Sea of dreams

The Economist,April 18, 1998

IT IS the biggest, most complicated, and most promising piece of the new Europe. The Baltic sea links the largest countries on the continent with some of the smallest. On one side is prosperity, on the other the squalid poverty of the Russian outback—places such as Pskov and Karelia, where village life is reverting to a pre-industrial age. Democracy reigns in every country in the region, but not the rule of law. In Scandinavia the state is famously honest, open and accountable. In Russia it isn’t.

The stakes are high. The Baltic sea is home to Europe’s subtlest geopolitical puzzle: the security of Estonia, Latvia and Lithuania, collectively the Baltic states. If Russia loses its temper with the West, the Balts will probably be the cause—and the first to suffer. It is “a moral and political litmus test”, in the words of America’s top official dealing with the region. The Baltic is also crucial to the economic prospects of half the continent. It is the gateway to Russia, and the best chance of linking Russia solidly to Europe. Given free trade and stability, the richer countries of the region will revive the poor countries of the east with capital and know-how. In return, cheap land and labour can do the same for the overweight, rigid economies to the west.

So far the signs are mixed. Business and informal ties across the region are thriving. But politics is plagued by suspicion and clashing interests. There is rivalry within Scandinavia and distrust among the Balts. Everyone is fearful of Russia. In recent weeks Russia has been noisily threatening economic sanctions against Latvia, the weakest of the Baltic trio, ostensibly because of its treatment of its large Russian-speaking population. The mayor of Moscow, who could become Russia’s next president, saw nothing absurd last month in comparing Latvia to Pol Pot’s Cambodia.

My history is your geography

Mentalities and memories vary hugely. Former imperial powers rub shoulders with their victims. There are countries that could join NATO but do not need to (such as Sweden and Finland); those that would like to but cannot yet (the Balts); and one that is just about to (Poland).

Europe’s newest region is older than it looks. Six hundred years ago, the Hanseatic League, a confederation of city-states, made the Baltic the most prosperous part of Europe. To travel and trade between Riga, now the Latvian capital, and Danzig, now Gdansk in Poland, was as natural as, these days, the hop from London to Frankfurt.

The Hanseatic League was eclipsed by the rise of nation-states. But the region’s identity endured until 1940, when Stalin’s annexation of Estonia, Latvia and Lithuania—and, by the end of the war, his conquest of Poland and eastern Germany—sliced the Baltic in half. Whereas Austria and Hungary, and the two parts of Germany, kept discreet connections, the 80m people living on communist and capitalist sides of the Baltic seemed divided for ever.

Between 1989 and 1991 this division vanished. The Baltic states, for 50 years a polite cartographical fiction, regained their independence. Germany was reunited, Poland free. The neutrality of Finland and Sweden began to blur. Russia, for the first time in living memory, sought trade and investment, not territory and power.

Businessmen got in first. The former communist economies sucked in contracts and investment from the West, offering workers and factories, in convenient places and at knock-down prices. Trade rocketed. In 1996 Germany and Scandinavia exported goods worth more than $29 billion to eastern Baltic countries, and regional trade is estimated to be rising by about a third every year. By sclerotic European standards, the Baltic region is booming. Europe’s two fastest-growing economies (excepting those rebuilding from war) are on its shores: Estonia’s expanded by 8% in 1997 and Poland’s grew by 6.9%.

If the present is good, the future looks even better. Multinational companies certainly think so. ABB , Europe’s biggest engineering group, plans to double its sales to the Baltic states, currently $100m, in the next three years. Leif Johansson, head of Volvo, which this year is buying goods worth around SKr200m ($25m) from the Baltic states, expects their value to rise ten times in the next three to five years.

An example that really fires the imagination comes from a low-profile Finnish electronics-assembly company, Elcoteq. In the past six years it has become Estonia’s largest exporter, and thus the most important firm in the country. It makes mobile phones and other gadgets for Scandinavian companies such as Ericsson and Nokia. Originally it had planned to open a factory in East Asia; instead it has the pliant, mainly female workforce it needs just half an hour by plane from Helsinki. Their wages are one-sixth of what Elcoteq would pay in Finland.

Elcoteq was among the first Finnish firms in Estonia but it is hardly the only one. Giants like the state oil company, Neste, through to manufacturers with a few dozen employees find Estonia an easy place to do business. Finland is both Estonia’s biggest foreign trade partner and its biggest source of foreign investment.

Links at other levels are cosy too. Finland trains, and trusts, Estonia’s military and security services; keeps up morale in the police force and the judicial system through exchanges and liaison schemes; and operates a joint coastguard and marine-surveillance service. It is thanks partly to Finland that Estonia is the only Baltic state likely to join the European Union early. Linguistic ties mean that cultural links too are uniquely close. Tallinn is probably the only foreign city in the world where a poetry reading in Finnish can attract a crowd.

