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The Baltics can move Europe ahead – Article in the Baltic Rim Economies

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The Baltics can move Europe ahead

In the 1980s, the Baltic Sea was a divided and divisive water. On one side, liberal democracy, the rule of law, human rights and relatively free markets creating mass prosperity of an unforeseen magnitude. On the other side was one of the most brutal dictatorships in modern history, keeping its populations in poverty and oppression, denying its citizens any form of dignity or opportunity.

We who resided on the Western shores were scared of the

Eastern shores. Stories about Swedish yacht sailors in distress being shot at by Polish or East German navies for coming too close to the coast in search of rescue were many. The Soviet submarine that got stranded in the southern Swedish archipelago in 1981 reminded us all of the invasion threat.

Confrontation was of the course the underlying subtext of this Cold War hotbed.

At the same time as the other side was threatening, many

parts were virtually non-existent. The Baltic States did not

show on Swedish maps. When their hockey players, such as

Latvian Helmuts Balderis, represented the USSR we referred

to them as “Russian”. East Germany and Poland were seen as

Soviet satellite states. The other side was strange and made

up of strangers.

Now, the Baltic Sea is a united and uniting water, returning

to its historical role as bringing the states surrounding it

together, recalling the Hanseatic league. Trade across the sea

is ever growing, as is Foreign Direct Investment (FDI).

More importantly perhaps, Estonia, Latvia and Lithuania

are free and independent states, Poland is no longer in the

Soviet sphere of influence and East Germany is an integral

part of the Federal Republic. All but Russia, with its limited

coastline, are members of the European Union with its free

movement of people, goods, services and capital. Six of the

nine countries are NATO members. Culturally, we are getting

closer with growing exchanges of people, as tourists or

businesspeople. With Russia as the only sad exception, the

democracy research and advocacy body Freedom House

ranks all countries as politically free.

Furthermore, despite the youth of their democracies, most

of the ex-communist Baltic Sea states have recently displayed

signs of impressive and inspiring levels of political maturity.

Through severe austerity measures, Estonia, Latvia and

Lithuania weathered the financial crisis successfully. Its

populations were prepared to bear the short-term burden for

the medium- and long-term gain. Reforms for increased

competitiveness, before, during and after the crisis laid the

ground for successful outcomes. In 2011, Estonia enjoyed the

highest growth rate of the EU, with eight per cent.

The immensely tragic Smolensky disaster, wiping out a

large portion of the Polish political leadership, should not be

used for political purposes. It cannot be ignored, however, that

such a catastrophe could have lead to much more turmoil than

was the case. Poland, as a state, as a country and as a

people, has shown that despite the fact that its democracy is

only two and half decades old, it is in no way questioned,

standing firm even when challenged by the most dire


Progress has not been limited to the political sphere.

Economically, the Baltic Sea is one of the most dynamic parts

of the world, probably the fastest growing region of the rich


The fundamentals are impressive. In 2010, Germany was

the only country in the region with a government debt level

exceeding 60 per cent of GDP. As we have seen these last

few years, public finances in balance are a prerequisite for

stability and thus economic dynamism leading to growth

But while stable public finances are a necessary prerequisite

for growth, it is not a sufficient one. Countries also need

reforms for increased competitiveness. According to various

rankings, excluding Russia, the Baltic Sea states (Denmark,

Estonia, Finland, Germany, Latvia, Lithuania, Poland and

Sweden) are on average in quite good shape.

The World Economic Forum (WEF) ranks 139 countries in

a competitiveness index. The Baltic Sea states fare well. In

fact, four out of the ten most competitive economies in the

world are found around the Baltic Sea (Sweden 2nd, Germany

5th, Finland 7th and Denmark 9th). On average, the Baltic Sea

state is the 22nd most competitive country in the world, better

than the EU average, found on the 35th spot.

One of the most important factors of a country’s

competitiveness is how easy it is to do business there. In its

Doing Business index, the World Bank ranks 183 countries

according to a number of indices that together make up an

overall evaluation of the business climate. The Baltic Sea

states do well, ranking on an average 22nd place, compared to

the EU average on the 38th spot. In general, it is easier to do

business in the countries surrounding the Baltic Sea than it is

in the European Union as a whole. In fact, this is the case also

if you include Russia, at 120th place, in the Baltic Sea region.

The fact that the overall picture looks pretty good is no

reason for complacency, however. There is still need and room

for more reforms for growth, jobs and prosperity. In a fast

changing world, we must all adapt and be on the edge.

Just as the Baltic Sea was divided, so was the world at

large, in the first, second and third worlds. And just as the

invisible wall that split the Baltic Sea in two has disappeared,

so have many of the barriers that formerly divided the world. A

few decades ago, the advanced world economy was made up

of around one billion people. Now, four or five billion people

are taking part in the globalised economy, competing with us

for jobs, growth and competitiveness. Most of the world’s

growth now takes place in what we used to call the third world.

This calls for Europe as a whole to take measures to

increase its growth potential, by opening up markets, making

its economies more flexible and dynamic and invest in

education and R & D. It is my hope that the Baltic Sea states

can and will lead the way for the rest of Europe in facing this


However, also the Baltic Sea region has some homework

left to do. Each nation should improve where it is falling

behind. And we should all strive to build upon the cluster that

we have created, further enhance the openness between the

states, and implement further reforms.

On a different and general note, we can only hope that

Russia fundamentally changes its course, and reverses its

trend towards ever more authoritarian government and stateled

economy. Since a decade or so, the country stands out in

the region, distancing itself from the form of state and

government the rest of us have, and are striving to improve