Stocktaking of Nordic-Baltic cooperation: interests, values and learning

Stocktaking of Nordic-Baltic cooperation: interests, values and learning

Prof. Dr. Ramūnas VilpišauskasDirector of the Institute of International Relations and Political Science , Vilnius University

Presentation for the conference “Lithuanian-Nordic cooperation: Life-long Learning Experience and Common Values”, Vilnius, February 23, 2011

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The outline:

• The main arguments;• Key economic indicators and trends;• The political economy of crisis management; • Baltic States’ rankings in the regional context;• What future for the Nordic-Baltic cooperation?


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The main arguments (I):

• The Nordic countries has been consistently supporting the Baltic States’ political and economic re-integration into Europe’ and transatlantic institutions since 1990s; • During the last decade the Baltic sea region become increasingly integrated economically with trade and investment flows (labor moving to Nordic and capital moving to the Baltic countries);• The financial crisis exposed high interdependencies among Nordic and Baltic States’ economies;


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The main arguments (II):

• The Baltic States have been the fastest growing region in Europe for the past decade – an outcome of transition reforms and European integration, with this trend interrupted in 2008-2009;• The Nordic countries have been consistently leading in Europe (and the world) in terms of competitiveness and other economic and social indicators;• This neighborhood and level of integration provides opportunities for the Baltic States to learn from the Nordic countries and to come out from the crisis by becoming more competitive, fiscally sound and flexible economies.


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Almost a decade of dynamism of the “Baltic tigers” resulting in fast

convergence to the EU average


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Strong convergence since 2000 till 2008:Relative GDP per capita in PPS in 1997-2009

1997 2000 2004 2008 2009

EU-27 100 100 100 100 100

EU-15 115 115 113 111 110

Estonia 42 45 57 68 64

Latvia 35 37 46 56 52

Lithuania 39 39 50 61 55

Denmark 133 132 126 120 121

Finland 110 117 116 117 113

Sweden 124 128 126 122 118

Source: Eurostat


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Convergence interrupted in 2008 by the global crisis and domestic

factors with resulting swings in the key indicators


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-20

-15

-10

-5

0

5

10

15

2006 2007 2008 2009 2010 2011 2012

PPS Rapid fall in GDP

Lithuania

Latvia

Estonia

Denmark

Finland

Sweden

EU-27

Source: European Commission Autumn 2010 Economic Forecasts

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0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012

Growth of unemployment

Lithuania

Latvia

Estonia

Denmark

Finland

Sweden

EU-27



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-4

-2

0

2

4

6

8

10

12

14

16

18

2006 2007 2008 2009 2010 2011 2012

Decrease of inflation

Lithuania

Latvia

Estonia

Denmark

Finland

Sweden

EU-27



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-25

-20

-15

-10

-5

0

5

10

15

2006 2007 2008 2009 2010 2011 2012

Rapid restoration of current account balance (% of GDP)

Lithuania

Latvia

Estonia

Denmark

Finland

Sweden

EU-27



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0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009 2010 2011 2012

... and growing state debts, % of GDP

Lithuania

Latvia

Estonia

Denmark

Finland

Sweden

EU-27



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The political economy of crisis management:

• The Baltic States responded to economic crisis in similar ways through internal adjustment of prices and wages, though influenced by domestic politics (elections);• The outcomes of the adjustment were dependent on previous policies with Estonia being in the best fiscal situation allowing it to join the euro zone in 2011, • The Nordic countries used somewhat different policies (only Finland being in the euro zone), although all of them maintained competitiveness and relatively good fiscal situation.


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The Baltics will need structural reforms for a breakthrough to come

closer to their Nordic neighbors


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0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010 2011Ran

k Heritage Foundation Economic Freedom Index

Lithuania

Latvia

Estonia

Denmark

Sweden

Finland


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The political economy of structural reforms:Easier said then done

• The Lithuanian Government has started it’s work with a slogan of “change” and the stress on crisis as an opportunity for structural reforms; • However, the crisis did not lead to planned structural reforms in Lithuania (yet), with the only exception being high education where the presence of reformers with a prepared reform program and external support (WB/IMF advice, EU resources) resulted in reform of financing and management; • The Government initiated the Sunset process for administrative reform and Sunrise for business environment, set up the Progress Council on the long-term reforms (Lithuania 2030);• Will recovering economy and approaching elections (municipal in 2011 and parliamentary in 2012) reduce the appetite for further reforms?


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Rediscovery of the Nordic – Baltic cooperation?:

• Overcoming infrastructural isolation in the EU market through Nordic – Baltic integration:

• Baltic energy market interconnection (BEMIP);• Upgrading transport infrastructure;

• Return to economic convergence, especially after completing “left-overs” agenda (Schengen, euro zone) and the Single market (services), EU Baltic Sea region strategy (?); • Attempts of policy transfer from Nordic to Baltic States (for example, reform of managing state assets);• Possibilities for socialization and convergence of values.


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How similar are we? A couple of illustrations from “The Nordic way”


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Thank You!

Stocktaking of Nordic-Baltic cooperation: interests, values and learning

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