Honourable intentions

If the same could apply between Sweden and Poland, say, or Germany and Latvia, the region’s dreams of integration and partnership would stand a chance of coming true. Yet this is a long way off. No other pair or group of countries, so far, enjoys anything like the closeness of Finland and Estonia. The reasons are part historical, part geographical and part political.

The Finnish-Estonian relationship was blessed by deep roots (Finns have been zipping over to Estonia for weekend breaks for decades); by plenty of oomph in Helsinki (Finland was famously shrewd in its dealings with the Soviet Union); and, perhaps most important, by a model partner in Estonia. Of the former communist countries in the region, Estonia has the cleanest public administration (admittedly no great boast), the highest foreign investment per head and the cleverest foreign policy.

Other western countries, looking at Finland and Estonia, would quite like some colonies—sorry, friends—of their own. Denmark has latched on to Lithuania, Sweden to Latvia. Germany too makes grand, if largely empty, gestures towards the Baltic states, countries which in past centuries its knights conquered and barons ruled. Even Iceland gets an unaccustomed flash of limelight now and then. (It was the first to recognise Lithuania. In return it had its ambassador chucked out of Moscow, but won the devotion of 3m Lithuanians and a street name in Vilnius: a good result, was the feeling in Reykjavik.)

Part of this is simple self-interest. For Germany and Scandinavia, helping the Baltic states, Russia and Poland to become stable, prosperous neighbours is clearly sensible. But getting close to the post-communist states goes beyond nitty-gritty issues; for the local western powers it is also a question of national virility.

They have plenty of forums in which to do it. The area is rich in associations, groups, meetings, conferences and other talking shops. Few seem to bring much benefit—directly, at any rate. The biggest and supposedly most important (unusually, it includes Russia) is the Council of the Baltic Sea States ( CBSS ). One Finnish official describes it as “basically a nonsense organisation”. She is quick to add, however, that it has big hidden benefits. An otherwise pointless foreign ministers’ summit in Tallinn, for example, provided a handy opportunity for the Russian foreign minister to see his Estonian counterpart, a meeting that would have been stymied by ill-wishers on both sides if arranged bilaterally.

Many of the bodies seem to owe more to their founders’ desire to be seen to be doing something than any particular need. There is the Baltic Sea Chambers of Commerce Association and (no relation) the Baltic Sea Business Summit. Then you have Ars Baltica (for culture vultures), the Conference of Baltic Sea Sub-Regions, the Baltic Cities’ Union, the Jantar regional initiative (organised by the EU ), Baltic 21 (by Sweden), the Baltic Sea Task Force, the Baltic Sea Fund and the Helsinki Committee for Environmental Protection. On no account should one miss the Conference of Baltic Sea Parliaments, nor confuse it with the Baltic Assembly or the Baltic Council. “There are too many initiatives for such a small region,” says a senior Polish diplomat, wearily.

But behind all this contrived multilateralism, mountains of paper, repetitious calls for action and other gusts of hot air, some tough, self-interested power politics is going on. As usual, things are clearest in Finland . Having sorted out Estonia, and already being well engaged in north-western Russia, Finland is now turning its attention south, to Latvia. “The great task is to save Latvia. The risk is that it will become a Russian offshore paradise,” says one of Finland’s senior diplomats.

Estonia ’s policy is similar. It takes pains to be friendly with neighbouring Russian local governments (its foreign-aid programme, for example, recently paid the water bill for the cash-strapped town of Ivangorod, just across the border). And it looks south. “We want to do for Latvia what Finland did for us,” says an official.

Although the biggest country in Scandinavia, Sweden has yet to find its feet in its new backyard. Swedish companies are making inroads into the Baltic markets, but political steps are hesitant. “Stockholm keeps coming up with new ways of doing simple things in ever more complicated ways,” says a diplomat from a neighbouring country. It often offers help in the form of splashy gestures, as when the prime minister rushed off to Riga this week to show solidarity with beleaguered Latvia. This preference for words over deeds stems largely from Sweden’s neutrality. Whereas the Soviet Union forced neutrality on Finland, Sweden was non-aligned out of piety. The ardently anti-communist, pro- NATO , pro-American Balts grate on many Swedes. Sweden is happy to have its own robust defence against any potential adversary (Russia), but finds it hard to handle other countries with the same fears and ambitions.

Oddly, it is Denmark , for decades one of NATO ’s most ineffectual members, which has now become an ambitious geopolitical player in the region. With quiet encouragement from America, the government in Copenhagen has championed the Baltic states’ application to join NATO . According to Hans Mouritzen, a Danish foreign-policy expert, Denmark’s stance stems partly from its safe distance from Russia, and partly from its uncomfortable proximity to Germany. Danish politicians can safely annoy Russia, and they are keen to counterbalance German influence in Europe, both by bringing post-communist countries into western clubs, and by keeping America involved in the region.

