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Strategies & Market Trends : Investment in Russia and Eastern Europe

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To: Real Man who wrote (884)1/7/1999 11:10:00 PM
From: CIMA   of 1301
 
Russia's Bitter Pill

Summary:

* With Russia busy restoring its empire and the European Union
and NATO hesitant to accept the Baltic states as members, Estonia
has let it be known that it does not plan to capitulate to Moscow
-- at least not without a fight.

Analysis:

The Estonian Defense Ministry announced on January 5, 1998 that
it could mobilize and arm 80,000 reservists in case of war.
Although the commander of the Estonian Defense Forces, Lieutenant
General Johannes Kert, told the BNS news agency that he did not
foresee an immediate threat to Estonian security, the obvious
potential aggressor is neighboring Russia. After gaining
independence from Russia seven years ago, relations between the
two countries can at best be described as tense.

In a bid to distance itself even further from Moscow, Estonia is
hoping to be admitted into the European Union, the World Trade
Organization, and NATO. Speaking last month on Estonian
television, Prime Minister Mart Siiman said that 60 percent of
the plan to achieve integration into the EU had been completed,
and the rest would be finished in 1999. Defense Minister Andrus
Oovel published an article in the newspaper Postimees on January
6, in which he called for increasing defense spending from 1.2
percent of GDP to 2 percent of GDP. Oovel said this would be a
"very strong political signal and proof" that Estonia should be
"seriously viewed as NATO's partner."

Despite the Estonian government's expression of optimism on
joining either of these two organizations, the chance of this
actually occurring is slim at best. Estonia is one of six
countries, with the Czech Republic, Poland, Hungary, Slovenia and
Cyprus, being considered as candidates for admittance into the
EU. However, it appears that EU expansion may not happen as
quickly as originally thought, if at all. German Foreign Minister
Joschka Fischer, who assumed the EU presidency on January 1, told
Agence France Presse on January 7 that the EU must solve current
difficulties before expanding. German Chancellor Gerhard
Schroeder echoed Fischer's concern in an interview with the
German magazine Der Spiegel. "If, during the German presidency,
we do not manage to put the financial questions in order for
possible enlargement, then the date of the enlargement will be
put back," Schroeder said last Monday. Estonia faces the same
problems of EU integration as that of Slovakia, which we
discussed in yesterday's GIU.

On the other hand, Estonia's chance of being admitted into NATO
is not nearly as rosy as that of Slovakia. While Slovakia's
admission rounds out an important line of defense for NATO,
Estonia poses NATO with a new strategic problem. Even though
former-Warsaw Pact countries Poland, Hungary, and the Czech
Republic are due to be invited to join NATO this spring, it is
doubtful that Estonia will be included. Furthermore, including
Estonia, or any of the Baltic republics for that matter, in NATO
would be a sure-fire way of provoking an immediate and heated
reaction from Moscow. Russia views the Baltic region as very
important to its security, and Estonia as a NATO member would be
a dagger thrust at St. Petersburg.

While Russia and Belarus have reunited and other former Soviet
republics, such as Ukraine and Kazakhstan, seem soon to return to
the fold, Estonia is not ready to capitulate peacefully. Estonia
knows that it is only a matter of time before Russia begins
asserting pressure to assimilate it as well. Estonia's pursuit of
membership in the EU and NATO is one attempt to stave off that
process. Despite the announcement that Estonia can mobilize
80,000 reservists in the event of war, Estonia is well aware that
it could not hold out indefinitely against an aggressor. But in
the words of Lt. Gen. Kert, regarding Estonia's ability to defend
itself, "In principle, it is possible to swallow up Estonia, but
this will be very painful for the hypothetical enemy."

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