The Baltic States in the European Union
Summary and Keywords
Integration with the European Union has been far less distressing for the three Baltic States than for numerous other accessing countries owing to their strong societal impetus to (re)join Western political, economic, and legal culture after they regained their independence from the Soviet Union in 1990. However, the accession of these states—Estonia, Latvia, and Lithuania—had several distinctive features related to constitutional background and settings, which heavily influenced problem solving between government and the EU institutions.
In general, the controversial issues regarding how to solve the problems with supranational power have never been dramatic with regard to the Baltic States, which leads to the assumption that often the governments have taken rather compliant positions. The latest cases, such as the European Stabilization Mechanism, indicate the change in paradigm: the three Baltic States are more aware of the margin of appreciation and actual borderlines between policy making- and decision making.
Today, in setting up an EU-related agenda, more skills than previously are needed in finding allies and choosing partners. The road the Baltic States took in joining the EU was a difficult one, nor has their role in the EU been easy. Should a small state with a big initiative be allowed to mentor other member states regarding that initiative, meaning in particular Estonia and its digital development?
Another peculiar aspect of the Baltic States is their (inter)relationship with Russia. Considering themselves a bridge between East and West, the Baltics have been active in Eastern Partnership and Development Aid initiatives and have also spoken out strongly against intervention in Georgia and Ukraine. This position sometimes complicates any EU attempt to achieve consensus on foreign policy.
The Road Leading to the Accession
The Baltic States joined the EU on May 1, 2004. Their accession was far less challenging than that of the other Central and Eastern European countries (CEECs) because the Baltic States, strongly motivated to rejoin the Western world, agreed to make severe concessions. However, the overall problems connected with the accession of the CEECs involved the Baltic States as well since the accessions were one of the biggest tasks the EU had ever confronted. There were several applicant states; the applicant states were economies in transition; the gross domestic product (GDP) per resident was well below the EU’s average; and the applicant states’ structures of democracy were only developing. In addition, the constant development and changes of the EU presented their own problems in the accession process. Not only had the Economic and Monetary Union (EMU) proceeded to its third and last phase, but also the changes in the Union’s internal structures and institutions made the accession ever more challenging (Pautola-Mol, 2002, pp. 220–221).
An Overview of the Pre-Accession Strategies and the Main Problems With Accession
As the Soviet Union began disintegrating in the late 1980s, the Baltic States proceeded to reassert their independence. Estonia adopted its Declaration of Sovereignty on November 16, 1988, which included a reverse supremacy clause that set it into a direct constitutional confrontation with the Soviet Union (Frankowski & Stephan, 1995, p. 84). Because of the change in atmosphere, the Supreme Council of the Lithuanian Soviet Republic proclaimed the restoration of the prewar Republic of Lithuania on May 11, 1990. Not long after Lithuania’s Declaration, the Estonian Supreme Soviet declared the takeover of 1940 to be illegal, and it began the transition leading to restoration of the independent Republic of Estonia. Lastly, the Latvian Supreme Soviet declared that it had set in motion a process “to re-establish the authority of the Constitution of the Republic of Latvia, adopted by the Constituent Assembly on 15 February 1922” (Elsuwege, 2008, p. 49). As a result, diplomatic relations between the Baltic States and the EU were made possible.
The restoration of the Baltic States’ independence was approved and instantly supported by the EC member states and the Commission. As a consequence, numerous different legal initiatives were launched to bring the Baltic States closer to the EC (Clyde, 2009, p. 17). In December 1991, the Baltic States joined the Poland and Hungary Assistance for the Restructuring of the Economy (PHARE) aid program whose initiative was to “direct EC technical assistance and aid to the emerging market economies of Eastern Europe” (http://europa.eu/rapid/press-release_IP-92-742_en.htm). In May 1992, the EC and the Baltic States signed an Agreement on Trade and Economic Cooperation, one goal of which was the signing of an Association Agreement (Clyde, 2009, p. 17). Furthermore, the Baltic States were granted status on the General System of Preferences (GSP) in 1992 (Kaminski, Wang, & Winter, 1996, p. 31). These developments represented the change that would start the Baltic States’ transition into the EC.
On October 25, 1994, the Commission agreed on a communication stating that the EU “recognizes the need to develop relations with the Baltic region.” In addition, the Commission initialized a policy paper encouraging deeper ties with the Baltic States. The representatives of the Baltic States warmly welcomed these agreements as each state sought to join the EC in an effort to enhance their political situation. The negotiations that followed the communication and the policy paper resulted in the drafting of the Europe Agreements with Estonia, Latvia, and Lithuania on April 12, 1995 (Elson, 1997, pp. 326–327; Pautola, 1996, p. 23).
Notably, Estonia was the only CEEC with a Europe Agreement that did not include a transition period. Estonia did not undergo a transition because of its swift and extreme economic reforms. Among its reforms were the removal of free movement of capital, its bilateral agreements for the protection and promotion of investments with the majority of the EU member states, and its passage of several national acts based on EU legislation. In addition, Estonia’s customs tariffs (which was the main reason for a transition period for many states) did not have to be reduced because with its liberal trade procedures import duties on industrial or agricultural products were not needed (Palli, 2009, p. 31). Not long after the Europe Agreements, in 1995, all three Baltic States officially applied for EU membership: Latvia in October, Estonia in November, and Lithuania in December (Pautola, 1996, p. 23).
The accession of the Baltic States is legally based on Article 49 of the Treaty on European Union (TEU, ex Article O), which states that the accession treaties need to be ratified solely by the existing member states with their respective constitutional requirements (Elsuwege, 2008, pp. 199–200). Hence, the acceptance of new members is in the hands of the member states and not the EU itself. As newborn democracies, the economic, political, and social aspects of the Baltic States were not at the same level as those of the EU member states. Therefore, the Baltic States had limited recent experience with the market economy and democratic processes. In the 1993 Copenhagen Summit, the European Council agreed that the CEECs could become members of the EU if they so desired. However, to become members, they had to satisfy three basic criteria: (1) their institutions had to be stable, which means that the institutions supported the rule of law, human rights, and the protection of minorities; (2) they had to have a functioning market economy sufficiently developed to be competitive with the EU’s market forces; and (3) they had to be able “to take on obligations of membership as to support the aims of political, economic and monetary union.” Somewhat surprisingly, a fourth precondition was added later: upon accepting the new member states, the EU had to demonstrate its capacity to handle new member states without negatively impacting the European integration process (Pautola, 1996, p. 23). These criteria created and clarified the basis of the pre-accession strategy, which would be officially established in the Essen Summit 1994. In addition, the criteria reflected the strong role of the member states in the accession process.
