EUROPE Out and not so sure T A L L I N N
Finland in and happy	IN JULY, there was mass rejoicing on both sides of the Gulf of Finland when the European Commission gave a “positive opinion” of Estonia’s application to join the EU. The Finns are now pressing hard for their tiny neighbour to be in the first round of talks to admit newcomers. They want to persuade the Swedes and Danes to drop their demands to include all the three Baltic countries, arguing that one is better than none: Latvia and Lithuania can catch up later. Not everyone in Estonia’s capital, Tallinn, is quite so eager. Estonia has a remarkably liberal, open and fast-growing economy. The private sector accounts for three-quarters of GDP, more than in most EU countries. Corporate and income taxes are levied at a flat rate of 26%. Unemployment is around 4%. Most tariffs and subsidies have been scrapped. And Estonia’s currency board, which pegs its exchange rate at eight-for-one to the D-mark, has cut inflation nearly to single figures. In these circumstances, joining the EU, with all its rules and costly farm subsidies, could be a step backwards. When they cross the Gulf of Finland, some Estonians say it’s “back to socialism”. A top man in the Bank of Estonia hopes EU membership will not come too soon, because Estonia is too poor to afford Europe’s misguided economics. It would have been better, he jokes, to join the North American Free-Trade Agreement.

	Yet economics is seldom the whole story. As with Finland, Estonia’s desire to be a member of the EU is chiefly a matter of security. The Russians are making EU membership harder for all the Balts by delaying the signing of border treaties with them and clucking about the treatment of Russian minorities. That just makes the applicants all the keener. Estonia also hopes EU membership will help it keep the lion’s share of foreign investment in the Baltic region. Already half of Estonian exports come from companies dependent on foreign capital. Yet this carries dangers. Estonia’s trade deficit is an astonishing 24% of GDP. Income from tourists, chiefly Finns, narrows that gap, but to a still startling 10%; the rest is financed by capital inflows. South-East Asia has recently learnt how easy it is for what comes in to go suddenly back out. Estonia may yet find that membership of the European Union is needed to help it avoid the fate of Thailand.  © Copyright 1997 The Economist Newspaper Limited. All Rights Reserved