategy from – from the Russian leadership. I do hope that the European and international community, including U.S., have made it very clear that – that what has been done in Ukraine is not acceptable and the red line has been crossed. And before we see a clear de-escalation, we can’t – can’t have any serious business as usual with Russia at this higher level.

Secondly, what has to be made very clear is that NATO – and what has been made very clear also by President Obama-- in Tallinn—and many others is that NATO will defend each and every square mile of its territory and no one should ever think of even trying to pick a fight with NATO. This is also something that should be very clear.

And I have been to the NATO summit. It was in Copenhagen a few months ago just the day after Obama’s visit. And there we talked, approximately the same number of people around the table. All those around the table were either presidents or prime ministers of their countries.

So twenty-eight NATO members around the table, and we had a very open and a very frank discussion. And I didn’t see anyone hesitating one bit in the collective defense. No one. This commitment is rock solid, and no one outside of NATO should ever think that – whether they are hesitating or not. They aren’t. This can be very – very clear.

So I do hope that we will see positive developments in – in Russia, but I’m not so optimistic that – that we it very soon. I have just a couple of days ago mentioned talking to Atlantic Council that what we see is – is not just a period of bad weather. It’s a climate change. And you know, you need to react to that.

And this is not the climate change of Ukraine. This is a climate change of Europe and of a global nature. If there is a climate change issue in Europe, this is something whole world has to deal with. And I’m thankful that U.S. is playing a big role.

EFFRON: Yes. Thank you.

QUESTION: Thank you, Mr. Prime Minister. My name is Joel Cohen. I work at Rockefeller University and Columbia University in New York City. You have spoken about military and cybersecurity. Could you address briefly three other aspects of national security, your policies on education, on economic inequality, and on migration in and out? Thank you.

ROIVAS: We have adopted this kind of wide approach to security. This means that in addition to what you said, which are all parts of security, also energy security that we discussed somewhat, economic relations. These are very, very important things that if a society is successful, this – this makes the – the society more secure as well.

All those things have to be addressed clearly. The situation in Estonia in all those things is I would say rather positive. The level of education is among the very best in the world. According to the PISA studies that compare countries – students at various levels of education, Estonia is in the absolute top, just like Finland has been for a longer time.

Now we also—Estonia has been there for a couple of years already at the absolute top. This applies to all levels of education, and this is actually a traditional thing that has been our strength.

In terms of equality, I think the – the biggest task for us is to – to reach the living standard of – whether it’s Finland or Sweden, however we describe it. We are not there yet.

So this means that the average income, the average income of teachers, the average income of even doctors who get much higher salaries than average, but still the average income of all important—policemen, all of them—the average income is still less than in Finland or Sweden and we are not satisfied with that and – or the society has to like contribute in order to get this growth going.

Of course, government plays a big role in – in building this environment that’s business friendly and economic growth friendly.

In terms of equality, if you look at those Gini indexes or those kind of pictures, you see that Estonia is very much a Nordic country. We don’t have extreme rich. In world standards, we don’t have even extreme poverty, but of course there are people who – who need more support and more support from government as well. So it is – it makes a lot of sense to target the social – the social benefits to those who are actually in need.

In terms of migration, this is a thing that there is a slight difference with Latvia and Lithuania, especially from Lithuania. There are lots of people leaving or have been lots of – much more people. There have been less from Estonia. Most of them who go, go to Finland, which is very close.

And they commute back – there – Finland’s only two hours ferry ride, so it’s like – you know, in America it’s probably like a daily commute, two hours. In our case it’s mostly weekly or monthly commute.

And – and there are of course many professionals who work in Silicon Valley, New York City also London. This is I think – Brussels. This is very positive.  In terms of immigration, we have made our laws somewhat more favorable to attract talents from other – other countries. There is a huge demand from our ICT companies that they want to hire people from third countries.

For EU citizens, we don’t have any limits. This is EU policy. Anyone can come and go however they want. But also from the third countries, we don’t have this kind of limits that are actually effective or that are actually limiting the inflows. So we don’t have many worries on that.

But we have made some detailed adjustments in order to be more attractive for those students for example who get their higher education in Estonia that they could stay for a longer period of time. They don’t have to get their diploma and leave the next – with the next plane. So we have changed that for – to be more favorable.

EFFRON: Thank you. I think first we had in the corner. Yes?

QUESTION: Desiree Van Welsum with the World Bank. I’m currently working on the World Development Report 2016, which is on the internet for development. I was wondering if you could comment on in your e-Estonia experience what are some of the key success factors, and if you have any recommendations for other countries, including developing countries, that are considering a transformation like you have done. Thank you.

ROIVAS: I think the single biggest secret behind this development is the e-identity or digital identity for everyone. And this is the only reason why we can have this cross-nation services.