After the 1993 Copenhagen Summit, the European Council suggested holding a multilateral dialogue alongside the bilateral Europe Agreements. Hence, the Structural Dialogue was established and transformed into an instrument of the EU’s pre-accession strategy in the 1994 Essen European Council. The purpose of the Structural Dialogue was to create a platform for the Council and the CEECs to discuss issues of common interest in all three pillars. However, even though the Structural Dialogue was created to enhance the effectiveness of the accession procedure, several problems could be identified. The meetings that followed lacked a fitting and mutual preparation, there were dire time constraints, and the meetings did not have the atmosphere proper to dialogue. Therefore, the ministerial meetings were fragmented and uncoordinated (Elsuwege, 2008, pp. 203–204). The Baltic States’ relatively weak political situation and urgent desire to join the EC, as reflected in the Structural Dialogue, did not have a really decisive role.
The 1994 Essen European Council presented several other conditions for pre-accession strategies. First, the conditions set for integration with the internal market as set in the Copenhagen Summit were furthered by stating its goals: to improve access to the Community’s textile market and the rules of origin; to change the EU’s commercial and defense instruments; and to help the CEECs implement the community competition, state aid, and acquis communautaire policies relating to the internal market. Second, the financial support (through the PHARE assistance program) was redirected to help the CEECs’ accession process. Third, the Essen European Council encouraged the associated states to expand their bilateral trade relationship with the Union to their relations with each other. Lithuania and Latvia showed great interest in establishing extensive cooperation between the Baltic States, whereas Estonia clearly preferred cooperating with the Scandinavian states, especially Finland (Elsuwege, 2008, pp. 225–230).
As can be seen, the pre-accession strategies largely involved reshaping the general problems of the associated states in political, legal, and economic areas.
Accession Procedures and the Expectations of People and Politicians
Even though the Baltic States had a strong desire to join the EU, their accession was more uncertain than that of the other CEECs because they were the poorest and least known applicants. More importantly, they were considered part of the former Soviet Union, and as such their borders remained tensed because of their close proximity to the former Soviet Union. And lastly, the issue with Russian-speaking minorities in Estonia and Latvia created fears of upsetting Russia. Therefore, the Baltic States were the most likely states to be left out of the accession. Yet, because of their relentless efforts to fulfill the pre-accession requirements, the Baltic States were able to meet their goal of becoming EU member states (Kasekamp, 2013, p. 20; Sillaste-Elling, 2009, p. 24). Some observers maintain that the aforementioned uncertainties resulted from the Baltic States’ uneasy relationship with Russia. But their rocky relationship cannot be entirely attributed to the closeness of their borders inasmuch as Finland has a completely different relationship with Russia. Hence, one may well conclude that historical developments and past issues were to blame for the poor relations between the Baltic States and the Soviet Union.
After the Baltic States regained their sovereignty, none of the three states had an army, ministry of defense, diplomatic corps, national currency, central bank, border guards, customs officials, or any other government machinery. Understandably then, the Baltic States were eager to join the EU and receive Western help in their efforts to redevelop their states. In the absence of previous standards, adapting to the EU system was feasible without encountering major difficulties. Thus, despite the political problems the Baltic States posed for the EU, accession negotiations proceeded without any great obstacle. All the same, certain issues arose to hinder negotiations; notably, decommissioning the Lithuanian Ignalina nuclear power plant; granting the CEECs and the Baltic States exemptions in adopting costly environmental protection and phytosanitary standards; and reconditioning the justice and prison systems. Another huge concern was the Baltic States’ administrative capacity since all three states were small and young. In addition, Estonia had to institute customs and tariffs (Kasekamp, 2013, pp. 20–21). And there were even bigger issues, which were to be fought on the political front.
The problem with the Russian-speaking minority was clearly the most difficult political aspect of negotiations. What was to be done with the Russian-speaking minorities in the newly sovereign Estonia and Latvia? Because the Baltic States were legally recognized as reinstated states and not the successor to the Soviet Union, citizenship was not granted automatically to all the residents, but rather had to be applied for. The basic competence of the state language was the key criterion for granting citizenship, as the Baltics took an ethnocentric approach to language policies immediately after gaining independence. The Republics had fresh memories of Soviet policies on bilingualism, with Estonia giving constitutional protection to the Estonian language by amending the state constitution in 2007. Therefore, many of the Russian-speaking minorities opted for Russian citizenship or remained stateless. To ease the situation with the Russian-speaking minorities, the Organization for Security and Cooperation in Europe (OSCE) was placed in Tallinn and Riga in 1993 to oversee the treatment of the Russian-speaking minority. OSCE’s missions were concluded in 2001 when most of its recommendations had been implemented (Kasekamp, 2013, p. 21). Even though the Soviet Union dissolved over twenty years ago, the Russian-speaking minority remains a sensitive issue today (e.g., Ukraine continues to suffer unrest).
Lithuania did not have a large Russian-speaking minority and so did not suffer from Estonia and Latvia’s problems in this regard. Thus, Lithuania granted citizenship to all its residents. Lithuania’s biggest concern was the situation of Russia’s exclave, Kaliningrad, which was and still is the most highly militarized region in Europe. The Kaliningrad issue reached a crossroads in 2002 when Russian president Vladimir Putin insisted that Kaliningrad citizens be able to travel freely across Lithuania to Russia. However, the EU did not give its permission to make such exceptions to the future Schengen area. An agreement was reached in November 2002 when the EU began to issue the Kaliningraders facilitated transfer documents in place of visas for travel across Lithuania (Kasekamp, 2013, p. 21; Paulauskas, 2006, p. 16). The issue of Kaliningrad has not been fully resolved, however, and tensions between Lithuania and Russia remain high.
On December 13, 2002, the Baltic States concluded their accession negotiations with several other CEECs. The end of the accession negotiations reflected the successful integration of the Baltic States into the EU (Vilpišauskas, 2003, p. 1). The accession process was received somewhat differently in each State, and the reception varied throughout the process. Not long after Estonia regained its independence, a poll revealed that over 90 percent of interviewed Estonians wanted Estonia to join the EU. However, at the beginning of 2001, the polls showed that the majority of Estonians now opposed accession, with support falling to only 35 percent, while those opposed had risen to over 50 percent. Yet, later that same year, supporters once again exceeded 50 percent, and the suspense lasted until the very end of the referendum on EU accession. The referendum was held in September 2003, with 67 percent of voters supporting accession (Palk, 2009, p. 162).
These extreme mood swings can be explained by Estonia’s uneasy situation. In the early 1990s, Estonia was desperate to redevelop and saw the EU as an extremely attractive welfare society that Estonia had been forcefully separated from owing to the Soviet occupation. However, in the early 2000s, the Estonians discovered that the EU had its own problems, though the possible negative consequences of accession were greatly overstated. The Estonians’ greatest fear was a possible price increase that might follow accession. In 2001, Estonia’s largest daily newspaper, Postimees, published an article claiming that membership in the EU would result in the doubling or tripling of most food prices. But this claim turned out to be true only of sugar and bananas. Estonia did not have customs duties at the time, and EU accession meant that the upcoming customs duties would double sugar and banana prices. However, no other significant increases in food prices were related to EU membership.
