May 20, 2008
A Window to Gibraltar
How beautiful is the country of Gibraltar! This is a welcoming piece of nature full of mountains, beaches, fresh air surrounded by relaxing smiles and Estonian exports. Small, but very loyal UK-owned colony is the 8th largest buyer of Estonian products: “mineral fuels, mineral oils and products of their distillation; bituminous substances”.
When was the last time when Estonia cared about Gibraltar so much, but today, when year-on-year GDP growth reached 0.4% in Q1, led mostly by exports, inflation flooded at 11.4%, current account stayed at risky height and relationship with its largest neighbour fell to depth. Proud but debatable behaviour of the Baltics states with Russia, selfish and overconfident, is an appealing topic to examine, especially under speculations about the worst financial crisis Tallinn, Riga and Vilnius can face after gaining our independence.
Intrabaltic trade accounts for 29% of exports on average; Russia purchases roughly 11% of Baltic exports; Germany and Sweden import other 15% divided between both. Other countries have less than 5% interest in total Baltic exports.
At the same time, together with poor macro indicators, worsening consumer sentiment and international investors’ suspicions about our economic stability, Baltic countries continuously prefer politics to economics. I wouldn’t bother about that were I living in some kind of a western island, loudly supporting devoted politicians. However, as an inhabitant of Lithuania, I would be less sharp in international relationship.
Note:
20.05.2008 Estonia suits an elderly Soviet hero
24.04.2008 Lithuania prevents EU and Russia dialog
16.03.2008 Riga’s march in honor of Waffen SS
24.01.2008 Latvia expels Russian diplomat
…
This is another question of appropriateness or misappropriates of all these and other similar cases, which I am not going to discuss here. There are fair arguments for and against these issues. But for sure, every step worsening relationship between Russia and Baltics will have worse economic consequences in Tallinn, Riga and Vilnius, but not in Moscow.
Imagine, Russian tension expires: exports to Russia decrease, or tend to zero; imports from Russia can hardly be substituted – we all need oil and gas; natural resources prices rise; selling to other countries means decreasing prices – on one side. On another – economic recession in Baltics, fantastic inflation and plummet in intratrade. The battle between politics and economics again is lost by local polis. Proud, but blind.
Until we believe in free prosperity and a strong Lat, economics will not be our first priority. Probably, Lithuanians will start exporting milk to Gibraltar, while Estonians will initiate trade agreements with… who knows?
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External update:
Economist.com on Baltic States and Latvian policy and IR particularly.
External update:
Revised GDP of Estonia reaches 0.1%. Note the Russian impact.
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