This is echoed strongly in Poland . “Our policy is to keep the Russians out, the Americans in and the Germans down,” says a foreign-policy guru in Warsaw, self-consciously borrowing an old NATO motto. In the Baltic region, Polish involvement has mainly concentrated on Lithuania, where relations (extremely chilly in the early 1990s) are now so warm as to evoke comparisons with the Finnish-Estonian love affair. The rest of the Baltic has been seen as something of a sideshow, except by northern commercial cities such as Gdansk and Szczecin. However, Poland’s new government shows signs of wanting to catch up. The foreign minister, Bronislaw Geremek, speaks of a new “northern dimension” to his country’s foreign policy.

Germany has also treated the Baltic as a sideshow, although for different reasons. The policymakers who matter in Bonn are worried that a high-profile presence will offend Russia. Although Klaus Kinkel, Germany’s lightweight foreign minister, loves to describe his country as the “Balts’ advocate in Europe”, Chancellor Helmut Kohl seems singularly unenthusiastic about actually appearing in court for them. He waited until January of this year even to visit the Baltic states (a convenient CBSS summit in Riga provided an occasion). As in Poland, regional politicians think differently. North German cities and state governments have been some of the keenest promoters of the region’s recovery.

Just as in other tricky parts of the continent, such as the Balkans and Cyprus, America fills the vacuum left by Europeans’ indecisiveness. Its policy has two aspects. On the one hand, it is quietly strengthening and integrating the Baltic states’ defences, chiefly under the guise of Partnership for Peace (a programme for countries outside NATO ). The Baltic states now have mainly symbolic joint peacekeeping units. More important is Baltnet, a planned airspace monitoring system which, at a flick of a switch, could be integrated with NATO ’s, and Finland’s. There are also rumours of joint underwater defences (two of Russia’s main submarine bases lie on the Baltic sea).

But there is nothing spectacular. “We are waiting for the Russians to get bored,” says an architect of America’s policy, “while we move the Balts millimetre by millimetre towards the West.”

While preparing, discreetly, for the worst case (a resurgent, imperialistic Russia), America (and here the other western countries in the region join in) is also hoping for the best: that for the first time, Russia may grasp that foreign policy need not be a tug of war, where one side’s gain is another’s loss. National pride and other hang-ups aside, the real tasks facing every government in the Baltic region are those of good housekeeping: to tackle the bureaucratic and criminal obstacles to business, to salvage the environment (particularly the sorely polluted Baltic sea), and to get cracking on more humane policies on refugees, prisoners, orphans and cripples (whose treatment in most post-communist countries ranges from bad to shameful).

Love your neighbours

Can Russia behave? Will it allow its neighbours to prosper in freedom, and embrace their growing common identity, or will it regard all this as a threat, and try to frustrate it? This is the question hanging over the whole Baltic region. The current era may be the beginning of a new golden age, or just an interlude between bouts of tragedy. Pessimists draw comparisons with the inter-war years, when the Baltic states and Poland regained their statehood in 1918, enjoyed two decades of peace and stability, only to be crunched by Hitler and Stalin.

On the one hand, Russia’s policy seems designed to create worry and uncertainty. Its spies snoop and meddle. Scandalously, it maintains that Stalin’s annexation of the Baltic states in 1940 was legal. Official pronouncements favour words such as “intolerable” and “unacceptable”, particularly regarding the fate of 1m or more Soviet-era settlers in Estonia and Latvia, most of whom must pass exams in the local language and culture if they want to gain citizenship there. Many westerners agree that some rules are too harsh—especially for the elderly in Latvia. Discreet diplomatic pressure from the West has softened the Balts’ stand somewhat; table-thumping from the former colonial master tends to harden it.

But there is an encouraging side too. Business increasingly lubricates sticky political relations. As usual, Estonia is a lap ahead of its neighbours. Its foreign policy explicitly encourages the sale of important parts of the infrastructure to powerful Russian companies. Estonia’s gas industry, for example, is partly owned by Russia’s Gazprom (and partly by Germany’s giant Ruhrgas). The aim is to have powerful friends in both east and west with an interest in Estonia’s prosperity and stability.

This is probably the best available strategy. It has certainly warmed Estonia’s chilly relations with Russia. But it is not foolproof. In Latvia, Russian investment, especially in finance and banking, has been huge, but this seems to have whetted political appetites for control, rather than guaranteeing stability. The Baltic states’ future, and the high hopes for the whole region, depend on sensible governments in Russia and on the determination and clear-headedness of the West. History suggests this is a long shot.