One of the other negative aspects of the accession was loss of sovereignty. More detailed negative expectations related to strict hygiene requirements that would stifle the small shops and cafes. Even though the media greatly exaggerated most of the negative results of membership, all the politicians, government officials, and scientists favored accession throughout the process. Despite the possible adverse effects, most Estonians believed accession would have a positive impact on their personal well-being, which was the most significant issue at stake. Estonia currently has one of the highest levels of support among member states because, unlike most other member states, Estonia’s expectations were overly negative (Palk, 2009, p. 162). As a result, Estonia did not experience the disappointment that many other states felt.
Latvia’s referendum to join the EU was held on September 20, 2003. Almost 67 percent of the voters voted in favor of EU membership. The Russian-speaking minority views on possible accession was a particularly interesting part of the process. In the early 1990s, the polls showed that the Russian-speaking minority had a more positive attitude toward the EU than did the Latvians: 64 percent of the Russian-speaking population and 58 percent of the Latvians were in favor. After 1998, support for accession fell in both ethnic groups: in 2001, the figure had dropped to approximately 50 percent for both groups. However, in 2002 the Latvians began to favor joining the EU more heavily as the Russian-speaking minority’s support for accession continued to decline. This pattern was reflected in the referendum in 2003: 57 percent of ethnic Latvians voted in favor, 18 percent against, and 24 percent did not vote. As for the Russian-speaking minority, 44 percent voted against, 20 percent in favor, and 36 percent did not vote (Šupule, 2004, pp. 59–60).
The voting pattern of the Russian-speaking minority can be explained by economic considerations, fear of losing direct and symbolic ties to Russia, and a protest against Latvia’s ethnic policies. Conversely, the same reasons can explain the Latvians’ support, but the results were the opposite. The pre-referendum campaign in Latvia motivated Latvians to vote in favor of the EU, whereas the campaign had negative implications for the Russian-speakers: the campaign slogan “Choosing the right side (the EU) and not the wrong side (Russia, Belarus, etc.)” created negative images of Russians. Moreover, the Latvians believed that the EU would enhance their security, a belief that the Russian speakers did not share. In addition, Russian speakers were dissatisfied with Latvia’s citizenship, language, and education policies as well as the EU’s upcoming control over the country’s legislative process. Furthermore, the Russian speakers’ feeling of “not belonging in Latvia” was reflected in their views of the EU. However, both Latvians and Russian speakers believed that EU membership would lead to the country’s economic development. All the same, the Russian speakers felt alienated from both Latvia and the EU, and so they mostly voted against the EU (Šupule, 2004, pp. 63–67). At the present time, the majority of the Latvian population still harbors negative feelings about EU membership. Specifically, they fear price hikes and the possibility of having to help fund the bailout of wealthier Euro area members (Kasekamp, 2013, p. 28).
Lithuania’s referendum on EU accession was held on May 10–11, 2003, with 57 percent of all eligible voters taking a stand, over 91 percent of whom voted in favor of accession. EU accession won the strong support of the major political groups and the citizenry throughout the process, but the Lithuanian Law on Referendums required that over 50 percent of eligible voters should take part in the referendum in order to make it valid (Mažylis & Unikaite, 2004, p. 1). Therefore, Lithuania’s accession differed from Estonia’s and Latvia’s because for all practical purposes it was tied to the requirement of 50 percent voter participation rather than the people’s yes vote.
The Baltic States’ accession to the EU was elite-driven, and overall, there was a gap between the opinion of the elites and the general population. Lithuania was one of the first CEECs to hold a referendum because it was somewhat clear that the people would vote positively. However, Estonia and Latvia tactically postponed their referendums because they wanted to use the positive reception of the other candidate countries to their advantage in order to achieve a positive result. Even though all three Baltic States became EU member states on May 1, 2004, it is important to remember that the Baltic States had strong societal reasons to join NATO as well because the EU did not have an adequate security force at the time. Joining NATO would increase the Baltic States’ security since the EU acted as virtually a single market. However, whereas accession to the EU was more like an eventuality, NATO membership was more uncertain because Russia and many Western leaders opposed accession (Kasekamp, 2013, pp. 22–23).
The European Union left it to the accessing countries to determine how and when to change or modernize the constitutional law. The European Commission never criticized the content or implementation of the Baltic States’ constitutions and instead adhered to the Copenhagen Criteria, which emphasized avoiding the political aspects of the process and upholding the superiority of rule of law.
At the same time, experts within the Baltic States have not always been pro-European in light of constitutional legal requirements and principles. For example, before Estonia joined the EU, the Estonian commission on legal expertise of constitution found that Estonia cannot access the EU (Varul, 1996). The constitutional disputes were still solved emphasizing the prevalence of “basic principles” of the constitution over the referendum-adopted accession act to the EU. All the Baltic States admitted that transformation of the state’s functions was unavoidable (Kerikmäe, 2012).
The Baltic States After the Accession
After the Baltic States expressed their desire to join the EU, they showed tremendous leniency toward the EU. During the pre-accession procedures, the Baltic States followed the EU’s demands and requests almost without opposition because they were desperate to join so that they could separate themselves from the other eastern European states, especially Russia. This sentiment persisted for many years, and it manifested itself in a weak political perception of the Baltic States. However, the Baltic States’ policy toward the EU has seemingly changed. The case law of the European Court of Justice (ECJ) and the actions of the Baltic States indicate that the Baltic States have adopted a stricter policy toward the EU, and they no longer permit the other member states and the EU institutions to take advantage of their status as small states.
The Baltic States and Policy Harmonization
After the Baltic States joined the EU, the drafting of the Constitutional Treaty was on its way, which would lead to greater harmonization in the areas of social and tax policies, and security and defense policies. However, the Baltic States preferred the intergovernmental to the supranational model because they credited their open, liberal economies with low, flat income tax rates as a means of helping them to overcome the negative heritage of the centralized Soviet command economy. In addition, having only recently received their sovereignty, the Baltic States did not want to cede their power. Furthermore, having joined NATO, the Baltic States did not want to duplicate or undermine the transatlantic relationship. Hence, they were not eager to harmonize their policies. However, because the European Commission was perceived as the institution that could protect the interests of the small states, the Baltic States had yet to vote against the proposals that would reduce the Commission’s power. Thus, in 2004, Lithuania was the first member state to ratify the Convention (Kasekamp, 2013, pp. 26–27). This reflected the Baltic States’ position during their early years after accession. They were humble, and they did not know how to appreciate the full value the EU would have for them. Therefore, the academic criticism of being too rigid and not proactive has been rejected, and the concept of deliberative supranationalism has never been too popular (Kerikmäe, 2010, pp. 11–42).
