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Cyberwar in the Baltic

17 May 2007

Cyberwar in the Baltic

By Gwynne Dyer

Estonia is one of the most wired countries in the world — people even vote on-line — but for the past three weeks the country has been under a massive cyber-attack that has disabled the websites of government ministries, political parties, newspapers, banks and private companies. Estonian Prime Minister Andrus Ansip directly accused Russia of being responsible, and appealed to the NATO alliance do something about it. Things are getting seriously foolish in Eastern Europe.

NATO can’t do anything about it, because the treaty does not currently define cyber-attacks as a military act that would allow the victim to invoke the alliance’s provisions for collective defence. Besides, there is no obvious action NATO could take that would stop these attacks, which are being coordinated by Russian hackers who may or may not have been sent into action by the Russian government. And yet another reason for NATO not to get officially involved is that grown-ups have been conspicuously absent on both sides in this quarrel.

It was provocative for Estonia’s right-wing government to remove the Soviet war memorial from the centre of Tallinn on 27 April and re-erect it at a military cemetery on the outskirts of town. The Russians take their 30 million dead in the Second World War very seriously indeed: the Russian parliament immediately deemed the act “blasphemous and barbarous,” and urged President Vladimir Putin to break diplomatic relations with the small Baltic republic. He didn’t do that, but he may have found another way of making the Estonians pay.

This is all about history, and the passions run high on both sides. The Estonians got their independence from the Russian empire in 1918, but lost it again in 1940 as a result of the Nazi-Soviet Pact, in which Stalin got a free hand to invade and annex Estonia, Latvia, Lithuania and eastern Poland and Hitler got the rest of Poland.

The Soviet Communists only murdered about five percent of the Estonian population — “class enemies,” clergymen, Socialists, and other “unreliable” elements — during their occupation, whereas the Nazis eventually slaughtered about twenty percent of Poland’s population. But then the Soviets only had a year and a bit to work with, because Germany invaded the Soviet Union in mid-1941 and liberated Estonia.

At least, it felt like liberation to most Estonians, although for the country’s 5,000 Jews the arrival of the Nazis meant exile or death. When it looked like the Soviet army was winning the war in 1943-44, some Estonians even volunteered for the German army — and most of them were put into SS divisions because that was where most foreigners in the German forces served. But the Soviets did re-conquer Estonia in 1944, and they called that a liberation, too.

For the Estonians, it was the beginning of another 46 years of Soviet occupation, during which tens of thousands of Estonians were sent to the camps and so many Russian immigrants arrived in their little country that it is today almost one-third Russian-speaking. They always saw the huge bronze statue of a Red Army soldier that has now been moved from central Tallin as a symbol of occupation, not liberation. There is a lot of room for bitterness in this history, and plenty of opportunities for really nasty behaviour. Few opportunities have been missed.

Even post-Communist Russians cannot bear to have the Red Army in which most of their fathers or grandfathers served treated as just another invading army, not much better than the German Wehrmacht, but like it or not, that was the experience of many Eastern European countries. Moreover, the half-century of Soviet occupation is a lot more recent than the long-dead Nazi era, so the resentments are a good deal fresher. Now most of these Eastern European countries are in both NATO and the European Union, and they have brought their anti-Russian grudges with them.

This is not going to be solved by sweet reason, but it can be managed and contained if the authorities on both sides don’t exploit it for domestic political purposes.

The Estonian government, which says that at least a million computers worldwide were taken over by Russian hackers in order to launch three waves of cyber-attacks that paralysed Estonian websites, has largely solved the short-term problem by denying access to e-mail from all foreign addresses. Estonian defence minister Jaak Aaviksoo now concedes that “there is not sufficient evidence of a (Russian) governmental role.” It could have been outraged Russian nationalists acting on their own.

It would help if the Russian government could be a little more grown-up about it, too, and stop interfering with transport and trade ties with Estonia. If the Estonians had been more saintly, they would have left the statue where it was and just ignored it, but they didn’t desecrate it or destroy it. They just moved it to a less conspicuous place. It’s time to move on.


