JIIA Forum Presentation Summary
November 8, 2010
Venue: The Japan Institute of International Affairs

Andris Spruds
Director, Latvian Institute of International Affairs, andAssociate Professor, Riga Stradins University“Sandwiched between the EU and Russia: Politics, Economics and Energy
in the Baltic States”

I would like to thank the Japan Institute of International Affairs for inviting me here today andboth the Japan Foundation and the Japanese Ministry of Foreign Affairs for giving me theopportunity to come to Japan.

Although the Latvian Institute of International Affairs, anindependent research organization, is very closely associated with the Latvian Ministry ofForeign Affairs and Ministry of Defense, please keep in mind that my presentation today
does not represent the official position of the Latvian government.
I have used the word “sandwiched” in the title, but the three Baltic states are, of course,
already part of the EU and so not really between the EU and Russia.

In a morephilosophical and geopolitical sense, however, the Baltic states find themselves culturally,
politically and economically between Brussels and Moscow.
variety of similarities.

The three Baltic states have a

They are all small countries – Latvia has a population of 2.3 million,

Estonia 1.3 million and Lithuania 4 million – and for that reason they have historically fallen
victim to neighboring powers, they have suffered the legacy of planned economies, and they
were particularly monitored by US in its following Soviet activities during the Cold War.

The

three Baltic states also share in common popular backing for NATO membership as well as
an affinity for the East European countries of Georgia, Moldavia and Ukraine and support for
their membership in the EU and NATO. At the same time, we also have our differences.
Estonia, for example, intends to join the euro next year but Latvia and Lithuania will not likely
do so until 2014 because they cannot yet satisfy the Maastricht criteria on fiscal deficits.
The three Baltic states have been competitors in past EU membership negotiations and in
the economic arena.

There are strategy differences as well. Estonia sees its alliance with

Finland as being of utmost importance; economically the country is enjoying an influx ofhighly transparent capital from Finland, Sweden and elsewhere, and the business culturesof these countries are being imported alongside this capital. By contrast, Latvia is in a

more divided state, while Lithuania had no choice but to opt for neighboring Poland as analliance partner.

Overall, economic competition among the three Baltic states in particular

has had a positive influence.

The Scandinavian countries served as important role models for the development of theBaltic states, but this fact has also been pointed out as a cause for the economic crisis. For
instance, 50% of the capital in Latvian banks is Swedish capital, and the Latvian Ministry ofForeign Affairs admonished Sweden when excessive credit expansion by Sweden led to abubble (the 2006 surge in Latvia’s real estate prices was the world’s most rapid).

Let us now turn to the EU.

The “return to Europe” played an extraordinarily large role inestablishing the identities of the Baltic states in the early 1990s.

The foreign policy

platforms of all political parties advocated membership in NATO and the EU.

Currently theBaltic states are confronting the more difficult questions of what roles they should play within
the EU and NATO and what relations to build with Russia. Because we have to a degreecompromised our sovereignty with membership in the EU and NATO, allowing many
important decisions now to be made in Brussels, some have voiced the opinion that theempire’s center has merely shifted from Moscow to Brussels.

I myself am aEuro-supporter so, despite the negative aspects and risks of globalization apparent in thedecline of the agricultural sector and the influx of European capital into the financial sector, I
am optimistic that EU membership will give us the opportunity to catch up.

In contrast tothe absence of help during the 1930s crisis that led to our annexation into the Soviet Union,
we received assistance during the latest crisis from the EU, the IMF and neighboringcountries.

Thanks to the Maastricht criteria, Latvia’s and Estonia’s fiscal discipline is also

better than that of Spain, Italy and other long-standing member states. The EU has clearlysurpassed Russia as a trade and investment partner for the Baltic states.

EU integration is closely tied politically and psychologically to NATO integration.

In ourrelations with Russia in particular, the fact that we are members of NATO and thus enjoy theprotection of the US is extraordinarily important in terms of security.
ever in a former Soviet republic took place in Riga in 2006.

The first NATO summit

Overall we are pro-US, to thepoint that we have on occasion been termed “the US’ Trojan horse in Europe.”

While theprevious Bush administration focused its attention on a democratic and free Europe, theObama administration has been emphasizing Asia, Africa, South America, Russia, etc.,
more than Central Europe, so relations between Central Europe and the US have become
somewhat complex of late.

Relations with Russia are also complicated, and one public opinion poll shows that Russians
rank the Baltic states alongside Georgia and the US as the countries most unfriendly to theirown.

The Baltic states’ membership in NATO, the treatment of Russian-speaking residents

within these states, and pipeline issues are among the influences on Russian public opinion.
Nevertheless, the antagonism between the Baltic states and Russia might even beconsidered necessary for establishing our identities.

In the 1990s, Russian-speaking

residents whose ancestors had not lived in Latvia prior to World War II were not granted
citizenship, even if they were born and raised in Latvia.

This exclusion could be called

undemocratic, but in my opinion there was no other choice in the 1990s.

Now that we haveachieved membership in NATO and are in more relaxed circumstances, relations withRussia have also improved.

We established our national borders with Russia in 2007.

present, Russia has unresolved borders with two countries: Japan and Estonia.

AtThe Baltic

states’ policies toward Russia depend on circumstances, in particular EU-Russia relations,but the environment at present is of a second reset. The first came in the early 2000s
when the Putin administration improved relations with the US.

Relations subsequently

chilled due to the political turmoil in Georgia and Ukraine, the Khodorkovsky incident, andthe Georgian crisis. The situation changed once again in 2009 with the economic crisis,
and Russia is now seeking investment from Europe to modernize its economy.
Consequently, the reset policy has been motivated by a number of factors, including not only
the emergence of the Obama administration but also the need for economic cooperationand circumstances within Russia.

The Baltic states naturally have their own independent

policies aimed at improving relations with Russia, but at the same time we should neverforget the larger context.