Cablegate: Estonia: Scenesetter for Deputy Secretary of Energy Sell

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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

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