Shadow of Russia still casts long shadow over Tallinn

Since January 2013, public transport in Tallinn has been free – to residents. The result was to generate a healthy increase in Tallinn’s registered population at a time when the Estonian population was declining.

Estonia operates a 21 per cent flat rate of income tax, with the revenue split roughly 50-50 between the state and the local authority. Since people pay tax where they are registered, more residents meant increased revenue, more than offsetting the cost of scrapping fares. A neat example of lateral thinking.

Such thinking has been typical of Estonia's progress since regaining independence in 1991. When you live next to Russia, you learn to improvise. Dedicated to making up for a lost half century, it restructured its economy over several years, skipping a technological generation to enter the digital age ahead of most of its neighbours. Estonia was a pioneer in e-government, developed the software for Skype, is known as Europe's most "wired" country and has a superb broadband infrastructure.

Returning to Tallinn after ten years, there are big changes. I left in August 2004, barely a decade after the Russian armies had withdrawn. The withdrawal agreement was another astute political stroke, with then president Lennart Meri determined that Estonia, with a sizeable Russian minority, would avoid the fate of Georgia and Moldova.

The pace of economic and political change since 1994 had been intense, with seven governments and six prime ministers in little over a decade. The Russian minority, slightly over a quarter, remained a problem, though not a pressing one. Estonia joined Nato in 2003 and the EU in May 2004.

Growing affluence

Ten years on the country is more settled. You can spot the affluence in the cars, always a good barometer, with newer models everywhere. It may not yet be the ordinary, dull, Nordic country the amiable Andres Anvelt, Estonia's minister for justice, describes light-heartedly to me, but it is getting there.

There is a fresh look to the city, a new skyline with some striking new buildings, office blocks and hotels – an impressive counterpoint to the charms of the Old Town.

In suburbs such as Kalamaja and Kopli, old houses are being refurbished and gentrified. The city centre is stocked with new restaurants, many ethnic, while new bars vie for custom with those long established. Restaurant prices have become European, with old friends remarking cynically that adopting the euro did no harm to business. Tallinn is still good value, but it is no longer cheap, public transport apart.

Politically there is a new stability. Andrus Ansip, before he stepped down in March to become Estonia’s new European Commissioner for (unsurprisingly) Europe’s Digital Single Market, was Europe’s longest-serving head of government. He was succeeded after almost nine years by 35-year-old Taavi Rõivas.

Relations with Russia

Ansip’s premiership saw a steady rise in incomes and living standards, punctuated by an Irish-style property boom and bust, with GDP falling by more than 14 per cent in 2009, before recovering sufficiently for Estonia to join the euro zone in 2011.

Estonia’s banks, which are mainly Swedish-owned, were bailed out by their principals, who had learned from Sweden’s own banking crisis of the early 1990s. But problems remain. Estonia’s population, at fewer than 1.3 million, continues to fall. The demographics are gloomy and emigration has compounded this, with implications for growth and new investment.

One political problem remains constant: relations with Russia. Given its history, its Russian minority, many living on Estonia’s eastern border only 90 miles from St Petersburg, and a border still not definitively settled, Estonia has viewed this year’s events in Ukraine with unease.

While some have pointed out that Russia has no particular strategic interest in Estonia, not everyone is convinced. In 2007 the country suffered severe cyberattacks following the removal of a Soviet war memorial from central Tallinn.

Accordingly, as events in Ukraine unfolded, confidence-building measures such as beefing up the US military presence and the September visit and speech by US president Barack Obama pledging support to the Baltics, have been welcomed here.

There has been a reaction. On September 5th, two days after Obama’s speech, the Russians seized, and are still holding, an Estonian Internal Security agent, Eston Kohver, on the border, accusing him of spying. The operation was clinical and efficient. After two months Estonia – and Nato – are still waiting to see what will happen next.

Sean Farrell was Ireland’s ambassador to Estonia in 2001-2004