The US Should Build on the Baltic Transformation

August 30, 2013

Sally Painter is a Truman Project Board Member.

The economic news out of Europe, while recently somewhat improved, continues to underwhelm. The Eurozone countries only just squeaked out of recession this past quarter with a combined growth rate of 0.3 percent – hardly the robust performance needed to get the continent back on track. Meanwhile, in Washington and Brussels, talks are under way for what is sure to be a long and winding process of negotiating a US-EU free trade deal.

Policymakers hold out hope that such a deal, combined with reforms to increase competitiveness, can put Europe back on track. But what shouldn’t be forgotten in this discussion is the role of Europe’s overachievers – the Baltic states of Latvia, Lithuania, and Estonia. They, and Latvia in particular, have battled through intense economic crisis to emerge stronger than ever – and their commitment to the European project should serve as an inspiration in tough times.

The US leadership has begun to appreciate – and publicly recognize – the contribution of the Baltics. On August 30th, President Obama is meeting with the presidents of these three countries – President Andris Bērziņš of Latvia, President Dalia Grybauskaitė of Lithuania, and President Toomas Hendrik Ilves of Estonia. The last time such a meeting occurred at the White House, it was 1993, and the topic du jour was the ongoing Russian occupation.

This time, the focus is very different. In the security realm, the Baltics are no longer protectorates of a struggling empire, but are instead outstanding contributors to the security of Europe and the world. All three countries, as members of NATO, have participated in military operations in Afghanistan, and are pursuing cooperation on important new issues such as cybersecurity. And, in a sign of the changing transatlantic relationship, economic integration and the pursuit of a comprehensive US-EU trade deal will be leading issues in the high level meeting.

Latvia is a perfect example of this transformation, as the country has been a leader in steadily deepening its commitment to full participation in the European project. In addition to Latvia’s EU membership and its deep commitment to NATO, it is also on the brink of joining the Eurozone currency community, and it has received an invitation to join Estonia as a member of the OECD. The accession process to join the 34 nation group of advanced economies officially began this past May, and could be completed as soon as 2015.

This is quite a turnaround from the darkest days of the global economic crisis. Latvia was particularly hard hit by that crisis, losing 25 percent of its GDP between 2008 and 2010. But the Latvian economy has bounced back impressively,becoming the fastest growing economy in Europe over the past two years, growing at over 5 percent each year. The resilience of the recovery led Moody’s to upgrade Latvia’s credit rating in March.

Latvia’s recovery has been built on the impressive ability of its leadership to take hard steps towards economic rebalancing, demonstrating both the resolve and the ability to get the country back on track with its dreams of European integration. While debt blooms elsewhere on the continent, Latvia has aggressively pursued fiscal adjustment – last year, the budget deficit was cut to 1.5 percent of GDP from 9.7 percent in 2009 – and it also achieved early repayment of its IMF stabilization loans. Now, unemployment is falling, robust growth has been restored, and the government’s resolve has reassured investors.

Thus, the Obama administration has chosen an opportune moment to reengage with its Baltic partners – and not a moment too soon. As Europe continues to struggle, NATO attempts to reinvigorate its mission, and tensions with Russia rise, it is in the clear interests of the United States to forge closer working relationships with steadfast, stable transatlantic partners such as these.

Continuing to support Latvia’s OECD accession process and its transition to a Eurozone nation are particularly important for US interests. Latvia is making important strides in improving the transparency and performance of both its business and public sectors. Because the economies and financial systems of the US and Latvia have become increasingly intertwined – to the benefit of both nations – strengthening this relationship is an important opportunity. The US has been a key partner in the development of Latvia’s financial sector into the regional leader it is today, and current trade talks can serve as a stepping stone to greater cooperation and mutually beneficial integration and investment.

These issues will surely be at the top of the agenda as President Obama meets with his Baltic counterparts. Just as the Baltics have transformed their role within greater Europe, it is time for the US to transform and reenergize its engagement with its Baltic partners. Failure to do so would bode ill for the future of our transatlantic future.