To shorten to 725 words, omit paragraph 2. (“NATO…quarrel”)

Angie and the Flat Tax

2 September 2005

Angie and the Flat Tax

By Gwynne Dyer

No political campaign in the West is now complete without a signature rock song to capture the baby-boomer demographic. If Margaret Thatcher were running for office in Britain today, they’d be playing Rod

Stewart’s “Maggie May” at every rally. Never mind that the actual words are a bit of a problem: “The morning sun when it’s in your face really shows your age…Maggie, I wish I’d never seen your face.” Never mind, either, that nobody ever dared call Margaret Thatcher “Maggie” in her whole life.

Nobody has ever dared call Angela Merkel “Angie” to her face either, but they’re playing the old Rolling Stones song of that name at every rally as the leader of Germany’s Christian Democrat Union (CDU) cruises smoothly towards victory in the national election on 18 September.

There is, again, a certain difficulty with the lyrics — “All the dreams we held so close seemed to all go up in smoke…You can’t say we’re satisfied” — but most of the words get lost in the distortion from the amps, and they had to do SOMETHING about the woman’s image.

The 50-year-old “Ossi” (former East German) who is almost certain to become Germany’s first woman leader denies any aspirations to be another Margaret Thatcher — “She was a chemist, I am a physicist” — and her earnest, almost dour manner makes even Thatcher seem in retrospect like the life of the party. But many suspect that Angela Merkel intends a revolution of Thatcherite proportions.

She certainly isn’t saying that, because her election victory depends upon not being too specific about her plans. The German electorate is fed up with a decade of economic stagnation and high unemployment, and equally fed up with the Social Democrats (SPD), who have been in power for the past seven years without managing to fix the economy. But they don’t want any pain or disruption in their lives.

Almost everybody agrees in principle that “reform” is needed to get the German economy moving again: less rigidity in the labour market, a simpler tax system, and less generous pensions, unemployment pay and other social welfare spending. They agree, that is, until somebody suggests changes that would hit their own interests — and then they resist with fury.

Chancellor Gerhard Schroeder has been treated as a class traitor for his “Agenda 2000” reform programme that tried to revive the German economy by freezing pensions, cutting social spending and making it easier to hire and fire employees. His own party’s left wing broke away and merged with the former East German Communists as the Party of the Left, opposed to all the reforms. Other SPD voters have turned in despair to Merkel’s conservatives — but they still don’t want any pain, so Merkel must not mention any painful economic measures she may have in mind.

The only specific promise Merkel has made is to raise the value-added (sales) tax from 16 to 18 percent, which will no doubt help to balance the budget but won’t do anything to simulate the economy. As long as she doesn’t get into her real plans, she is almost bound to win — but what are her real plans for the world’s third-largest economy?

The most intriguing clue was Merkel’s recent choice of Paul Kirchhof, famous for his advocacy of a “flat tax”, as shadow finance minister. Of course, she then denied that she was planning to bring in a flat tax, but it did feel like a hint to the insiders about what is coming.

The flat tax was pioneered by the Estonians in 1994. Instead of the usual complicated system with graduated rates of personal tax for different income levels, different rates of corporate tax, and hundreds of exemptions and deductions, Estonia simply imposed a flat tax of 26 percent on all personal and corporate income.

No tax is paid on the first few thousand dollars of personal income, in order to keep the really poor people out of the tax net, but that’s it. No big tax-collection bureaucracies, no tax lawyers and tax shelters, and even the very rich have to pay. Generally people and companies DO pay, too, because it’s easy, it keeps you out of trouble, and you have a lot left. Since Estonia brought in the flat tax, its economy has grown at 6 percent a year.

The collapse of the old Communist systems left Eastern European countries with a clean slate, so Latvia and Lithuania followed Estonia almost at once. The trend really took off in 2001, when Russia switched to a flat tax of 13 percent on personal income and a rather higher flat rate (24 percent last year) on corporate profits.

Moscow’s tax revenues rose by a quarter in the first year of the flat tax, and in the past two years Ukraine, Serbia, Slovakia, Georgia and Romania have all shifted to flat taxes as well. In March, Poland announced that it would introduce a flat tax of 18 percent by 2008 — and now, perhaps, the revolution is about to arrive in the first big, fully developed economy: Germany.

It’s the obvious place to start, because Germany’s decade of economic stagnation is due largely to the cost of absorbing 17 million former East Germans. And who would be more likely to adopt these radical

Eastern European ideas than Angela Merkel, who comes from the formerly Communist part of the country? It promises to be an interesting four years in Germany.


To shorten to 725 words, omit paragraphs 5 and 6. (“Almost…mind”)