The Boom May Be Losing Steam...And The Bear Is Still Angry

With a population of 1.5 million, tiny Estonia is the most prosperous of the former Soviet republics, and it shows. Even during the frigid winter, shoppers crowd into smart boutiques in the narrow alleyways of Tallinn's medieval Old Town to buy expensive Western goods and local crafts. Tourists gaze at the smartly renovated churches, restaurants, and old family houses--largely financed by neighboring Finland and Sweden--that have reinforced this old Hanseatic city's claim to be Prague's rival in the architectural sweepstakes. The renovations have led banks and foreign companies to relocate their offices to the Old Town, often taking over buildings that were formerly homes. "Truth be told, few people can afford to live in the old city anymore," says David Mardiste, an Australian-Estonian who works in the Foreign Affairs Ministry. "Rents have gone sky-high."

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