The Baltic States did not fully realize the dynamics of the EU until the Nord Stream agreement to construct an underwater gas pipeline across the Baltic Sea from Vyborg, Russia, to Greifswald, Germany. As a result, the Baltic States saw the need to strengthen the Community’s Common Foreign and Security Policy and to create a common energy policy, as well as the necessity for harmonization in general. This epiphany became even stronger during the Lisbon Treaty, when all three Baltic States showed even greater eagerness for deeper integration, and therefore the ratification of the treaty was only a formality for them. The enthusiasm to strengthen the focus on the European Community reflected the Baltic States’ fear that they would not be included in the core member states. These fears diminished when the Baltic States were included in the Schengen regime in December 2007, enhancing their status as member states (Kasekamp, 2013, p. 27). The Baltic States’ espousal of the supranational model is explained by their strong will and their need to stay in the EU. The small states need a supranational power to stand their ground against the bigger EU states. In addition, they need the full power of the EU and NATO to secure their political status and to escape Russia’s grasp.
The Austerity Policy in the Baltic States
Recent years have been marked by economic and financial unrest globally, and the effects have of course reached the Baltic States as well. However, before the troubles in the mid-2000s began, the Baltic States’ economies rose astonishingly fast thanks to the strong political will and the public support of the reforms. Because of the great need for reconstruction combined with the particularly qualified labor force and low capital endowment, their economies were growing at the incredible pace of 8 to 9 percent a year on average in real terms, and the levels of national real wealth more than doubled between 2000 and 2008. It was an entrepreneur’s paradise. Furthermore, the institutional reforms were among the fastest of the CEECs (Maslauskaite & Zorgenfreija, 2013, pp. 33–35). But even though the Baltic States had achieved several economic “victories,” they had not forgotten the misery they had endured for the many years they were part of the Soviet Union. Memories of the Soviets coupled with right choices made the Baltic approach to the economic recession a deal to be respected.
The economic crisis of the Baltic States was tied to the significant buildup of macroeconomic imbalances, housing booms, and international competitiveness losses with regard to labor costs. The increase in imbalances had several causes. First, the financial sector was entirely liberalized and taken over by the Nordic banks in the Baltic States, thereby increasing capital inflows and credit expansion. The Nordic banks offered very low interest rates to the Baltic population, and this policy, together with overly optimistic expectations for the future, resulted in an explosion in the real private-sector debt. The majority of the debt was directed toward real estate, giving birth to the housing bubble.
Second, even though the Baltic States were attractive destinations for foreign investments, the trade was targeted at nontradable goods, especially real estate, retail distribution, and the financial sector. Because foreign investments were directed at nontradable goods, the investments added to the consumption boom but failed to create the anticipated productivity gains in the tradable sector. As a result, profits and wages were inflated in the nontradable sectors, and as the European Commission Occasional Paper stated, it “caused labour and capital to be reallocated from more competitive sectors towards non-tradable ones and playing a key role in inflating internal demand” (p. 40).
Third, wage increases outgrew productivity gains because the governments of the Baltic States chased expansionary fiscal policies during the peak years, wages experienced upward pressure since the EU adhesion created a mass emigration of labor, and capital inflows in the nontradable sector created pressure to raise wages in the tradable sector. As a result, wages grew faster than productivity (Maslauskaite & Zorgenfreija, 2013, pp. 37–39).
The recession hit Estonia and Latvia in 2008 and Lithuania in 2009. The large capital inflows resulted in credit growth that was the driving force of the significant GDP growth. In 2007, the governments tried to control credit growth, but it was ultimately too late and the measures were not sufficient. Hence, two solutions to battle the crisis were available: either external or internal devaluation. External devaluation would mean the devaluation of currency, whereas internal devaluation would mean expenditure cuts and revenue increases. The Baltic central banks, governments, and the EU rejected the external devaluation option because it might threaten the stability of the whole region, and it would mean that the Baltic States’ goal of joining the Euro Area would have to be given up. Furthermore, in any case, visible structural problems in the economy needed to be tackled. Therefore, the Baltic States chose the internal devaluation option and received external help from the EU member states and institutions (Maslauskaite & Zorgenfreija, 2013, pp. 45–47). Latvia’s situation was the most difficult because it had to bail out its largest domestic bank. Lithuania and Estonia did not have such issues, and thus, they had an easier path to recovery.
Latvia’s fiscal situation was worse than that of the other two Baltic States because of its largest domestic bank, Parex Bank. In November 2008, Latvia applied for balance-of-payments support from the International Monetary Fund (IMF), the EU, and regional neighbors. In addition, the structural reforms brought on important changes and to avoid similar crises in the future, a Fiscal Discipline Law, which came into force in March 2013, provides for a balanced budget in the economic cycle. The Latvian budget deficit in 2012 was only 1.2 percent of GDP, and thus, it can be claimed that the Latvian measures have been effective in stabilizing Latvia’s budgetary system. Latvia returned to the international capital markets in June 2011, and the balance-of-payments assistance program was established in January 2012. Latvia was loaned €7.5bn, but it only used €4.5bn, and so it returned the part owed to the IMF early, at the end of 2012. Latvia was the fastest growing state in the EU during the years 2011 (GDP growth 5.5%) and 2012 (GDP growth 5.6%). In addition, Latvia fulfilled the Maastricht criteria, and so Latvia joined the Euro Area in 2014, and on July 9, 2013, the Council invited Latvia to join the EMU (Maslauskaite & Zorgenfreija, 2013, p. 47). Even though Latvia had to bail out its national bank, the state was able to overcome its financial difficulties and return to a growing state.
In comparison, the older EU member states that suffered from the recession have not done as well as Latvia. Latvia’s state of tabula rasa partially explains why it was able to implement the necessary and difficult measures to get out of its slump. The older member states are so rooted in their strong customs and way of life that they are not willing to make drastic changes that might help them get out of their financial difficulties.
Lithuania did not have to save any domestic banks, and thus it adopted severe austerity procedures and recovered more quickly than Latvia. Mainly due to exports, Lithuania’s year-on-year growth turned positive in the second quarter of 2010. Lithuania performed several structural reforms as well, but they were not as strict as Latvia’s. In addition, Lithuania introduced more stimulus measures than the other Baltic States. As a result, the Lithuanian economy was set on a more sustainable path, and in 2011 its export-driven GDP growth reached 5.9 percent. Moreover, Lithuania joined the Euro Area on January 1, 2015.
Lastly, Estonia had been the most farsighted of the Baltic States during the years of high economic growth. Estonia embraced fiscal consolidation in early 2008 because its goal was to fulfill the Maastricht criteria in the near years, whereas this goal was not even remotely possible for the other two Baltic States. The structural reforms also contributed to Estonia’s recovery, but unlike the other two Baltic States, Estonia changed little on the institutional level. Estonia’s approach was successful, and thus it resumed growth in the second quarter of 2010, mostly thanks to the increase in exports. In addition, Estonia joined the Euro Area on January 1, 2011, and in the same year it was the only EMU state with a budgetary surplus (Maslauskaite & Zorgenfreija, 2013, pp. 48–49). It can be seen that the Lithuanian and Estonian austerity policies were significantly easier than Latvia’s because they did not have national banks to save. In addition, Estonia was clearly the most reasonable during the years of high and low economic growth.
