SCENESETTER FOR ESTONIAN PM ANSIP'S U.S. VISIT

C O N F I D E N T I A L SECTION 01 OF 03 TALLINN 000125 SIPDIS FOR EUR/NB - GILCHRIST/RODRIGUES NSC FOR OVP - HAAVE DOE FOR APICELLI E.O. 12958: DECL: 05/08/2019 TAGS: PGOV PREL ENRG NATO ECON EN SUBJECT: SCENESETTER FOR ESTONIAN PM ANSIP'S U.S. VISIT MAY 12-15 Classified By: CDA Karen Decker for reasons 1.4 (b) & (d). ¶1. (C) SUMMARY: Prime Minister Andrus Ansip will visit Washington and New York May 12-15. Estonia's longest- sitting Prime Minister is ardently pro-American, a leading advocate for Estonia's military engagements abroad and the face of Estonian fiscal restraint. In his meetings, the Prime Minister will underscore that Estonia has been and will remain a good Ally of the United States. He will express heartfelt appreciation for President Obama's strong statement on collective security at the NATO Summit and will reaffirm Estonia's plan to increase its presence in Afghanistan this summer. Estonia has staked its economic credibility on keeping its budget deficit low and acceding to the Euro zone as soon as possible. Ansip will want to highlight how Estonia's approach to the economic crisis is distinct from the rest of Eastern Europe. Finally, Ansip will highlight Estonia's efforts to diversify its energy supply through nuclear and other clean energy sources and will express interest in U.S. nuclear technology. ¶2. (C) In Washington, PM Ansip hopes to meet with the Vice President and Speaker Pelosi and speak at the U.S.- Baltic Foundation (USBF) annual conference. In New York, Ansip will visit the NASDAQ and N.Y. Stock Exchange and meet with the President of the New York Federal Reserve and officials at Deutsche Bank. ¶3. (C) In meetings with Prime Minister Ansip, it would be useful to: -- Commend the Prime Minister's efforts to manage Estonia's economic downturn, while also maintaining Estonia's international commitments. -- Recognize that Estonia's experience and response to the crisis has been different from that of its neighbors. -- Express appreciation for Ansip's decision to deploy a mechanized company to Afghanistan this summer for election security (tripling his NATO summit pledge of a platoon). -- Welcome the importance Estonia places on participating in joint operations with U.S. forces and emphasize there is significant scope for future cooperation in Afghanistan. -- Acknowledge the importance of collective defense to Estonia and reiterate U.S. commitment to this principle. �A;-- Applaud focus on climate and energy security. Highlight interest in linking up American and Estonian technologies to secure a cleaner, more diverse energy supply that decreases Estonia's dependence on Russia. END SUMMARY. ESTONIA'S ECONOMY - FOCUS ON THE FUNDAMENTALS ¶4. (C) Ansip, who recently passed the four-year milestone as Prime Minister, was re-elected Prime Minister in early 2007, when Estonia still enjoyed high GDP growth and a budget surplus. The economic crisis has taken its toll on his popularity, and there is inevitable speculation about the future of his coalition government. Estonia's GDP is expected to decline more than 12 percent in 2009 and unemployment (now at nine percent) will increase. The Prime Minister has staked his credibility and Estonia's economic recovery on achieving Euro accession by meeting the Maastricht criteria "as soon as possible." To do this, the Government of Estonia (GOE) must keep its budget deficit below three percent of GDP. The government is now struggling to reach agreement on an eight-percent budget cut (the second such cut this year). One coalition partner has called for increasing income tax rates, cutting defense spending to as low as 1.1 percent of GDP and abandoning Estonia's hallmark flat tax system. These are redlines for PM Ansip who believes Estonia's long-term economic success is rooted in its core policies of transparency, low taxes, a balanced budget and free trade. On this front, Ansip will express appreciation for President Obama's remark at the U.S.-EU summit that the U.S. has "no room for protectionism." TALLINN 00000125 002 OF 003 ¶5. (C) While acknowledging the region is integrated through trade and investment, Ansip will want to distinguish Estonia's economic situation and policies from those of its neighbors. In particular, he will highlight that Estonia has one of the lowest levels of public sector debt in the EU, significant reserves accumulated during the boom years, and a relatively healthy banking sector (dominated by Swedish banks). Ansip will note that in recognition of these factors, international credit agencies have kept Estonia's rankings high. However, foreign investors lack confidence in the currencies of small countries like Estonia and need a visible signal that Estonia is a safe place to invest. Admission to the Euro zone would help Estonia attract foreign investors (and create jobs). Ansip will stress that he does not want the EU to relax accession criteria to make it easier for new members to join. From the GOE's perspective, this would weaken the credibility of the Euro zone and dilute the benefits of membership. CONFIDENCE IN COLLECTIVE SECURITY ¶6. (C) Ansip called