The Tri-Country Policy
Estonia is a parliamentary republic. The President of the Republic, Head of State, is elected in the first ballot by the Riigikogu, the Parliament, and in the second ballot, if necessary, by an electoral college. His term of office is five years, renewable once. He directs national defense, proclaims the laws passed by the Riigikogu, appoints the Prime Minister and can initiate a revision of the Constitution. For the record, the 2016 elections will go down as one of the longest in the country's history. For the first time since the country's independence, the president was elected only in the sixth round! The problem of choosing a common candidate was finally resolved in the autumn with the appointment of Kersti Kaljulaid, who became President of Estonia in October 2016. Difficulties that her successor, Alar Karis, did not encounter when elected in 2021.
The right to vote is reserved for citizens of Estonian nationality aged 18 or over, and as is often the case at the cutting edge of technology (Skype and Bolt were born in Estonia), citizens can vote in elections online. From independence in 1991 to 2008, Estonia reaped the rewards of its new policy: economic growth was strong, inflation under control and the budget in order. International financial institutions ranked Estonia's results among the best in Central and Eastern Europe, making it the Baltic Tiger model par excellence. As in Latvia, relations with Russia remain dominated by the issue of Russian-speaking minorities and the war in Ukraine.
Latvia's current system is a direct descendant of the 1918 Constitution, which was reintroduced in 1991. It is therefore a unicameral parliamentary system, closely resembling our Third Republic. The Single Assembly (Saeima) comprises one hundred deputies who elect the President of the Republic. There is no regional or local representation at central level, and grassroots democracy is limited to municipal elections. A government of thirteen ministers is appointed and led by the Prime Minister. The Saeima and the President can dissolve the government by means of a "question of confidence" procedure, particularly in budgetary matters. The President can dissolve the Saeima, but his powers are relatively limited to foreign diplomacy and a veto. Since July 8, 2023, the liberal-conservative Edgars Rinkēvičs has governed the country.
Latvia pursues an ultraliberal economic policy and still suffers from significant economic-political corruption. The Latvian population seems generally politically passive: it wasn't until 2004 and the appointment without consultation of Mrs. Ūdre (Saeima spokeswoman under the label of the Farmers' and Ecologists' Union, whose party allegedly benefited from a great deal of secret funding) to the post of European Commissioner that the first demonstrations targeting the government's action took place. A real shock came in January 2009 with social riots following a demonstration attended by almost 10,000 people: a direct consequence of the serious crisis the country was going through and the difficulties for many families to live properly after years of easy credit.
Relations with Russia remain delicate due to Latvia's large Russian population. With Russian interests controlling a fairly large share of local finance and sometimes having a monopoly on supplies (oil, gas), Latvian humor sums up the situation with the phrase "Russian finance holds Latvian politics by the purse". Furthermore, the issue of the treatment of non-citizens is regularly amplified - often to excess - by Russian diplomacy as a means of exerting pressure to open up Russian language (and therefore politics) in Europe. Many street demonstrations in Latvia have been largely monopolized by "spontaneous" actions directed and financed by Moscow (against NATO membership, against Latvian-language education reform...).
Relations between Russia and Latvia have always been tense. For Moscow, like the other two Baltic states, Latvia was part of its zone of influence. With its accession to the EU and NATO, Latvia has succeeded in reducing Russia's impact on its domestic and foreign policy, much to the chagrin of its powerful neighbor. Since the Ukrainian crisis, the Latvian government has openly expressed its support for Ukraine, and has been outspoken in its criticism of Moscow's hostile policy towards the former Soviet republics.
Lithuania is a parliamentary democracy. Like its sister countries, its parliament, the Seimas, is unicameral. It is made up of 141 deputies elected for a four-year term, with one particularity: 71 of them are elected in local constituencies, and the rest are elected on the basis of a blocked list of names in a national constituency. The President of the Republic is elected by universal suffrage for a five-year term. Since July 12, 2019, Gitanas Nauséda has governed the country. He was re-elected for a second term in May 2024.
In August 2020, the Lithuanian government took in the Belarusian president's opponent Svetlana Tikhanovskai as a refugee. For the head of Lithuanian diplomacy, "all those who have found refuge in Lithuania can feel safe and will not be returned to the regimes [that pursue them], whether for their struggle for democracy and freedom of expression or for their beliefs". Relations between Lithuania and Russia are just as tense as with the other two Baltic states.
