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Why Estonia may be Europe's model country

The world's first cyberstate embraced austerity without whining even though its Soviet-era memories are still fresh.

By Isabelle de PommereauCorrespondent / May 18, 2011

In the medieval center of Tallinn, Estonia’s capital, you can stare at ancient steeples and castles while surfing the Internet – free of charge. ‘Area of Wireless Connection’ signs have multiplied: from one in 2001, to 1,600 now.

Isabelle de Pommereau

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Tallinn, Estonia

An 82-foot-high billboard wrapping Estonia's finance ministry building in its capital, Tallinn, boasts: "The euro, my money." It stands just blocks from the city's cobbled, winding medieval streets and baroque churches, in a downtown where skyscrapers have replaced Russian bunkers, as a symbol of Estonia's transformation from poor Soviet republic to the European Union's rising star.

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When Estonia was accepted into the eurozone in January, seven years after joining the EU and two decades after the fall of the Soviet Union, it was another big step for the small Baltic nation away from its imposing neighbor to the east, Russia.

Over the next five years, it's expected to have Europe's fastest-growing economy. It emerged from the global financial crisis wounded, but has rebounded after adopting austere measures few other countries would accept. It's given the world Skype and the only national volunteer cyberarmy, and is adding to the EU a rare sense of determination at a time when pessimism about the euro prevails – a consequence of the debt crises that have hit Greece, Ireland, and Portugal and the bailout plans that followed. Indeed, Estonia, which is still the eurozone's poorest country, has emerged as the darling of its beleaguered union. [Editor's note: The original version incorrectly stated that Estonia is the poorest European country. It is the poorest eurozone country.]

"We are very poor but very optimistic," says Jürgen Ligi, Estonia's earnest finance minister, sitting in a sparse office under a portrait of Estonian President Toomas Hendrik Ilves. Mr. Ligi, a dedicated triathlete, brings a rigid sense of discipline to his office. In many ways, he's been the chief overseer of Estonia's aggressive capitalism – flat tax rates and no corporate income tax on reinvested profits. That's been paired with cost-slashing austerity: pension cuts, reductions in benefits for civil servants, shortened maternity leaves, and even streetlights that don't stay on as long.

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