They're ready for their close-up in the capital of Estonia

The last time a Baltic state was put in the spotlight as European Capital of Culture, it wasn't exactly a roaring success. That's why Tallinn is determined to get it right

Being Capital of Culture can be a curse. The first former Soviet Republic to take it on, Lithuania, had a bit of a shocker.

The culture fest in Vilnius in 2009 imploded amid slashed budgets, political infighting, and a shredded programme. A few degrees to the north, Estonians looked on in horror, having already won the coveted status for 2011. Too late to back out now.

Come midnight on New Year's Eve, Tallinn becomes the European Capital of Culture 2011 and they have something to prove. "What happened in Lithuania was disgraceful," says Jaanus Mutli, head of the Tallinn 2011 Foundation. "We can do a lot better than that."

Really? Tallinn's 2011 spend has also taken a hit in these boracic times. Word is, the overall budget is reduced to a third of the original promise. The municipal government and the national government have fallen out over who pays for what, the original CEO of the 2011 Foundation resigned in April after a public outcry over his salary (said to exceed the president's) and the number of events has crashed from 250 to 100. Observers could be forgiven for sensing a Baltic balls-up.

Possibly against the odds then, I am going to stick my neck out and predict that Tallinn's year in the cultural spotlight of Europe will be a success. And quite possibly a triumph. Capital of Culture is the biggest thing to hit this country of 1.4 million since independence in 1991. The event, whisper it, even trumps Eurovision – which the Estonians won in 2001 and duly hosted in 2002.

"We have to seize this opportunity," says Triin Männik of the 2011 Foundation. "We have to make this work – we won't get another chance to do it. It's really special."

So, the country has been practising. The year of culture has morphed into three years. Institutions have been planning and building up to the great year of showing off. Tallinn Music Week, for example, a showcase for the diverse musical traditions and talents of the city, has been put through its paces twice already. It will be in its third year when it kicks off in earnest on 24 March next year.

Past line-ups at the Music Week have been wildly eclectic – featuring folk, jazz, dance, heavy metal and contemporary classical. Setting aside musical considerations, acts such as Popidiot, Fuck Yuo [sic] I am a Robot, and Chungin & The Strap On Faggots suggest an Esto talent for eye-catching and ear-bending names.

For a small country, Estonia packs a big musical punch, which is no surprise, given that it chose to defy the Russians in the run up to independence with what has come to be known as the "Singing Revolution." This took place at Lauluvaljak (the Song Festival Ground), a vast outdoor amphitheatre where hundreds of thousands of protesters gathered to sing the banned national anthem in the face of their armed oppressors in 1988. Ironically, the giant shell-shaped stage was built during Soviet times in 1959 but it is now a shrine to nationhood.

The Rolling Stones, Michael Jackson, and Madonna have all played the venue. Its primary purpose, however, remains to host the Song Festival. Founded in 1869, and held every five years, this is no small undertaking, with choirs numbering more than 30,000 singers and audiences topping 100,000. The next one is due in 2012, which is inconvenient for the Capital of Culture.

"We've shifted it by a year," says Männik. "Moving one of the traditions of the country is a big thing. The choirs usually rehearse for a year before the festival. One hundred thousand people are involved and we had to bring what they are doing forward by a year."

Not everything is on such a huge scale. The same weekend in July will see many objects around the city wrapped in knitting. They call it knitting graffiti. "It's a really fun project because it has 14-year-old girls knitting with their grandmothers," explains Männik.

Much of the planning for next year is about creating a festival from the ground up. Culture is being defined in the broadest sense – even snowmen are culture. There will be a competition, weather permitting, for the best snowman in Estonia. In keeping with Nordic traditions of celebrating ice and fire, there will also be the first World Championship of Fire Sculpture in January.

Tallinn residents will be encouraged to dump their Christmas trees at designated points on 6 January, a national holiday, so that they can be used as raw material. Fire artists from across the world, including South Korea, Norway, France, Mexico and the US, are expected at the big burn. The final will be held on 22 January in a park under the picturesque medieval walls of the Old Town and it should be one of the early hits of the programme.

Organisers will be hoping that amateur fire-starters will not be inspired to bring matches to the Straw Theatre, a landmark project that opens for business in May. It will be erected on one of the defensive mounds just outside the Old Town fortifications. "It's a big building – 40m by 22m with ceilings seven to eight metres – some of it will be two storeys high," says Tiit Ojasoo, who is managing the project. It is called the Straw Theatre because it will be made of straw, and it will only exist for the summer of 2011.