The Baltic States benefited from their small, open economies because their unique economic and societal model provided for low debt levels for their governments. A rise in exports, a shift from construction and real estate sectors to manufacturing, and flexible labor markets, weakness of the trade unions, and relatively low social demands were all key factors in their successful implementation of austerity policies. In addition, the ethos of the Baltic population was one of the most important factors in the success of their austerity policies. The Baltic population was not used to complain or protest, and their civil society was weak. In addition, their recent history with the Soviet Union was still fresh in memory, and therefore, the Baltic population was not shocked by the economic crisis, whereas most of the other EU member states were suffering. But most importantly, the public acknowledged and accepted that economic growth was not sustainable and that reforms were necessary.
The population of the Baltic States is still feeling the pain of these austerity policies. Poverty, social exclusion, unemployment, and emigration are at the heart of the issue. Nevertheless, the social situation is slowly improving (Maslauskaite & Zorgenfreija, 2013, pp. 63–64). Despite their difficulties, the Baltic States have overcome the biggest issues involved in their economic crisis. They have been successful where others have not. This experience has served as a huge confidence boost for the small Baltic States, which has brought them great pride.
The ECJ Case Law Reshaping the Baltic States’ Role Within the EU
In 2009, Estonia brought its first cases against the European Commission to the ECJ, case T-324/05 (hereafter the sugar penalty case) and case T-263/07 (hereafter the greenhouse gas emission case). The issue in the sugar penalty case was whether sugar stored in households should be added to the calculation of surplus stockpiles. Estonia claimed that the surplus sugar kept in households should be deducted from the surplus stockpiles because it was not speculative in nature and the buildup of the surplus resulted from the Estonian tradition of using sugar to make preserves. In the greenhouse gas emission case, Estonia had calculated its emission allowances in accordance with the relevant directive. However, the Commission had used a different calculation method, and it exercised its supervisory powers to forbid Estonia from using its national plans. Estonia claimed that the Commission had exceeded the limits of its competence by doing so. The ECJ dismissed the sugar penalty case, but it satisfied Estonia’s action in the greenhouse gas emission case. Statistically, the ECJ satisfies only about 20 percent of the cases that are brought against the Commission, and therefore Estonia did quite well with its actions.
Both cases marked an important milestone for Estonia, as it developed self-reliance and self-realization in regards to the rule of law principle, which is one of the fundamental legal principles of the EU. Basically, Estonia realized that it is normal for such disputes to be resolved in court and for the courts to decide whether or not the use of power is legal. Furthermore, the two judgments were highly important for small states such as Estonia because the cases proved in practice that even small states can contest the decisions of the EU’s central power in court. Hence, it was realized that all member states are equal before the ECJ, and therefore, it is not important how large the member state is or how many votes it has in the Council. What matters is the weight of the legal argumentation alone. The ECJ provides an excellent forum for the small member states to defend their position (Uibo, 2010, pp. 86–87; Harlow & Rawlings, 2014, p. 14). The rulings reflect the rule of law principle, as it was demonstrated in practice that all member states have equal footing when it comes to the ECJ.
The accession of the Baltic States has created several collisions with the old member states because their regulations and practices are different from those of the older states (Kerikmäe et al., 2017). It was feared that the workers and businesses of the Baltic States that utilized their rights to free movement under the Founding Treaties were threatening the economic and social position of the old member states. In cases C-438/05 (hereafter Viking) and C-341/05 (hereafter Laval), the ECJ was asked to clarify the extent to which collective action could be used to oppose social dumping in the EU. Social dumping is “the export of products that owe their competitiveness to low labour standards” (Hepple, 2005, p. 13). The EU has sought to combat fears of social dumping by endorsing Europeanization in order to enhance competition. However, the Europeanization of labor laws and practices has always been a sensitive topic owing to the sociocultural context, which the labor laws have achieved in each state. Moreover, since the Baltic States have had such weak labor protection, the position of the old member states has been awkward. The matter is complicated by the fact that traditional mechanisms such as collective action to protect workers must be in accordance with the EU law (Zahn, 2008, pp. 1–3). The Viking and Laval cases are assessed separately to clarify the underlying message of the cases.
In the Viking case, a ferry operator called Viking Line ABP (hereafter VikingABP) was incorporated under Finnish law and provided regular services on the route between Helsinki and Tallinn. In 2003, VikingABP sought to reflag its vessel by registering it in Estonia because it was running its route at a loss and the reflagging would significantly reduce labor costs, which might make the business more profitable. VikingABP gave notice of its intentions to reflag the vessel to the Finnish Seaman’s Union (FSU) in accordance with Finnish law, but the FSU opposed the plan. The FSU threatened VikingABP with (legal) strike actions to deter VikingABP from reflagging its vessel. In December 2003, VikingABP signed an agreement with the FSU to give up its reflagging plans until February 2005. However, since the company was still running its business at a loss and following Estonia’s accession to the EU, VikingABP brought an action before the High Court of Justice of England and Wales. The case was forwarded to the ECJ for a preliminary ruling. The ECJ held that the restrictions on freedom of establishment in the Viking case could not be objectively justified. But the ECJ held also that it is up to the national courts to decide the matter on a case-by-case basis where similar secondary actions are justified by public policy grounds (Zahn, 2008, pp. 2–7). The Baltic States received yet another positive interaction with the EU institutions.
The Laval case is the most contested and famous ruling in the important series of ECJ rulings on the subject of “posted workers” that concern the provision of manpower on a temporary basis by a service provider from another member state; it is partly covered by Directive 96/71 (hereafter Posted Workers Directive). In the Laval case, in May 2004, a Riga-based company, Laval un Partneri (hereafter LavalP), which was incorporated under Latvian law, sent workers to Sweden to work on building sites operated by a Swedish company. In Sweden, all terms and conditions of employment are included in the legislative acts, except for minimum wage, which is dealt with in collective agreements between management and labor. In June 2004, LavalP and the Swedish building and public works trade union (hereafter the Swedish labor union) began negotiating to determine the rates of pay for the posted workers, but the negotiations failed. As a consequence, LavalP signed collective agreements with the Latvian building sector trade union, and LavalP’s labor costs were significantly lower than those of the competitions. Therefore, the Swedish labor union launched a blockade of all sites that Laval was working on in Sweden. LavalP brought an action before the Swedish Labour Court, which forwarded the matter to the ECJ. The court held that the blockade was against the freedom to provide services under Article 56 of the TFEU (ex Article 49 TEC). The reasoning behind the decision was that the Swedish collective agreements system entrusts management and labor with the task of setting wage rates through collective negotiations, and since the Swedish system was not universally applicable, the industrial action was against the freedom to provide services provision. Further, the action was aimed at forcing LavalP to sign a collective agreement in Sweden containing minimum wage conditions and other terms of employment, even though LavalP was a party to a collective agreement with the Latvian building sector trade union (Zahn, 2008, pp. 7–8; Craig & Burca, 2011, pp. 802–803). This case proved that the rules are the same for everyone.
