The art of economic renaissance

By bne IntelliNews August 30, 2011

Mike Collier in Riga -

Even if a double-dip doomsday does do for the financial markets in the near future, traders can take some solace from the Baltic states of Latvia, Estonia and Lithuania - and not just because a region which suffered a cumulative real GDP contraction of 18% in 2008-09 has shown it is possible to bounce back in fairly short order.

August 28 saw the prime ministers of the three countries meeting in Latvia on the premises of the former Riga Bourse, freshly re-opened after a multi-million-euro restoration that has transformed it from the 1855 trading floor of the Baltic German and Imperial Russian mercantile classes into a rather impressive art museum. So if the worst happens and the London and New York stock exchanges do get wiped out for a century or so, at least they can take consolation from the fact that they could provide excellent exhibition space for collections of Chinese porcelain and Murano glass.

As if to stress the informal nature of their meeting, the three PMs arrived to meet the press in shirt sleeves and relaxed mood. All smart, centre-right politicians who have won the respect of their peers elsewhere for staving off total collapse by means of the sort of austerity measures that would get Greeks throwing plates in the Meissen pottery section, they are starting to get used to hearing the Baltics lauded as successes again after a few years as economic lepers.

Moving swiftly on

Indeed, such is the level of acceptance of the Baltic turnaround that at times they seemed keen to just get on with the sightseeing. Following an introductory speech by host Valdis Dombrovskis - in Latvian - Estonia's Andrus Ansip said rather too quickly that he agreed with everything Dombrovskis had just said and that there was no need for a translation, until Dombrovskis pointed out that not everyone present spoke Latvian (including Ansip).

But Ansip seemed in no hurry at all when a simple question from bne on a different subject sparked a 10-minute monologue on why Estonia was really, really happy to have joined the Eurozone on January 1 even with it experiencing more problems than a bull in a china shop. "Despite all the difficulties we have in some Eurozone member states, we are satisfied with the euro in Estonia," Ansip said repeatedly, starting to sound like a cuckold trying to convince himself his wife really does love him.

"Now we can say there are no currency risks any more," he added somewhat credulously. "We are satisfied with our euro, but of course we are worried about the situation in some Eurozone member states."

Eventually Ansip wandered back towards the original question, which had been about how prepared the Baltics are to withstand a double-dip recession in the markets. "All the Baltic states are pretty well prepared for any kind of crisis," he said. "It's very important to keep finances in good shape, because on average in the European Union countries have to pay interest rates worth 3% of their GDP. In our countries, deficits are at quite low levels and public sector loans are at quite low levels. That means we are better prepared for the next wave of the crisis, but hopefully we won't have to face it."

One thing all journalists on the Baltic beat look forward to is regular updates on Lithuanian PM Andrius Kubilius' bedside reading. A fan of the sort of self-help and motivational books usually given out at conferences of vacuum cleaner salesmen, he didn't disappoint in Riga. "Anyone who wants to understand the Baltic situation should read the book by Valdis Dombrovskis and Anders Aslund called... what's it called again?" he asked the author standing beside him.

"It's worth remembering our previous informal meetings," Kubilius said on the subject of the new lean Baltic economies. "Our topics for discussion have changed. In 2009, we talked about surviving the recession. In 2010, it was about getting a clearer picture, and this weekend we hardly talked about our economies at all. We overcame a very deep crisis. We have some worries about what can happen in the Eurozone, but we now have a recipe for national measures to account for any kind of global crisis."

It was left to Dombrovskis to rein in the mood by pointing out that the export-driven nature of the recovery will depend on the region's main markets in Scandinavia, Germany, Poland and Russia also avoiding recession re-runs. "There are some signs of alarm coming from Germany," he warned. "Second quarter growth was just 0.1%, which could mean the economy is slowing down, so we'll have to see how it impacts our export markets."

Amongst the bonhomie, there were a couple of worthwhile bits of information, too. Kubilius said progress on the by-now almost mythical project to build a new nuclear power station at Ignalina was "very good," that General Electric's proposals were the best of the bunch that are still playing ball, and that "at the end of this year or the very beginning of next year" agreements would be signed to move the project "to a real conclusion."

On the subject of the location of a proposed regional liquefied natural gas (LNG) terminal, there was an interesting tidbit too. To no-one's surprise Latvia has recommended that Latvia is the best place to build an LNG terminal, while Lithuania takes the view that Lithuania would be a bit better. An Estonian report due in October will inevitably conclude that in fact Estonia would be best of all, threatening to turn the whole thing into another Ignalina-style stalemate.

With that in mind the prime ministers displayed some nifty footwork by speculating that it was not necessarily the case that only one facility was needed. "Security of supply can have different options. It can have one very big regional LNG terminal, or it can have several terminals with both big regional ones and smaller ones for domestic needs," Kubilius speculated.

So it should come as no surprise to the European Commission if a document signed in Riga, Tallinn and Vilnius turns up some time later this year suggesting that one quite big LNG terminal and two slightly smaller ones would be much better for regional energy security than one massive winner-takes-all facility.

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