Ojasoo is the artistic director of Tallinn's Theatre No99, so named because it, too, is designed to be ephemeral – the company will exist for precisely 99 productions. I catch him in rehearsal for production No73, a version of Michael Frayn's Noises Off. Despite the frantic physical comedy, the plot in its Estonian translation remains opaque to me.

For 2011 they are working on an international co-production with the Lyric Hammersmith in London and a German company, in which the multinational cast will all speak in their native tongues. "It's a bizarre detective story," Ojasoo says, "that starts in London, then goes to Hamburg, and then to Tallinn. The detective is from London, the victim is from Tallinn." Like the story, the production will also move around Europe ending up in London in 2012.

Theatre No99 has a talent for thinking outside the box. In May this year, they staged a Nuremberg-style political rally in the 7,000-capacity Saku Hall (where the Eurovision Song Contest was held in 2002) for a new party called "Unified Estonia". The event was a sell-out and those attending were left to guess where to draw the line between politics and theatre. For a small company of just 10 actors, it was an audacious coup.

Ojasoo wants the Straw Theatre to be much more than a theatre. Installations, concerts and other performances are planned around the structure. "All the old towns in Europe have become tourist traps," he says, "where you're no more than a walking wallet. I really hope the Straw Theatre will be a place where you can simply be."

Later, I find myself in just such a meditative space at Kumu, the Art Museum of Estonia, immersed in a video installation by Ene-Liis Semper. In the hall of mirrors of Tallinn's cultural scene, the same names often come around with hypnotic frequency. Semper is Ojasoo's partner, both as artistic co-director of No99 and in life. She is also one of Estonia's best known contemporary artists, and has a major exhibition lined up for 2011 at Kumu.

Semper's 3min 57sec video piece is called Door – in which nothing, and everything, happens. A wedge of light falls from a door that is slightly ajar. The music, a high-pitched drone, is tense. There is surely a nod to Hitchcock's Psycho. Behind the door a figure moves and is only discernible by the shadows it creates, before it is partially revealed. The music becomes more intense. The figure does not enter, and eventually the door shuts slowly – leaving the viewer in the dark.

The museum itself is a bold statement of intent. Designed by Finnish architect Pekka Vapaavuori, it rides out from the earthworks at the edge of Kadriorg Park like a green copper-clad battleship. Inside, it has 5,000 square metres of exhibition space as well as an auditorium, a public library and an education centre. It won the gong of European Museum of the Year in 2008. Kumu is impressive, ambitious and must have cost an arm and a leg – it opened when the good times were still rolling in 2006 and Estonia was being hailed as a Baltic tiger economy.

No matter that the economy has gone to hell, Tallinn has an arts hub fit for purpose in 2011. The museum has a wonderfully broad programme for the year. One of the most intriguing is an exhibition called "Gate(way)s", due to open in May. Appropriately for a country that developed Skype, the exhibition will look at how new digital networks impact on our lives.

"We are often called the e-country in Europe," says Marika Pärn from Kumu. "You can do anything with your electronic ID card here – even vote. This exhibition deals with our life online. Everything you can do there, everything you can find."

Visitors will be able to interact with the exhibition using their ID cards to bring up their personal electronic footprint. She expects them to be shocked, "You don't realise how much of yourself is actually online – and is accessible to everyone publicly."

While planning some of the big ticket events for 2011, Pärn has been impressed by how the city has already geared-up in many small ways for the year of culture. She picks out "52 Surprises" – a series of projects the public was invited to dream up throughout this year in the run up to 2011.

The "Surprise" turned out to be huge public enthusiasm for participation. The mini cultural projects included a musical ensemble playing classical music by blowing across bottle tops, professional photographers offering free portraits to the residents of Tallinn as a gift, parents and children making dolls' houses together, and bespoke symphonies created in a tent by transposing people's names into notes on a computer.

"This is happening right now," says Pärn, "so, if the Capital of Culture will be anything like that next year, I say bring it on."

Compact Facts

How to get there

Sankha Guha travelled to Tallinn with FinnAir (00 358 600 140 140; finnair.com), which offers return fares from £374. He stayed at the new luxury hotel, Swissotel, booked through LateRooms.com (0844 774 1001; laterooms.com), which offers discounted rates of £121, reduced from £250, for a luxury double room.