We could make many examples of the services functioning very well. There are more than 400 of them. But – but I think everything is linked to this everyone having a digital identity. We have been advocating others to do that as well because you can only imagine what would happen if we could have that globally, or even in EU or even between EU and U.S.

So we really think – we don’t keep it exclusively for ourselves and enjoy it and let the others sign papers like in the conventional way. We don’t want to do that. We want to help others to reach that understanding as well.

And in order to do that before the countries themselves reach that, we have started distributing our e-residency cards so that an American citizen, basically any other nation’s citizen who can securely confirm their identity in our embassy. Today it’s still in – only in Estonia, but in a couple of months we will have that in place in all of our embassies as well.

So you go to our embassy. You identify yourself with biometrics and things that are needed and you get this electronic identity without picture. You don’t get a citizenship with that, but you get it and you can try all those services that are in place.

And we hope to get business relations and friends of Estonia while doing that. We have our own egoistic interests of course, but I think this should work as a like teaser or a trigger to get other countries doing the same things.

If you see how easy it is, you’re really start thinking why on earth I am not doing that. And perhaps this – this acts like a trigger.

EFFRON: We’ll go right here. But how much—you said it was 2 percent saving—how much investment as a percent of GDP did it take?

ROIVAS: Very little. Much of it’s like – we are talking about less than 1 percent overall government investment of GDP, definitely below. This is way less. But this is also because of Estonian software developers being very, very good and doing very, very state of the art systems, very modem systems.

We don’t – we have a no-legacy policy in our software. Anything that is beyond thirteen years is canceled. Now it’s going less and less. So we modernize all the time, or not cancel perhaps but take a new version. And you know, the – there are many countries who have contributed tens of times more per capita than we have but not achieved similar results. So this is really non-comparable to the effect that we have reached.

QUESTION: Hi. I’m Kimberly Martin. I’m a professor at Barnard College at Columbia University. We know that Vladimir Putin’s siren song is very strong, especially in his use of media and reaching out to the Russian speaking population across the world, but especially in his neighbors.

Do you think that there’s anything more that your government should be trying to try to make the Russian speaking population side with you rather than siding with Putin, or are you satisfied of their loyalty to the Estonian government and to what you’re trying to accomplish?

ROIVAS: Just – I got the information. Secret note I got from my colleagues that the annual IT budget is approximately EUR50 million a year only. So EUR50 million.

EFFRON: Five zero or one five?

ROIVAS: Five zero.

EFFRON: Thank you.

ROIVAS: So it is not – I know countries that are spending billions and billions and billions and not getting similar results.

Now question about – one thing that has to be made clear is that it’s very strong propaganda that’s coming from Russian-speaking channels that are in Russia. The whole concept of media is totally different, and we are not used to that.

Here if a media channel wants to work, it has to be 100 percent independent or if it publicly says may we keep this or that political line this is fine, but they don’t – they don’t change the truth, or that wouldn’t work for long. We value very highly in our world – in the Western world, we value very highly the press freedom. And this is something that – that is very, very important to have.

Russia doesn’t have that unfortunately, so then the messages or the truth that is coming from there is not similar to what CNN is telling about the same things or Bloomberg or NBC. So this information clearly has an effect, has an effect on all of those who look at Russian-speaking media in Russia. They see things that happened in Crimea totally differently than those who actually look at free media channels, whatever the country is.

And – and the same applies to the Estonians who are Russian speaking and watch these channels. They are in some cases somewhat more sympathetic to what has happened in Crimea. They think that things happened perhaps somewhat differently than we know it from the – from the independent news.

But that doesn’t mean that they would take stake against Estonia. They don’t want – definitely there is – there is – there’s no one in Estonia who thinks that Putin should come and rescue them from – from higher living standard than in Russia, to rescue then from more civil freedoms, to rescue them from Western way of life. They don’t want that.

What is our challenge, what we should do I think, we are trying to do it in Estonia as well, is to have a free media channel that gives, simply, information in Russian language as well. This we will start next September.

What would be a game changer of course if some big channel did any – any American news channel would take their – their own Russian channel, talk shows, news, do it like – because there are many Russians – there are probably – there are much more Russian speakers in Manhattan than there are in Estonia or New York area. So the demand is here, even bigger.

So that is something that should be – should be considered because the Russian media, even if it’s biased, in a technical way or technologically they are very good. They have very good shows. They have very good entertainment. They spend a lot of money and they are professionals.

So the only way to – to give all the people who look at their news in Russian language, only way to give them balanced information is to have channels of free media in Russian language.

EFFRON: Yes?

QUESTION: Hi. My name is Harvey Sawikin, and I’m one of the partners at Amber Trust, which is a large private equity fund investing in the Baltics, including Estonia.

I was wondering – you know, you look at the other member of the EU, Finland to the north and then the southern members, and you see that they’ve had a wide range of outcomes. Some have successfully maintained sustainable growth. Others have gone from – you know, into a series of bubbles.

