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Stocktaking of Nordic-Baltic cooperation: interests, values and learning Prof. Dr. Ramūnas Vilpišauskas Director 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 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? Find us @ www.tspmi.lt facebook.com/TSPMI 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; Find us @ www.tspmi.lt facebook.com/TSPMI 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. Find us @ www.tspmi.lt facebook.com/TSPMI Almost a decade of dynamism of the “Baltic tigers” resulting in fast convergence to the EU average Find us @ www.tspmi.lt facebook.com/TSPMI 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 Find us @ www.tspmi.lt facebook.com/TSPMI Convergence interrupted in 2008 by the global crisis and domestic factors with resulting swings in the key indicators Find us @ www.tspmi.lt facebook.com/TSPMI PPS Rapid fall in GDP 15 10 5 Lithuania Latvia 0 2006 2007 2008 2009 2010 2011 2012 Estonia Denmark -5 Finland Sweden -10 EU-27 -15 -20 Source: European Commission Autumn 2010 Economic Forecasts Find us @ www.tspmi.lt facebook.com/TSPMI Growth of unemployment 25 20 Lithuania 15 Latvia Estonia Denmark 10 Finland Sweden EU-27 5 0 2006 2007 2008 2009 2010 2011 2012 Source: European Commission Autumn 2010 Economic Forecasts Find us @ www.tspmi.vu.lt facebook.com/TSPMI Decrease of inflation 18 16 14 12 Lithuania 10 Latvia 8 Estonia 6 Denmark Finland 4 Sweden EU-27 2 0 2006 2007 2008 2009 2010 2011 2012 -2 -4 Source: European Commission Autumn 2010 Economic Forecasts Find us @ www.tspmi.vu.lt facebook.com/TSPMI 15 Rapid restoration of current account balance (% of GDP) 10 5 0 Lithuania 2006 2007 2008 2009 2010 -5 2011 2012 Latvia Estonia Denmark -10 Finland Sweden -15 EU-27 -20 -25 Source: European Commission Autumn 2010 Economic Forecasts Find us @ www.tspmi.vu.lt facebook.com/TSPMI Source: European Commission Autumn 2010 Economic Forecasts Find us @ www.tspmi.lt facebook.com/TSPMI 90 ... and growing state debts, % of GDP 80 70 60 Lithuania Latvia 50 Estonia 40 Denmark Finland 30 Sweden EU-27 20 10 0 2006 2007 2008 2009 2010 2011 2012 Source: European Commission Autumn 2010 Economic Forecasts Find us @ www.tspmi.lt facebook.com/TSPMI 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. Find us @ www.tspmi.lt facebook.com/TSPMI The Baltics will need structural reforms for a breakthrough to come closer to their Nordic neighbors Find us @ www.tspmi.lt facebook.com/TSPMI Find us @ www.tspmi.lt facebook.com/TSPMI www.tspmi.lt facebook.com/TSPMI Find us @ www.tspmi.lt facebook.com/TSPMI www.tspmi.lt facebook.com/TSPMI Rank Heritage Foundation Economic Freedom Index 2004 2005 2006 2007 2008 2009 2010 2011 0 10 Lithuania 20 Latvia Estonia 30 Denmark Sweden 40 Finland 50 60 Find us @ www.tspmi.lt facebook.com/TSPMI Find us @ www.tspmi.lt facebook.com/TSPMI 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? Find us @ www.tspmi.lt facebook.com/TSPMI 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 “leftovers” 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. Find us @ www.tspmi.lt facebook.com/TSPMI How similar are we? A couple of illustrations from “The Nordic way” Find us @ www.tspmi.lt facebook.com/TSPMI Find us @ www.tspmi.lt facebook.com/TSPMI Find us @ www.tspmi.lt facebook.com/TSPMI Thank You! Find us @ www.tspmi.lt facebook.com/TSPMI Twitter.com/TSPMI