On the economic side
During the Soviet era, the Baltic republics were considered by the rest of the USSR to be prosperous and privileged (installation of state-of-the-art factories, advanced technology, higher standard of living). As Soviet showcases to the Western world, they enjoyed a strategic, intermediary position. However, as in the rest of the Soviet Union, life was difficult. Despite the clear improvements brought about by the collapse of the USSR (arrival of Western products, end of interminable queues in front of state stores, freedom of expression and movement...), the first years of independence were difficult. In the 2000s, the three countries enjoyed stability and growth.
With integration into the European Union, the influx of foreign investment and European funds accelerated, and the region experienced economic euphoria. Wages rose rapidly, although still well below the European average. Rents are soaring, shopping malls are springing up like mushrooms... The 2008 economic crisis hit these three countries hard, and because of the importance of their service sector, they felt the effects head-on.
The corollary: skyrocketing prices, mass unemployment and a freeze on real estate projects. In 2009, riots even broke out in Latvia and Lithuania to protest against the precarious situation of part of the population. Strong austerity policies applied in 2010-2012 in all three countries enabled them to emerge from the crisis with a new upswing in economic and social development. Today, the Baltic States are often referred to as the "Baltic Tigers", due to the significant economic modernization they have undergone since independence. Nevertheless, the post-Covid recovery and the consequences of Russia's invasion of Ukraine have contributed to the highest inflation rates of all European Union member states: on average in 2022, 17.2% in Latvia, 18.9% in Lithuania and 19.4% in Estonia (where prices are now almost equal to those in Western Europe). Inflation appears to be easing in 2023, having fallen back below 10%.
One of the major economic development projects uniting the three countries is the Rail Baltica railroad. Linking Warsaw to Tallinn in a few years' time, and eventually Helsinki via a tunnel, it will put an end to their isolation from the rest of the European rail network.
Estonia, a liberal country
After independence, Estonia successfully made the transition from an administered, centralized economy to a dynamic, liberalized market economy, with successive governments observing strict fiscal orthodoxy while successfully modernizing the country. Between 2000 and 2007, Estonia enjoyed average annual growth of over 8%, driven mainly by strong foreign investment and rising wages, and accompanied by a sharp reduction in unemployment.
Highly dependent on foreign investment, the country was hit hard by the recession in 2008-2009, which caused average wages to fall by almost 5%. In 2010, however, the Estonian economy began to grow again. This trend continued and intensified in subsequent years. However, the crisis has left in its wake high unemployment and a weakened social fabric, particularly in the Russian-speaking regions of the east. Emigration is on the increase for economic reasons (doctors to Finland and Sweden, IT experts to the USA). The country, which had 1.5 million inhabitants in 1995, has lost over 200,000. The Estonian government is attempting to resolve this demographic crisis through a program designed to encourage emigrants to return to the country, and to increase the birth rate.
The various economic sectors. Estonia's economic structure is dominated by the service sector, particularly transport, trade and tourism. While agriculture has declined considerably, industry remains diversified around a number of growth sectors, such as electronics and telecommunications subcontracting, and timber and natural resources.
The leading sector in the Estonian economy is IT. It was Estonian programmers who developed Skype, as well as cell phone payment systems, Internet voting and the multifunctional electronic identity card; they have also put a great deal of effort into cybersecurity.
One of the most liberal countries in the world. The tourism sector accounts for almost 10% of Estonia's GDP. Since May 2004, following Estonia's integration into the EU, statistics on the number of foreign nationals crossing Estonian borders are no longer available. However, this indicator has been rising steadily. The number of tourists visiting Estonia in 2023 reached 4 million for an Estonian population of 1.3 million.
Tourists to Estonia mainly come from Finland (more than half) and until recently from Russia, but also from Sweden, Germany, Italy, Latvia and, increasingly thanks to the arrival of low-cost airlines, from Great Britain. Tallinn is the country's leading tourist destination. Most of the tourists who stay less than a day in Estonia are Finns, who come not to visit, but to buy cheaper goods: beer and other alcoholic beverages, food products, but also skincare and beauty products, clothing and household goods.
Latvia, between stability and growth
Long gone are the days when Latvia, emerging from almost fifty years of communism, saw its production plummet and experienced hyperinflation. From 1999 to 2007, Latvia enjoyed very sustained GDP growth, with an average increase of over 8%. Latvia's standard of living caught up with that of its European peers. But the country was hit hard by the financial and economic crisis in 2008-2009, with GDP falling by 18% in 2009. The particularly rigid austerity measures then implemented led to a sharp reduction in the wage bill and public spending. Unemployment remains a major concern, mainly affecting less developed regions and untrained, non-mobile populations. After three years of recession, the Latvian economy posted one of the best growth rates in the euro zone in 2011. Apart from timber, which accounts for 33% of its exports, Latvia has no natural resources or industrial equipment. Its economy is not very diversified, and trade with the European Union is still limited. The country is an essential gateway for Russian oil, which is a significant source of revenue for Latvia, but also increases its dependence on its large Russian neighbor, with whom it is finding it very difficult to strike a political balance. As mentioned above, Russia's invasion of Ukraine has changed all that.