When you look out for the long term in Estonia, how do you envision having sustainable growth and avoiding misallocation of capital bubbles like you had already once? So it’s the fact that you’re a Nordic country, not a southern country, well, I guess didn’t prevent the bubble in 2005 through 2007.

So how do you see Estonia achieving that growth over the long term without winding up like Portugal or Spain?

ROIVAS: Well first of all, no one of us is 100 percent protected from bubbles. The bubble we saw here in – or the burst actually we saw here in Wall Street was – was worst of all probably  and I don’t think that they – anything is fundamentally wrong in – in the business system.

These things happen, and our bubbles and bursts have been linked to real estate. One was very strongly – we have had also a strong effect on Russian prices in the end of the ‘90s. We are much less dependent on Russia now.

And thirdly and most importantly of course, our worries are linked with us being very open to foreign crisis. If something happens in Europe, if something happens in U.S., we are affected because we are a small and open economy.

But that doesn’t mean that we can’t protect ourselves from that or defend ourselves from that. I think the main thing, even if you look at those bubbles and bursts, if you draw a line where Estonia was twenty years ago and where we are now, you probably won’t find – there is – you could make an argument that there is one country that has had even stronger economic growth throughout twenty years, but – but basically we are at the absolute top of the EU, of European countries if you take a straight line.

Now how to maintain that or how to – how to have less risk in terms of the bubbles and bursts, what governments can do is definitely financial discipline and – and contra-cyclic financial budget policy. It should be contra-cycle.

In good times, you should collect reserves. This is something we are doing. When we have economic growth, we keep our budget in surplus. In worse or bad – worse times, you – you spend a little bit more. You allow yourself some deficit. It can’t be more than 3 percent, but it can be there. So these are things that can in the future I hope level things out a little bit.

And to have your economic basics in order. Also what was a lesson from the last crisis and what we learned is – is liberalizing the – the employment market or – it used to be very, very difficult in Estonia to – to fire anyone. This is a big problem actually.

Now we changed that law. We changed that law at the peak of the crisis, which was by the way the best time to take political decisions. Everybody was saying, OK, we understand. You need to do that. You need to raise pension age. You need to make firing people easier. You need to cut – cut costs. You need to cut – even salaries were cut. You need to do that because we want to survive the crisis.

And the fundamental decisions that were taken at that time make Estonia stronger after the crisis. I very much believe in that. So I think the main thing is to look at your legislation, to have enough flexibility, and to have some public finances. This is something that – that we have to keep.

And as I said, Estonia has the smallest sovereign debt of all EU. This is about 10 percent GDP, is our current debt. And on the other side, we have 10 percent of GDP in our reserves as well. So we – we are not dependent on – on foreign credit once there is a crisis – crisis. This is something we – we value very highly. So we are now, from the year 2016, we are planning to even build our reserves. Now we are having more or less balanced budget, but from 2016, ‘17 we start increasing our reserves.

EFFRON: We have time for one more question. Yes, in the bank.

QUESTION: Christine Loomis, Loomis Associates. Would you comment on entrepreneurialism and innovation in your country? The strength of your IT industry lends itself, it seems to me, to those trends.

ROIVAS: It is true. I think the entrepreneur spirit has—went up considerably. And – and if I go to the Estonian startups, if I go to the meetings they have, I see so much good energy and companies that really believe that they can change the world. Not all of them can, but many of them can.

And this is not a bad thing to have. Estonia has the second highest number of startups per capita in all the world, highest in EU. And – and partly it is a link to the overall good education. Partly it’s linked to good ICT skills and good ICT companies being there.

But partly it’s also one single player, Skype, that made a difference in the context, that four guys starting a company that reached to $8.5 billion acquisition by Microsoft. There were thousands of Estonians who at some point were part of that success story and – and they saw this happening and they had the firsthand experience how this is done.

And those who were at the very beginning, the first employees of Skype, they have this kind of mentoring club as well. They are giving their experience to others as well. They are sharing it. The Estonian startup community sticks together very, very strongly.

They are – they call themselves Estonian mafia. This was something that – we had this – today we visited NASDAQ with our business delegation and we could choose what we put on this screen of NASDAQ, you know, in Times Square, the prominent location. And some of them advised me to consider 'Estonian mafia is here' or something like that.

That would probably not be in the best idea in Times Square because people walking in Times Square are not necessarily knowing that the Estonian mafia does not mean anything criminal, but it means hard-working startup community in Estonia. So now you know it. Next time we come we can put 'Estonian mafia' on the screen of Times Square.

And – and I do hope that this success continues because now – Skype was this one – one good story, but now we already have more than I would say about fifty companies that are already international, earning profit and – and are like – some of them are already in the valuations of hundreds of millions. But we see them developing. We see in only couple of years’ time there have been next success stories coming, and some of them are reaching the – the global heights as well.

EFFRON: Mr. Prime Minister, you’re great to be with us. On behalf of the Council, thank you very much.

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