President Obama's message on collective security at the NATO summit "music to his ears." He will seek assurances that a new Strategic Concept will maintain collective self defense as the core function of the Alliance and will stress that this is of primary importance to Estonia. Despite the budget crisis, Ansip is a vocal proponent for upholding Estonia's NATO commitments, and points to the Russian invasion of Georgia in August 2008 as one reason countries should invest in defense capabilities. "Defense is not a luxury," he will say, and although the GOE must make additional budget cuts, we expect Ansip to stick as closely as possible to Estonia's commitment to spend 2 percent of GDP on defense by 2010. (Note: Defense spending is currently about 1.75 percent. End note.) AFGHANISTAN ¶7. (C) Estonia has one of the highest deployment rates in NATO (about eight percent of its forces are deployed abroad) and Afghanistan is the GOE's top foreign policy priority. Estonia has a company of 140 soldiers embedded with UK forces in southern Afghanistan (Helmand province) where they operate without caveats. At the NATO Summit, PM Ansip answered the President's call for more troops for Afghanistan: the GOE will deploy a mechanized company in July to provide security for the Afghan national elections. While we understand the new company will be collocated with U.S. Marines in Helmand, this is not yet a done deal, and we expect PM Ansip will highlight the importance Estonia places on participating in joint operations with U.S. forces (as Estonia did in Iraq for six years). ¶8. (C) Reflecting the GOE's desire to match its military contributions with civilian assistance, Afghanistan is also a priority development assistance country for Estonia. The GOE has focused its efforts on building health sector capacity in Helmand but is also considering education sector projects in Kabul, providing training for Afghan diplomats and is looking at ways to enhance the Afghan parliament's IT capabilities. WELCOME TO THE NEIGHBORHOOD ¶9. (C) The GOE remains a staunch advocate for EU and NATO enlargement, including MAP for Georgia and Ukraine, as well as a firm supporter of democratization in the Balkans. In fact, Estonia decided to maintain its contingent in KFOR, unlike several other Allies. Ansip will emphasize the importance Estonia places on NATO and the EU maintaining an "open door policy" toward aspirant countries. While the GOE is not reluctant to deliver hard messages to transition countries, it also believes these countries need concrete targets and encouragement to keep them on the right path. Estonia's own remarkable post-Soviet transition experience gives it a high degree of credibility as a model for reform in Georgia, Ukraine, Moldova, Belarus and the Balkans. Estonia has provided training on issues ranging from law enforcement, border security, economic and market reforms to cyber security and IT to civil servants and military personnel from TALLINN 00000125 003 OF 003 these countries. PM Ansip will arrive in Washington fresh from the EU's Eastern Partnership Summit in Prague. ¶9. (C) In discussions of the "neighborhood," Russia remains the thousand-pound elephant in the room. Ansip may express concerns about the possibility of increased Russia-Georgia tensions and speculate another regional flare-up this summer. He will also reiterate Estonia's long-standing position that Allies must not forget that Russia has invaded a sovereign country. Ansip may also ask about the future of U.S.-Russia relations and for more details on the "re-setting" of relations with Russia. OTHER CHALLENGES: CYBER AND CLIMATE SECURITY ¶10. (C) In addition to enlargement, Estonia has a keen interest in NATO strategic challenges like cyber and energy security. The GOE was pleased the NATO communique at Strasbourg-Kehl specifically referenced Estonia's Cyber Center of Excellence. The U.S. was the first Ally to send a representative to the COE (in 2007) and Secretary of Defense Gates committed us to become a "Sponsoring Nation" during his visit to Tallinn in November 2008 (although that process is not yet complete). Six other Allies are Sponsoring Nations (Germany, Italy, Latvia, Lithuania, Slovak Republic and Spain). ¶11. (C) Estonia's energy policy is at a crossroads. While domestic oil shale reserves provide significant energy independence (supplying 95 percent of Estonia's electricity needs),oil shale also makes Estonia the heaviest polluter per capita in the EU. The GOE is working to diversify supply (to reduce dependence on Russian gas),bring Estonia in line with EU environmental standards, and invest in a mix of new supply options, including nuclear power, cleaner oil shale technology and renewables (wind and biofuels). PM Ansip met with his counterparts in Lithuania, Latvia and Poland on April 27 to try to advance plans for a regional nuclear power plant (NPP) in Visaginas, Lithuania. His is, however, frustrated by the lack of progress on this project and will want to highlight Estonia's growing interest in building its own domestic NPP using U.S. technology. ¶12. (U) We appreciate the support Washington has provided for this visit. DECKER