I would like to focus on some of the more fundamental issues that underlie the general debate over the enlargement of Western institutions. Much of the ongoing discussion concerning enlargement in newspaper columns and the corridors of power overlooks three points: first, that the post-Cold War world is not static but highly dynamic; second, that things do not only change, but they change fast; and third, that the time to consolidate gains is now, before the chance to shape the course of events slips away.
The city of Dresden, the site of this year's NATO Workshop, fittingly reminds us of where we are today. A little more than five years ago, in a still divided Germany, Dresden was one of the centers where the ripples of discontent first became public. These ripples became waves, which in turn swelled into a great tide that swept away the Berlin Wall, ultimately signaling the end of an era of division and domination.
In our own case, the tide reached us two years later, when the aborted coup attempt in Moscow finally opened the way to fully reinstate our independence. Regardless of when the change occurred in various countries, the essential point is that we can no longer afford to fixate on 1989 or 1991, as though time has not moved on since then.
Time has moved on, and at a tremendous pace. Estonia is a case in point. Four years ago, our economy was so tightly intertwined with that of the Soviet Union that many observers, both in the East and in the West, said that independence was not economically viable. Today, we have managed to shake off the vestiges of a command economy to the point of earning praise as one of the models of free-market reforms in the former East.
I assure you that under my government, which has been in the driver's seat in Estonia since the middle of April, these free-market policies must and will continue. They have proven to be the only way to improve living conditions for our residents and have led to descriptions of Estonia such as that coined by Newsweek magazine as "The Little Country That Could,î or, as others have said, as a kind of "Wirtschaftswunder" of the nineties.
Our free-market policies have been rather successful. Four years ago, about 95% of our trade went East; today, the bulk of our foreign trade--some 62% of imports and 47.7% of exports--is with European Union countries. We have used a few foreign loans, not to prop up the economy but for capital investments, in keeping with our continuing policy of "trade, not aid." We continue, of course, our efforts to increase exports, and they are growing. Foreign investments continue to double every six months, to the point that Estonia ranks third in direct foreign investments in Central Europe, just behind Hungary and the Czech Republic. Our currency is among the most stable in Scandinavia, and our foreign currency reserves have more than tripled since our national currency, the Kroon, was introduced during my first tenure as Prime Minister in 1992. We have balanced a state budget and have actual growth in the GDP. Our flat 26% income tax and full repatriation of profits for foreigners doing business in Estonia make us increasingly attractive to investors.
Our progress in rebuilding democracy has been no less remarkable. In 1992, under my first government, we wrote and passed by referendum a new constitution to assure that Estonia would be a state based on the rule of law. During the nearly four years since we reestablished independence, we have succeeded in recreating state institutions responsive to the public and answerable to the constitution.
That these efforts have paid off was demonstrated in March, when we conducted free and fair post-communist elections. The people voted overwhelmingly for staying the course of free-market reforms, but with greater attention paid to helping those sectors of society that need more assistance in adjusting to the new system. I am proud to say that no extremist groups, either from the Left or the Right, got into parliament. Just as important, Estonia's growing citizenry of Russian origin actively exercised the right to vote. In fact, the one Russian political party standing for elections was one of only seven parties to garner the minimum 5% to pass into parliament.
This accomplishment pays tribute to our efforts toward building a fair and just nationality policy based on political participation for all who have demonstrated loyalty to the state. The cornerstone of this nationality policy is our citizenship law, which has been hailed as one of the most liberal in Europe.
In March, while I was conducting talks toward forming my government, U.S. Vice President Al Gore visited Tallinn. While there, he too paid tribute to the success of our nationality policy by saying, "History teaches us that national independence can in some places stimulate national chauvinism. Yet Estonia's fair implementation of its citizenship law and political participation of Estonian citizens of Russian origin show that Estonia is becoming a state rooted in law and tolerance, and based on modern civic values. In this demonstration of tolerance, Estonia is a model for the rest of the world."
All of the changes I have just described illustrate my second point, which is that change has occurred rapidly. Perhaps the most recent graphic sign of this rapid change is Estonia's movement toward the European Union (EU). Last year, we concluded a very favorable Free Trade Agreement with the European Union that foresaw no transition period. I am proud to say that our Association Agreement with the European Union, which I signed last week in Luxembourg, is the first among those concluded between the EU and a Central European state that has no transition period.
I have followed with great interest the press reactions to our European Agreement. Some observers, such as Michael Stürmer, who wrote on the topic in early June in the Financial Times, believe that our association with the EU poses a challenge to Russia, and thus we should slow down the entire integration process. I, however, tend to agree with the recent Wall Street Journal Europe, which noted that our association with the EU not only sends a strong signal that the Baltic States have taken their natural place in Europe, but also gives the EU a needed impetus to return to its core values.
This mention of core values leads me to my third point, which is that the time to consolidate the gains of 1989 and 1991 is now. The European Union and the Western European Union have understood this very well. I can assure you that the implicit security guarantees of association with the EU is certainly not lost on us.
But much more can be done. Since the assumption is that the security of the Baltic States is in Europe's vital interest, it is in Europe's interest--and when I speak of Europe I am really speaking of the transatlantic relationship--to integrate the Baltic States into Western structures. It is absolutely fundamental to this argument that a gray zone, or a kind of "no man's land," in Europe is an invitation for trouble.
A colleague from another Central European country recently asked the rhetorical question: What do you do when you have a security vacuum? His answer was simple: You fill the vacuum with security. There are various ways to do so. One idea I have is to make greater use of confidence-building measures (CBMs), which is another name for transparency and openness. We need to go beyond measures such as the Conventional Forces in Europe Agreement to a full array of such means. Such CBMs would not only enhance security in our region, which is already on the front line of the European Union, but also strengthen security on the continent as a whole. It is important to remember that Baltic security is not what mathematicians call a constant-sum game, in which our closer relationship with Europe inevitably means a worsened relationship with Russia. On the contrary, our security would ultimately be good not only for Europe but for Russia as well.
Thus, we need to act now in order to maintain the ability to shape events, rather than to be shaped by them. Things change, and they change fast. We can help them move in the right direction only if we remain constantly engaged and keep our eye on the ball.
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