The primary sector. The primary sector (agriculture, forestry and fishing) now accounts for just 4.1% of Latvia's GDP, down from 20% in the early 1990s. However, it remains important, employing 11.6% of the working population. The primary sector plays an essential role in the creation of rural and regional jobs, despite the fact that the unemployment rate in rural Latvia is sometimes as high as 25%. Since independence, fishing production has declined, as has meat production.
After independence, the agricultural sector underwent major restructuring: land that had previously been collectively owned was privatized and returned to the former owners or their heirs. Former Soviet kolkhozes were dismantled, and machinery and land, which had previously been held in common, were shared out. Today, the agricultural sector suffers from the small size of farms, falling domestic demand and the lack of competitiveness of local production in the face of imports.
Forests cover 45% of Latvia's territory. Latvia's forest resources remain one of the country's main assets. Over time, activities have diversified, and today the timber industry encompasses a broad spectrum of industries, from raw materials (logging) to intermediate products (sawn timber, plywood, etc.) and finished products (furniture, etc.).
Theindustry. The best-performing industries are agrifood, wood processing, information and communication technologies and electronics, mechanical engineering and metallurgy, textiles and ready-to-wear, and chemicals/pharmaceuticals. Today, on the industrial wastelands of former Soviet conglomerates, industrial parks are springing up where subcontracting activities are flourishing, particularly in the textile sector. Latvia has become a prime location for the relocation of Danish, Swedish and German companies.
Today, the food industry is the most important branch of the processing industry, which currently employs the largest workforce. The most important sectors are the dairy industry, meat processing, fish processing, cereal processing and beverage production. Local production accounts for 60% of the market, but the rapid development of supermarkets and changing consumption patterns linked to rising living standards are driving consumers to seek out new products and diversify their demand in the food sector.
Services. In the space of just a few years, Latvia's service sector has become predominant, far ahead of manufacturing and the primary sector. In 2017, the service sector accounted for 73.7% of the country's GDP, a sign, if any were needed, that Latvia has rapidly reoriented itself towards a Western-style organization of the economy. The main contributors are trade (22.4%), transport, storage and communications (13%), real estate (11%) and public administration (7%). The development of the services sector depends above all on the communications and transport sectors, particularly port transit. But the weight of these sectors in the service sector as a whole is set to decline. The share of other services - financial and commercial in particular - is expanding rapidly, boosted by competition from foreign companies.
Tourism is growing fast in Latvia, and the country's capital is now besieged in summer by Scandinavian, English and Italian tourists. 8.3 million tourists visited Latvia in 2019, far more than the country's population, before dropping to 340,000 in 2021, the year of the Covid. Slowly but surely, Latvian tourism is picking up again, and the latest figures mention over 2 million tourists in 2022 and over a million tourists in July 2023. However, tourism currently accounts for only 4.8% of GDP, as most tourists only spend a few days in Latvia.
Baltic tourists (Lithuanians and Estonians) account for the vast majority (58%), mainly for transit and family reasons, followed by Russians until recently, Germans and Finns. The Latvian government has announced an ambitious tourism development plan, with the aim of making Latvia a well-known destination in Western Europe, differentiated from the other Baltic countries. This program was crowned by an advertising campaign on the CNN international network, and supported by the country's membership of the World Tourism Organization (WTO).
National resources and energy issues. By 2021, 42% of Latvia's electricity will be generated by renewable energies (with hydroelectricity the main source). However, renewable energies are not sufficient to cover all local energy demand. For the time being, oil is neither mined nor refined on Latvian soil.
The Lithuanian Mazeikiai refinery is Latvia's main fuel supplier (80-90%). The country is therefore energy-dependent on its neighbors: 70% of its gas supply came from Russia until the ban on gas imports, which reduced consumption by 30%. Norway, the United States and Qatar have replaced Russia in Latvia's gas supplies.