Both the Viking and Laval cases dealt with the functioning of the common market within the EU and, from a national point of view, the mechanisms of labor markets within member states. On the one hand, the Nordic states have created extremely strong mechanisms that regulate the labor markets, and therefore Viking and Laval cases were of huge importance in Finland and Sweden. On the other hand, the Baltic States’ political priorities involve the unfettered functioning of the common market within the EU, and therefore two strong opposing opinions were at play (Uibo, 2010, pp. 89–91). The Baltic States’ position also represented the EU’s position, whereas the Finnish and Swedish stances represented their own national positions. Therefore, it is not surprising that the Baltic States’ position prevailed in both cases. Thus, the recent ECJ case law suggests that the Baltic States have developed an active role in the EU and that they are no longer just in the passenger seat. The ECJ provides an excellent way for smaller member states to look out for their interests without being overplayed by the larger member states.
The Baltic States’ (Statistical) Position in the EU and Its Reflection in Their Public Opinion of the EU
Public opinion about the Baltic States is discussed through eight questions that have been presented for each participant. For clarity’s sake, the questions are numbered and are assessed on a question-by-question basis. The source of the questions is the Standard Eurobarometer’s report on public opinion in the EU, which was conducted in May 2015: (http://ec.europa.eu/public_opinion/archives/eb/eb83/eb83_fact_ee_en.pdf; http://ec.europa.eu/public_opinion/archives/eb/eb83/eb83_fact_lv_en.pdf; http://ec.europa.eu/public_opinion/archives/eb/eb83/eb83_fact_lt_en.pdf).
The EU has 506,857,513 people, 1,315,819 of whom are Estonian, 2,001,468 are Latvian, and 2,943,472 are Lithuanian. Estonians represent 0.26 percent of the EU’s population, Latvians 0.39 percent, and Lithuania, 0.58 percent. Estonia’s GDP per capita in Purchasing Power Parity (PPP) is 73, Latvia’s is 64, and Lithuania’s is 73. There are 4,700 Estonian students, 7,300 Latvian students, and 15,500 Lithuanian students studying in another member state (http://europa.eu/about-eu/facts-figures/living/index_en.htm). The unemployment rate in the EU in July 2015 was 9.5 percent; in the euro area it was 10.9 percent; in Estonia 6.1 percent (measured in June 2015); in Latvia 10.1 percent; and in Lithuania 9.6 percent (http://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics). The national debt in the first quarter of 2015 was 2.05 billion euros for Estonia, 8.46 billion euros for Latvia, and 13.88 billion euros for Lithuania. To set things in perspective, Greece’s national debt was 301.53 billion euros during the same period (http://www.statista.com/statistics/274179/national-debt-in-eu-countries). There were approximately 4,100 immigrants in Estonia in 2013, 8,300 in Latvia, and 22,000 in Lithuania. To put things once again in perspective, there were almost 700,000 immigrants in Germany, approximately 31,000 in Finland, and over 220,000 in Poland (http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Immigration_by_country_of_birth,_2013_(%C2%B9)_YB15.png).
1. Do you trust the EU?: only 40 percent of the EU citizen participants tend to trust the EU, whereas 46 percent do not; 55 percent of Estonian participants held that they tend to trust the EU, and 19 percent maintained that they tend not to trust the EU; 51 percent of Latvian participants held that they tended to trust the EU and 31 percent did not; and 68 percent of Lithuanian participants held that they tend to trust the EU and 17 percent did not. It would seem that the Baltic States trust the EU more than the average member state does. Latvia apparently the most skeptical, and Lithuania the most optimistic.
2. Do you trust the national parliaments?: 31 percent of the EU citizen participants tend to trust their national parliaments and 62 percent do not; 33 percent of Estonian participants tend to trust their national parliaments and 51 percent do not; only 17 percent of Latvian participants tend to trust their national parliaments and a prevalent 75 percent do not; and only 16 percent of Lithuanian participants tend to trust their national parliaments and a remarkable 77 percent tend not to trust. Estonia would seem to be at the EU’s average when it comes to the valuation of national parliaments, whereas Latvia and Lithuania are highly skeptical of their own national parliaments.
3. Do you trust your national government?: 31 percent of EU citizen participants tend to trust their national government and 63 percent do not; 38 percent of Estonian participants tend to trust their national government and 49 percent do not; 25 percent of Latvian participants tend to trust their national government and 67 percent do not; and 34 percent of Lithuanian participants tend to trust their national government and 58 percent do not. Furthermore, the Baltic States would seem to share the views of the national government with other member states. This may show the Baltic States’ appreciation of the EU and the scars left by the Soviet Union in regard to their national institutions.
4. Do you have a positive image of the EU?: 41 percent of the EU citizens have a positive image of the EU, 38 percent have a neutral image, and 19 percent have a negative image; 49 percent of the Estonian participants have a positive image of the EU, 41 percent have a neutral image, and 8 percent have a negative image; 39 percent of the Latvian participants have a positive image of the EU, 49 percent have a neutral image, and 11 percent have a negative image; and 55 percent of Lithuanian participants have a positive image of the EU, 40 percent have a neutral image, and only 5 percent have a negative image, which is the lowest among the Baltic States. On the one hand, Lithuania would seem to be the most positive toward the EU, and Estonia as well seems mostly satisfied with the EU. Latvia, on the other hand, seems to be the most negative toward the EU, but its support is still above the EU’s average. In comparison, the Latvians’ pessimistic image of the EU is explained by the population’s fear of price increases and the possibility of having to contribute to the bailout of wealthier Euro Area members (Kasekamp, 2013, p. 28). Latvia’s high unemployment and high (in comparison) national debt explain the fear of price increases. Furthermore, since Latvia was able to overcome its difficult economic problems, it may feel reluctant to aid wealthier states with their economic troubles.
5. Do you feel you are a EU citizen?: 67 percent feel like EU citizens and 31 percent do not; 79 percent of the Estonian participants feel like EU citizens and 18 percent do not; 69 percent of the Latvian participants feel like EU citizens and 30 percent do not; and 78 percent of Lithuanian participants feel like EU citizens and 22 percent do not. The Baltic population would seem to feel strongly like EU citizens, and Estonians and Lithuanians feel especially strongly like EU citizens. This finding may reflect the fact that the Baltic States want to establish themselves as Western states rather than Eastern states, given their rocky history with the Soviet Union and Russia’s everlasting presence in the Baltic region.
