VZCZCXYZ0004
RR RUEHWEB

DE RUEHTL #0548/01 2361040
ZNR UUUUU ZZH
R 241040Z AUG 07
FM AMEMBASSY TALLINN
TO SECSTATE WASHDC 0102

UNCLAS TALLINN 000548 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL PGOV OVIP AMGT ASEC AFIN EN
SUBJECT:  ESTONIA:  SCENESETTER FOR DEPUTY SECRETARY OF ENERGY SELL 
DELEGATION 
 
 
¶1. (SBU) Summary:  The last year has been a banner period for 
U.S.-Estonian bilateral relations, including President Bush's 
November visit to Tallinn, Foreign Minister Paet's visit to 
Washington for a celebration of the 85th anniversary of diplomatic 
relations, and President Ilves' June visit to Washington.  Estonians 
are very grateful for U.S. support in the aftermath of their 
government's decision to relocate a Soviet war memorial known as the 
"Bronze Soldier" in late April.  In regards to the formerly 
contentious issue of membership in the Visa Waiver Program, 
Estonia's recent progress and U.S. Congressional action put the 
country on track to join the program possibly as soon as next year. 
 
 
¶2.  (SBU) Three and a half years after NATO and EU accession, 
Estonia remains a strong ally on all fronts.  It is deeply committed 
to trans-Atlantic security institutions and pro-free market economic 
policy.  Estonia is a steadfast ally in the Global War on Terror 
(GWOT) in both Afghanistan and Iraq, and an effective role model for 
democracy in the former Soviet states and beyond.  Estonia is 
gradually becoming a more vocal member of the EU and is a strong 
supporter of both EU and NATO enlargement.  The Estonian economy 
continues to boom, although inflation and the current account 
deficit remain high while the labor market is increasingly tight. 
Relations with Russia remain difficult, particularly after the move 
of the "Bronze Soldier" monument.  Following cyber attacks on 
Estonia's high-tech infrastructure in May, the GOE raised the 
national security implications of the issue at NATO, within the EU 
and bilaterally with its allies.  End summary. 
 
¶3.  (SBU) This has been a big year for U.S.-Estonian bilateral 
relations.  President Bush came to Tallinn last November, the first 
ever visit to Estonia by a sitting U.S. President.  In June, 
Estonian President Toomas Hendrik Ilves met with President Bush at 
the White House.  Following riots, cyber attacks and deteriorating 
relations with Russia in late April and early May, the United States 
voiced strong public support for Estonia.  (Note:  The United States 
strongly supported the Estonian government's right to decide what to 
do with the "Bronze Soldier" and decried Russia's failure to provide 
adequate security for the Estonian embassy in Moscow.  At the same 
time, we called for dialogue, both between Estonia and Russia and 
between ethnic Estonian and Russian residents of Estonia as the best 
way to resolve difficult issues and build mutual understanding.  End 
Note.)  In addition, the three Baltic Foreign Ministers recently met 
with Secretary Rice to mark 85 years of relations with the United 
States.  Appreciation for U.S. non-recognition of the Soviet 
occupation of Estonia remains an important source of good will 
towards the United States.  However, one major challenge for our 
public diplomacy efforts is to engage the next generation of 
Estonians to ensure that American-Estonian relations will remain 
strong for the long term. 
 
FOREIGN POLICY AND SECURITY 
 
¶4.  (U) GLOBAL WAR ON TERROR.  Estonia is a strong supporter of the 
U.S. position in the GWOT.  Estonian troops participate in NATO 
operations (in Afghanistan, Kosovo, and Iraq), EU operations (the 
EU's Nordic Battle Group), Operation Enduring Freedom in Iraq, and 
other missions (including the UN mission in Lebanon).  In 
Afghanistan, Estonian troops serve as part of a UK-led Provisional 
Reconstruction Team in Helmand Province, the epicenter of 
Afghanistan's poppy producing region.  In Iraq, Estonian soldiers 
are embedded with U.S. troops in some of the toughest 
counter-insurgency operations outside of Baghdad.  On June 23, 2 
Estonian soldiers were killed in Afghanistan.  In 2004, 2 others 
were killed in Iraq.  Overall, 8.2% of Estonia's military is 
currently deployed overseas, while the country is on track to meet 
its NATO commitment of devoting 2% of its GDP to defense spending 
(currently at 1.83%).  Estonia is a vocal supporter of NATO 
enlargement; GOE officials often speak out on the importance of 
bringing Balkan and Eastern European countries into NATO in order to 
cement democratic and free-market reforms there. 
 
