Source: BMI institutions to strengthen in the years ahead as the European Union works to enhance stability mechanisms on the back of the financial crisis in the peripheral eurozone economies of Ire- land, Portugal and Greece. The Stability and Growth Pact will provide macroeconomic guidelines and explicit targets for key sustainability indicators. ...The country s structural political stability was in evidence during the deep recession in ----/----, when the economy contracted by -- in real terms. Despite the sharp rise in unemployment and deep fiscal cuts, there was no significant rise in social un- rest, and the government was able to push through on its policy agenda, achieving entry into the eurozone in January ---- and even winning re-election at polls held in March of the same year. Long-term political risk rating among the Highest in emerging Markets To be sure, BMI s long-term political risk rating (LTPR) reflect the robust qualitative outlook for Estonian stability. ...We stress though, that Estonia s democratic system of governance as well as EU involvement would suggest that such a schism would ultimately be resolved through peaceful negotiation.
...Russia will not intervene militarily in Estonia, but Moscow is likely to use economic threats to increase political pressure on its Baltic neigh- bour. The implied threat to gas supplies and trade throughput alone is sufficient to hurt investor sentiment towards Estonia. ...Tallinn (along with other Baltic ports) plays a key role in the Northern Distribution Network (NDN), the logistics supply chain that transports cargo to and from NATO-led forces in Afghanistan, via Central Asia and Russia. At present we do not believe Moscow will resort to disrupting this supply chain for fear of provoking an escalation of Western sanctions, but we do expect to hear more aggressive rhetoric over the short- to-medium term, which alone could damage investor sentiment towards Estonia. Few implications For Domestic politics Estonia s ethnic Russians, who constitute approximately one quarter of the total population, have traditionally served as a source of social instability. Examples include large-scale riots following the removal of a Soviet memorial statue in ----, as well as ongoing disputes over citizenship rights.
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