Lithuania, the tiger of the East
In 2009, the country experienced an unprecedented economic crisis, with GDP falling by 14.5%. To tackle the crisis, the Lithuanian government adopted draconian measures in 2009. Unlike its Latvian neighbor, Lithuania decided not to call on the International Monetary Fund and opted for austerity, drastically cutting public-sector spending, in particular civil servant salaries. Since 2011, the country has returned to growth (+5.9%) thanks to the government's economic and fiscal consolidation measures. The Lithuanian economy, boasting a skilled, competitive workforce, diversified exports (mainly to Russia, Latvia, Estonia, Germany, Poland and Belarus) and dynamic private consumption, has been able to recover and is recording some of the best growth rates in the European Union. The country joined the euro zone on January1, 2015.
Thedifficulties ofindependence. After the collapse of the Soviet Union, the country faced a crisis linked to the reorganization of its economy. First of all, a gap opened up between those who seized the economic opportunities offered by independence and the new poor, who survived on odd jobs.
The reintroduction of the national currency, with its emphasis on combating hyperinflation, and the ensuing surge in prices were merciless for the little people. They had no access to the Western-style supermarkets that appeared after 1991, and lived in Soviet-style low-income housing estates where several families crammed together.
A difficult transition. On the economic front, the Lithuanians had to tackle their march towards a market economy under very difficult conditions. They had to reform, redefine a framework of laws and regulations for the economy and trade to combat unchecked corruption and poor tax collection, adapt to international price competition, reorient trade towards new partners (other than the former USSR), recreate an environment that was hardly conducive to business, and restructure the banking system.
Privatizations aimed at reducing the former state monopoly meant that part of the power passed into the hands of the newly privileged, and even the mafia which, as elsewhere, is rampant in the region. The young independent republic had to deal with border issues, notably with Belarus and Russia. It was also necessary to recreate the national army with existing resources and manpower (American advisors joined the Lithuanian army, French CRS were sent in), reinstall embassies abroad, find premises for them and welcome those of other countries.
Hopes and future. After fifty years of communism, independence has brought with it the prospects and opportunities that a market economy seems to offer. Exports, which had previously gone mainly to Russia, are now being redirected towards the European Union, which is becoming Lithuania's main trading partner.
Lithuania also benefits from the fact that, during the winter period, its only port, at Klaipėda, is not icebound. The Via Baltica freeway, linking Finland to Poland via the Baltic states, is a source of development for the region.
German presence through tourism and investment. Although the Poles have overtaken the Germans, the latter still account for a large proportion of foreign tourists. They are followed by the Latvians, who close the top three.
Energy sources: issues and fears
In the summer of 2020, Estonia's capital decided to embrace green mobility. The result: new biomethane buses. After an initial trial run lasting a few months, the city plans to replace one hundred of its old buses with these new ones, with the aim of replacing all buses by 2025. In the same vein, the Estonian cities of Parnu and Tartu have also taken the plunge into green mobility.
In Lithuania, people are worried about the new Belarusian power plant, located less than fifty kilometers from Vilnius. The first concern is that water from the Neris - the river that flows downstream through Vilnius - will be used to cool the reactors. Secondly, the plant is located in a seismic zone, and thirdly, there was already an accident in 2016 during construction. In 2020, just a few days after its inauguration, the plant has already been forced to close following an explosion of electrical transformers. Lithuanian asset: Klaipėda benefits from a large LNG terminal well connected to neighboring countries.
In Latvia, the end of 2020 marks the completion of a new high-voltage power line to Estonia. This new line will bring Latvia into line with the European grid and enable it to finally free itself from the Russian network (and hence dependence on it). This emancipation has become all the more urgent since the war between Russia and Ukraine, when Latvia imported 90% of its natural gas needs from Russia.
The Russian invasion forced the Baltic States to rethink their energy mix and policies. In 2023, all three countries decided to ban imports of natural gas, electricity and oil from Russia. While Estonia aims to produce all its electricity from renewable sources by 2030, Lithuania is aiming for the same goal by 2045. Latvia, meanwhile, plans to become carbon-neutral by 2050.
The Baltic Sea: an ecological concern
It's the youngest sea on the planet, dating back only 10,000 to 15,000 years, following the retreat of glaciers. But it is also one of the most polluted in the world. The eutrophication phenomenon is particularly high. Eutrophication is the accumulation of nutrients in the sea, leading to a proliferation of algae and a depletion of oxygen in the sea. The main source of this problem is agricultural discharges.
As a result, a European project was carried out in 2019 encompassing Denmark, Sweden, Estonia and Latvia. Mussel farms have been set up so that they ingest microscopic algae, helping to filter the water.