¶5.  (U) REGIONAL DEMOCRACY PROMOTION.  Estonia plays an active role 
in encouraging democratic reforms and economic development in 
several former Soviet states.  Estonia's experience of transforming 
itself from a Soviet-occupied country into a healthy democracy with 
a booming economy has given it immense credibility in the region in 
promoting democracy and transformational diplomacy.  The GOE has 
provided training in law enforcement, judicial reform, freedom of 
the press, democracy building, economic and market reforms, and IT 
to civil servants from the Balkans, Georgia, Moldova, and the 
Ukraine.  Georgia is of particular importance for the GOE - Estonian 
President Ilves, Prime Minister Ansip, and Foreign Minister Urmas 
Paet have all visited Tbilisi to strengthen ties between the two 
countries.  Former Prime Minister Mart Laar serves as a personal 
advisor to Georgian President Mikheil Saakashvili on political and 
economic reform. 
 
ECONOMIC PERFORMANCE 
 
¶6.  (U) Estonia's economy is probably the most dynamic of the 
"Baltic Tigers," and has been growing at 7-11% per year for the past 
 
seven years.  The state budget has been in surplus since 2001, 
(currently 3.3% of GDP) and unemployment is currently 5.3% and 
falling.  The biggest challenges facing the economy are:  a labor 
shortage, a growing current account deficit, and inflation (caused 
primarily by rapid growth, rising energy costs and rising wages). 
The national currency, the Kroon, is pegged to the Euro.  Estonia 
hopes to join the Euro zone by 2011.  (Note:  Estonia meets all Euro 
criteria except for inflation.  End Note.) 
 
¶7.  (SBU) Since the early 1990s, consecutive Estonian governments 
have backed a business- and investor-friendly economic policy 
featuring a flat 22% tax on personal income and no tax on reinvested 
profits.  Leading sectors include computer, software and cellular 
technologies, tourism and manufacturing.  The United States is the 
eighth largest foreign direct investor, but U.S. direct investment 
accounts for less than 2.5% of total FDI, well behind the Swedes and 
Finns, who together account for more than 80% of the total.  Estonia 
is best known for its highly developed IT sector and widespread use 
of technology in government and daily life.  Internet usage in 
Estonia is over 60%, and online banking is upwards of 80% - both the 
highest in Europe.  Cabinet ministers work on the basis of 
e-government and Estonia was the first country in the world to offer 
e-voting in a nationwide election.  The development and support 
offices of the internet-telephone giant Skype -- now owned by E-Bay 
-- are located here. 
 
¶8.  (U) Another central issue to the Estonian economy is energy 
security.  Large domestic oil shale reserves allow Estonia to remain 
relatively independent of Russian energy supplies.  The proposed 
NordStream gas pipeline from Russia to Germany may pass through 
Estonia's economic zone in the Baltic Sea, very close to its 
territorial waters.  GOE officials state firmly that Estonia will 
closely study the environmental and security issues related to the 
project.  Speaking at the Center for Strategic and International 
Studies (CSIS) in late June, President Ilves said that Germany's 
"failure" to consult with other EU members regarding NordStream 
undermined trust and highlighted the need for a common EU approach 
to energy security. 
 
RUSSIA 
 
¶9.  (SBU) RUSSIAN RELATIONS.  Estonia's relationship with Russia is 
difficult and complicated following nearly 50 years of Soviet 
occupation.  While the countries share trade and investment ties, 
they have not been able to conclude a border treaty.  Depending on 
the political climate, trucks crossing from Estonia into Russia may 
encounter delays of up to several days.  Estonia's decision to 
relocate the "Bronze Soldier" prompted riots by ethnic Russians in 
Tallinn.  Following the riots, Russia put heavy economic and 
diplomatic pressure on Estonia - including refusing to disperse a 
mob outside the Estonian Embassy in Moscow for several days, 
limiting rail and truck traffic across the border and encouraging a 
boycott of Estonian goods.  At the worst point, rail traffic (oil, 
coal, wood and other materials) was down by 50% - significantly 
reducing Estonia's transit revenues and complicating supply lines 
for Estonian companies.  Rail traffic has still not returned to 
normal levels. 
 
¶10.  (SBU) Ethnic Russians make up approximately 25 percent of the 
population of Estonia.  Russia has frequently complained about GOE 
treatment of its Russian speaking minority.  However, until the 
Bronze Soldier riots, Estonia's efforts to integrate its minority 
population were viewed as a model for the region.  While Estonia can 
still point to significant accomplishments of its integration 
strategy, the riots revealed deep fissures remain between ethnic 
Russians and Estonians living in Estonia.  The GOE, which has 
traditionally engaged in language-based integration programs, is 
working on a new strategy that will continue with language programs, 
but also focus on society building and cultural understanding among 
Estonians of all ethnicities. 
 
VISA WAIVER 
 
¶11.  (SBU) Securing visa-free travel to the United States for 
Estonian citizens remains a priority for both the GOE and Estonian 
public.  Senior GOE officials regularly raise the issue of 
membership in the U.S. Visa Waiver Program (VWP) at all levels with 
the USG.  Estonia's recent progress toward meeting the VWP criteria, 
and U.S. Congressional action, put the country on track to join 
possibly as soon as 2008. 
 
PHILLIPS