6. Do you know the rights of EU citizens?: 50 percent of the EU citizen participants claim to know the rights of EU citizens and 48 percent do not; 62 percent of the Estonian participants claim to know the rights of EU citizens and 34 percent do not; 50 percent of Latvian participants claim to know the rights of EU citizens and 49 percent do not; and 66 percent of Lithuanian participants claim to know the rights of EU citizens and 33 percent do not. The Estonians and Lithuanians would seem to be more aware of their rights as EU citizens than the average EU citizen and Latvians. This result may correlate their overall satisfaction with the EU, which is especially high in Estonia and Lithuania. Moreover, the recent ECJ case law as well would suggest that the population of the Baltic States is quite aware of their rights as EU citizens
7. What are the most positive results of the EU?: The top three EU participants were the free movement rights (57%), peace among member states (55%), and the euro (23%). The Estonian participants’ top three were the free movement rights (67%), peace among member states (55%), and the euro (36%). In addition, the Estonians valued the level of social welfare in the EU (20%), the fifth most important result of the EU, whereas EU-wide, it was voted only the seventh most important result (18%). The Latvian participants’ top three most positive results of the EU are the free movement rights (70%), peace among member states (47%), and the exchange student programs (33%). The euro (31%) was valued the fourth important, and the level of social welfare in the EU (20%) the fifth most important. The Lithuanian participants’ top three were the free movement rights (73%), peace among member states (53%), and the exchange student programs (32%). The level of social welfare in the EU (27%) was valued the fourth most important, and the euro (21%) the fifth most important. All the Baltic States and the EU would seem to value the free movement rights the most and then the peace among member states as a strong second. The euro is considered the third most positive result of the EU in both the EU and Estonia, whereas both Lithuania and Latvia consider the exchange student programs the third most positive result. Estonia’s strong support over the euro may be explained by its strong ties to the EU and by their strong emigration. It takes approximately two hours by ferry to travel to Finland from Estonia, and therefore many Estonians go to work in Finland in hopes of higher wages. The EU and the euro have made working in Finland a lot easier for Estonians, and thus the support for the euro is high. In addition, Estonia’s low national debt may also have an effect in support of the euro, whereas in Lithuania the national debt is over five times more than what it is in Estonia, and their support for the euro is 14 percent less than Estonia’s. There may be a pattern here. Lithuania’s and Latvia’s support for the exchange student programs is somewhat surprising. It might reveal a willingness to educate oneself and/or a desire to leave one’s state. In addition, the Baltic States would seem to support the social welfare levels in the EU above average, which is no surprise given their Soviet background.
8. What are the most important issues facing the EU at the moment?: The top three issues were immigration (38%), the economic situation (27%), and unemployment (24%). The Estonian participants’ top three issues were immigration (54%), the state of member states’ public finances (31%), and the economic situation (22%). Unemployment was voted only the sixth most important issue (9%). The Latvian participants’ top three issues of the EU were immigration (38%), the state of member states’ public finances (26%), and the economic situation (24%). Unemployment was the fifth most important issue with 14 percent. The Lithuanian participants’ top three issues were immigration (31%), the economic situation (24%), and the state of member states’ public finances (21%). Terrorism was the fourth most important (20%), and unemployment the fifth most important issue with 14 percent. All the Baltic States have the same concerns about the issues facing the EU, and the state of member states’ public finances is the major connecting factor between the states since immigration and the economic situation are considered EU-wide concerns. Concern over the public finances of member states could be seen as a result of the Baltic States’ victorious struggles with their own economic situation. The Baltic States are not eager to financially aid the wealthier member states because they feel that it would be unfair inasmuch as, despite being the smallest member states, they were able to survive their difficult financial situation.
Estonia’s strong opposition to immigration is reflected in the current crisis in the Middle East. The European Commission imposed a quota for the member states to receive a certain number of refugees and asylum seekers: Estonia is slated to receive 1,064 persons. The Riigikogu (the Estonian parliament) and the Estonian Minister of the Interior claim that Estonia is not ready to receive such a large number of refugees and asylum seekers, but that Estonia is willing and ought to increase its capability for receiving refugees. Estonia has agreed to negotiate the number of refugees it is willing to accommodate. In addition, it does not want to be forced to accept a certain number; the relevant agreement, it asserts, ought to conform to the proportion of the state’s population and economy in the EU (http://www.riigikogu.ee/en/highlighted-topics-en/on-12-june-estonias-position-on-refugee-quota-will-be-announced).
As for unemployment, the Baltic States do not perceive it to be among the top issues of the EU. Estonia’s position can be explained by its low unemployment rate, which currently is among the lowest in the EU. Latvia’s and Lithuania’s position is somewhat different from Estonia’s since they have fairly high unemployment. Their stance may be explained by their background, as both states are former Soviet states and so they are accustomed to harsh economic conditions. Therefore, when it comes to social difficulties, as in unemployment, they have thick skins.
Benefits of the Baltics for the EU?
As fairly new EU member states, the Baltic States are still largely unknown worldwide and even in the EU. But this does not mean that there is nothing to know about the Baltic States. Estonia is the leading eTech pioneering state in the EU’s digital market since it has made interaction with its government officials fully available through the Internet. Moreover, Latvia has a huge forest area, and thus it has specialized in exporting timber. And Lithuania (much like Estonia) is known for its innovative electronic public services.
EU’s Digital Market and Baltics
The Baltic States are often treated as a single region from the international point of view, but they do have different features and capacities. The most well-known flagship initiatives related to visions of the EU are coming from one of the three small states—Estonia, a country of e-governance. Estonians can perform almost every public- and private-sector matter in digital form. Digital market developments in Estonia reached new heights on May 1, 2015, when Estonia became the first in the world to launch a beta e-Residency application portal that offers anyone in the world an opportunity to apply for e-Residency in Estonia. E-Residency is a transnational digital identity that is available to anyone interested in establishing and administering a location-independent business online. According to the e-Residency program director, Kaspar Korjus, e-Residency “was created to grow the economy of Estonia, attract new investment and connect with new businesses.” Importantly, e-Residency does not confer citizenship, tax residency, residence, or right to entry into Estonia or the EU. As of August 2015, most of the e-residents had come from Estonia’s neighboring states, Finland being the most active with its 1,025 applications representing 22 percent of the total (Kotka & Liiv, 2015, p. 153; Kotka, Castillo, & Korjus, 2015, p. 6; https://e-estonia.com/solutions/e-identity/e-residency/). So not only the Estonians, but anyone in the world can now enjoy Estonia’s progress in the digital market.
Estonia’s success in the digital market can be explained by its leadership and public-sector competencies, adequate funding, legislative and regulatory support, development of information technology infrastructure, public- and private-sector partnerships, and private-sector competencies (Kalvet, 2012, p. 148). Hence, e-Residency is not an isolated phenomenon but rather the result of years of work that included experimentation and development of Estonian e-government practices.
