Books on Estonia
Update No: 301 - (30/01/06)
Officials debate safety of Baltic Sea pipelines
The recent gas crisis is having rippling effects throughout the former Soviet
space. Everyone is reconsidering their options. Gazprom, by abruptly cutting off
gas supplies to Ukraine for two days at the beginning of the year, is forcing
them to think of alternatives.
Estonia and Finland are considering the construction of a natural gas pipeline
between the two countries on the floor of the Gulf of Finland, Estonian Foreign
Minister Urmas Paet told reporters after a meeting with his Finnish counterpart,
Erkki Tuomioja. "A breakeven study for an Estonian-Finnish gas pipeline is
underway," the minister said.
The paradise for capital - and labour?
Estonia has reason to be wary of Russia of course. It has become Europe's most
fervent champion of capitalism and free market ways in revulsion against its
Social experiments have been possible in Estonia that are unacceptable in more
mature capitalist economies, such as Germany. Fired with a free-market fervour
and hurtling into the high-tech future, Estonia feels more like a Baltic outpost
of Silicon Valley than of Europe. Twenty months after it achieved its cherished
goal of joining the European Union, one might even characterize Estonia as the
The flat tax has become an article of faith. Estonia became the first country to
adopt it in 1994, as part of a broader strategy to transform itself from an
obscure Soviet republic into a plugged-in member of the global information
By all accounts, the plan is working. Estonia's economic growth is around 10%
per annum and was nearly 11% in the last quarter -- the second fastest in
Europe, after Latvia, and a pace more reminiscent of China or India than Germany
People call this place E-stonia, and the cyber-intoxication is palpable in
Tallinn's cafes and bars, which are universally equipped with wireless
connections, and in local success stories like Skype, designed by Estonian
developers and now offering free calls over the Internet to millions.
The flip side of Estonia's market ethos is a thinner social safety net than in
Europe's welfare states. Opponents of the flat tax here -- and there are some --
say it has widened the divide between rich and poor, making Estonia less like
its Nordic neighbours and more like the United States.
Germans showed how allergic they were to the idea when Angela Merkel chose a
flat tax advocate as her economic adviser. Antipathy toward him was so intense
that political analysts say it probably cost Merkel's party a clear majority in
the German Parliament.
Yet the concept has caught on in this part of Europe. Latvia, Lithuania and
Slovakia all have a flat tax, while the Czech Republic and Slovenia have
considered one. Tax policy, not support for the American-led war in Iraq, is the
bright line that separates the so-called old Europe from the new.
"Everybody dreams about a society with no inequality," Ansip said.
"But the best policy is to have a strongly growing economy. With more
prosperity we can increase social benefits."
Taxes and welfare are not the only issues where Estonians seem to be diverging
from Western Europeans. People are increasingly ambivalent about adopting the
euro, even though the government still hopes to do so by 2007. The prime
minister has been at odds with the European Commission, which has threatened to
reduce its money for roads, bridges and other infrastructure. And Parliament
recently voted by a wide margin to extend the deployment of the country's tiny
contingent of troops to Iraq by another year.
The war, which has inflamed much of Europe, is not a divisive issue here. Only
two Estonian soldiers have been killed in Iraq. "We know what it means to
live under a dictatorship in Estonia," Ansip said. "We were always
dreaming that help would come, and we did get help, especially from the United
Make no mistake: Estonia is grateful to be in the European fold. Membership in
the European Union -- and NATO -- throws a security blanket over a land that has
been subjugated repeatedly by foreign powers, most recently the Soviet Union.
With Estonia safely inside, though, Europe no longer looks like much of a draw.
The euro, which once symbolized prosperity, is now viewed by many here as an
invitation to higher prices. Inflation has already doubled since Estonia joined
the European Union in May 2004. As a cautionary tale, people here point to
Italy, where the cost of a haircut or a cup of coffee spiked after it retired
In any event, Estonia may miss its deadline of January 2007 for adopting the
euro, because its inflation rate, close to 4 per cent, is above the limit
imposed by treaty. That would apparently not faze too many people: in a recent
survey commissioned by the government, 54 per cent of respondents said they did
not want the euro, while 41 per cent favoured it.
"We have always had mixed feelings about joining the monetary union,"
Marje Josing, the director of the Estonian Institute of Economic Research, said.
"We have some experience of being part of a union."
Feelings toward Europe soured further after Britain, which held the rotating
presidency of the European Union, proposed reducing financing to new member
states by US$16.8 billion between 2007 and 2013. Estonia, Ansip said, is
counting on the cash. European leaders worked out a compromise December 17th
that lessens the cuts, which mollified Ansip.
The suspicion goes both ways. French and German leaders complain that Estonia
and other flat tax countries practice tax dumping, using their rock-bottom rates
to attract foreign investment. The solution, they say, is for European countries
to harmonize their taxes, a proposal that gives most Estonians disquieting
memories of their centrally planned past within the Soviet Union.
Still, not everybody loves the status quo. Economics Minister Edgar Savisaar is
among those who believe that the flat tax has deepened class differences. A
prime minister of Estonia under Soviet rule, Savisaar now leads a popular centre-left
party, which is in a shaky coalition with Ansip.
Reinstating a progressive tax, he said, would pay for education and for more aid
to families and the elderly. With Estonia facing a national election in March
2007, Savisaar is expected to make that a political issue.
"What are the best societies to live in?"' asked Savisaar's top
adviser, Heido Vitsur. "The best societies in the world to live in are the
Nordic societies. We have to move in that direction."
Ansip is all for catching up with Finland and Sweden. But he says Estonia should
not do it by abandoning a policy that he says helped propel the country this
far. "I don't think it's the right thing for every country in the
world," he said. "But it really suits Estonia."
Elisa and Tele2 open their 3G networks in Estonia
Elisa and Tele2 mobile operators promise to open their third-generation (3G)
mobile networks in Estonia in the year 2006, New Europe reported.
Estonia's largest mobile operator EMT opened its 3G network in Tallinn last
autumn. Chariman of Elisa, Sami Seppanen, said that EMT's 3G network is actually
a pilot network since it is accessible only outdoors and only in selected areas
in Tallinn. "You cannot trust it," said Seppanen. Marketing Manager of
Tele2, Kristjan Seema, said the question was how much the new network will offer
added value and call Emt's 3G services niche products. Mobile operator Tele2 is
starting an information campaign designed to bring lacking transparency in
public procurement to the authorities' attention.