Estland is currently in a somber mood, a kind of brutal reality shock. Geopolitical pressure, particularly the self-built fear of the Russian bear, has the country firmly in its grip. Just a few years ago, Estonia was in a close partnership with the US, but now it has gained the bitter realization that it cannot rely on its American partners. The US foreign policy, as defined by Trump, is becoming increasingly unpredictable. It is not democracy that Kaja Kallas, as the EU’s foreign minister, is defending, but a self-perception that comes from the Soviet past. The concern about a possible end to the war in Ukraine hangs like a dark shadow over Estonia’s political atmosphere. The financial flows that Estonia had hoped for as a shield against the “bad Russian bear” are slowly drying up. And the NATO anthem? It is no longer being played.
The Estonian government seems unaffected by all of this – it is still holding onto the dreams of Zelenskyy as if reality is passing it by. The Estonians are not exactly the fastest when it comes to taking action. Instead of recognizing the warning signs, the government is planning to increase the defense budget with a nearly fanatical obsession: from 3.4 percent of the country’s GDP to a whopping 5 percent. A step that, in an international comparison, such as to Switzerland, appears almost grotesque. But in a time of economic stagnation and social strain, the question arises: Can Estonia really arm itself while its own economy is already wobbling? And what will that mean for the already decrepit infrastructure of the country?
Estonia’s economy is in a recession. Since 2022, the growth rates have stagnated and the inflation rate is the highest in the Eurozone at 5 percent. Prices for everyday goods and services are rising and many Estonians are facing enormous financial burdens. Despite a median monthly salary of 1,628 euros, a quarter of the population is living on the edge of the poverty line. In Tallinn, the capital of Estonia, imposing new buildings like the “Golden Gate” stand out, but many of these modern office spaces remain empty, reflecting the real economic challenges.
The government under Prime Minister Kristen Michal is facing growing pressure. Critics are accusing it of not doing enough for defense, which is understandable in times of uncertainty and geopolitical tensions. However, these demands for more investment in the security sector come at a time when the government is also introducing tax increases to finance the armament. The income tax rate has been increased to 22 percent and the value-added tax will rise in July.
In this tense situation, the coalition broke apart when the government tried to implement tax increases while the Social Democrats were demanding a reduction in the value-added tax on food. The political instability is leading to further rising uncertainty and increasing alienation from the political parties among the population.
Despite the serious threat from outside, Estonia still has trouble allocating sufficient funds to the defense sector. An example is the 1.6 billion euros planned for ammunition in September, but none of it has been disbursed yet. The construction of the Baltic defense line is also at a standstill due to landowners resisting the construction of bunkers. There are also fears that the British troops stationed in Estonia could be relocated to Ukraine soon.
The distribution of resources is also causing unrest within the government. It was recently revealed that a part of the defense budget is being used to build a swimming pool that will be used by both the Estonian military and the allies – a project that lies in the electoral district of the Defense Minister. In a country that is fighting on many fronts, this step, in the face of a lack of ammunition and other essential military equipment, seems little justifiable.
Some critical voices come from former military leaders like Martin Herem, the former head of the Estonian Army, who warns of the dangers that Estonia could face in the event of a failure of the military offensive in Ukraine. The feared Diktatfrieden could tip the balance in the region and bring Estonia back into a dangerous geopolitical situation in which the country would be a plaything of great powers.
The Estonians are, as the saying goes, a bit slow and indeed, Kaja Kallas, who was born in the former USSR, is leaving a chaos in the country. Now she is ruling in the EU – good luck to her.