So what exactly are the actual benefits of e-Residency for e-residents? (1) the e-residents can establish and administer a company by accessing services online; (2) they can conduct all their banking through online services; (3) they can declare their taxes online; (4) they can digitally sign contracts and other documents; and (5) they can access international service providers online. The risks are a bit harder to assess since Estonia’s e-Residency is the first of its kind and the concept has not yet even been fully understood or put to test. In addition, for national security reasons, the Estonian government will not publish its official risk analysis. However, some possible risks can be recognized. First, for e-Residency to prosper, the government needs to sustain the funding and legislative priorities. Will they last? Second, how will the concept of using a technological platform to build a global user base conform to a nation-state? Such activity is more common in private businesses, and hence it may be important to remember that the Estonian taxpayers are the financiers of the e-Residency. Third, technological risks are present, as is always the case with digital products. How can one account for the identity of each e-resident? And what about the cyber attacks? (Kotka, Castillo, & Korjus, 2015, pp. 2, 7, 12–13). The actual outcomes of e-Residency and other flagship initiatives remain to be seen. Fortunately, the technology architects are more eager to cooperate with politicians and legal experts, and the constructive critical approach is starting to prevail to avoid an extreme “digital by default” doctrine (Kerikmäe & Dutt, 2014, pp. 7–32).
The Baltic States and the “Russian Factor”
Russia and the Baltic States have a long history together, and it was only approximately twenty-five years ago that they were part of the Soviet Union. Since the harsh years after the fall of the Soviet Union, Russia has regained some of its greatness in a way that it can once again challenge the West, thanks largely to its size, its geostrategic position, and its energy riches, especially its hydrocarbon reserves, which are the biggest in the world. To top things off, Russia possesses approximately 2,000 nuclear missiles, which makes it the only power in the world that can match the United States’ nuclear power. Nevertheless, Russia has recognized that its most important markets and investments lie in Europe, and thus, economically it is important for Russia to maintain good relations with Europe.
Russian-European relations have suffered from the expansion of NATO and the EU, the impact of the 9/11 events, the Iraq War, Russia’s war against Georgia in August 2008, and most recently, the crisis in Ukraine (Šleivyte, 2010, pp. 1–3). In addition, Russia has been accused of organizing cyber attacks on the Baltic States (Auers, 2015, p. 226). Hence, there are high tensions between Russia and the Baltic States/Europe. The two most intriguing aspects of the Baltic States’ relations with Russia are their foreign and security policy toward Russia and their energy policy and its symbiosis with Russia.
The Baltic States and the rest of the EU were shocked when Russia annexed Crimea and launched covert operations in eastern Ukraine in early 2014. The actions in Ukraine were particularly sensitive to the Baltic States because the actions reminded them of their own occupation by the Soviets in 1940. As a result, the security concerns that had been suppressed over the previous twenty years resurfaced in the Baltic States. Russia’s actions in Ukraine seemed especially threatening to the Baltic States because they had believed that their membership in NATO and the EU, combined with Russia’s growing integration and political cooperation with the West, would ensure their safety. As a result, Latvia and Lithuania drastically cut their security expenditures during the Great Recession of 2008–2010. At that time, the overall focus of the Baltic States’ foreign and security policies shifted to spreading the Baltic “success story” in regards to their economic and political accomplishments. When Ukraine was hit, however, the Baltic States did not just sit idly by but instead took an “activist” role in the crisis. The leaders of the Baltic States used their positions in the EU and NATO to push for tough sanctions against Russia, which were, conveniently enough, targeted to minimize the impact on their economies because they are still tied up with Russia. In addition, the Baltic States, upon request, received defense guarantees from their NATO allies. This being said, currently the Baltic States are harassed by Russian military airplanes, ships, and submarines that regularly impinge Baltic borders and by the hostile Kremlin political rhetoric toward them. It is crystal clear that Russia is the only existing security threat to the sovereignty of the Baltic States due to its desire to maintain influence in the “near abroad.”
It remains to be seen whether the Baltic States’ extensive efforts to ensure the security of their borders will have been enough (Auers, 2015, pp. 195–196, 228). It also cannot be overlooked that the Russian Federation tried to interfere in the Baltic States’ internal affairs, particularly by expressing support for certain political parties and by exerting (in)direct influence in electoral processes, increasing influence in the media, and proposing initiatives to create Russia-funded schools (Lamoreaux, 2014, p. 573).
The foreign and security policy of the Baltic States is not made easier by the fact that their energy sectors remain tied to Russia. The Baltic States’ energy sectors rely heavily, to a dangerous degree, on Russian energy. The gas sector depends solely on Russian gas imports, which make the Baltic States particularly vulnerable since they have an uneasy relationship with Russia and their gas transport and delivery infrastructures were built in the Soviet era. Thus, the Baltic States are not connected to the gas lines of other EU states and have no means of accessing non-Russian gas or liquefied natural gas. As for the oil sector, almost 100 percent of the Baltic States’ oil is imported from Russia because the Baltic ports have been exporting the imported oil to western Europe for many years. The reliance on Russian imported oil can be seen in the oil sanctions, which left the Baltic States helpless in their efforts to regain their oil supplies. Moreover, Russia has been purposefully changing its energy export flows from eastern European states to new direct routes to western Europe through Russian territory. As a result, the Baltic States are being eliminated as “transit states.”
In the electricity sector, the Baltic States do not have a common policy; each state has its own resources for electricity production. Estonia relies on its resources of oil shale. Latvia uses three hydroelectric power plants and is dependent on imports since it had to close its nuclear reactor due to EU regulations imposed in 2009. Lithuania’s electricity imports come from Estonia, Latvia, Belarus, and Russia. For many years, Lithuania has been trying to construct a new nuclear power plant in Visaginas, but a bureaucratic stalemate, disagreement with the political parties, Russia’s meddling, lack of interest among commercial investors, and skepticism about the pursuit have delayed the process.
To add insult to injury, Russian companies own most of the stock and controlling percentages in the majority of the natural energy resources companies in Estonia and Latvia. Lithuania did not allow such a practice and consequently was not rewarded with favorable energy prices (Lamoreaux, 2014, p. 575). The Baltic States’ dependency on Russia has influenced their domestic political processes, which they have tried to counter by leveraging their EU membership. As a result, tensions between the Baltic States, Russia, and the EU have run high. Although the EU itself is largely dependent on energy imports—more than 90 percent for crude oil and 66 percent for natural gas—it strongly emphasizes the security of the energy supply, which is crucial for economic growth in the growth strategy Europe 2020 and therefore dependence on a single-energy supplier is a vulnerability. Yet, the Baltic States’ energy policy has been increasingly shifting toward the EU, and the near years are expected to further liberalize the Baltic energy markets, interconnecting gas and electricity with neighboring EU member states and diversifying energy sources (Grigas, 2013, pp. 65–86). But even if the Baltic States were to develop totally separate energy policies from Russia’s, their political struggle with the Eastern power state would not end. For relations to change, attitudes among the parties need to change.
The Baltic States, despite their problems with Russia, are promoting their image of assisting post-Soviet countries to become integrated with Europe (Kerikmäe, Nyman-Metcalf, Gabelaia, & Chochia, 2014).
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