Sage advice from a great Dane

From his stint as Danish foreign minister in the early 1990s, to his current position as head of the Baltic Development Forum, an important regional think-tank, Uffe Ellemann-Jensen has been one of the Baltic countries’ best friends on the international scene. Philip Birzulis spoke to him about the economic crisis, Russian gas and euro membership.

You’ve been to the Baltics many times over the last 20 years. Are you optimistic about the way the region is dealing with its problems today?

Yes I am, for two reasons. Reason number one is that they have been in much deeper trouble before. If you look at the drops in GDP this time – and I am aware that people are suffering, especially here in Latvia – compared with the years immediately after 1991, when they lost 50-60 percent of GDP from a much lower base, today you are looking at 20-25 percent from  a much higher position. I will always remain an optimist with regard to the three Baltic countries, because I realize what they have accomplished over the last 20 years and they have some strong resources. Figures indicate they are on their way up, but they can only do this if they maintain political stability.

Do you think that political stability is a risk in any of the three countries?

Of course, and there is a particular risk in Latvia. If you see the way some of the oligarchs are behaving, there is a risk, and there are elections this autumn. But even though the crisis has been extremely hard, I admire the way it has been dealt with so far. There is also another problem today, that the Baltics are not as “interesting” as they were in the 1990s.Since they became members of the EU and NATO, they are suddenly equal partners with the rest of us. The Nordic countries in particular expect a lot from them and we are sometimes easily disappointed in them. People in my part of the world forget how very few years they have had to get where they are. So they are being “normalized,” and this is a problem because things are expected of them which are hard to deliver. And my advice to them is to show the outside world that you can stick together and deal with these political challenges. There’s a lot of prejudice surrounding these countries in the rest of Europe, along the lines of “you have corruption, you have oligarchs, you don’t know how to deal with minorities, you suffer from Russophobia.” This is what they are up against, and they can only deal with it if they stick together.

You have a vision for cooperation between the Baltic Sea region as a whole. How do you see that developing?

We need to tear down barriers, red tape, bureaucracy. This is now being done to a great extent in the parts of the region that are now in the EU. The big problem is still Russia. If you have this vision for the region then Russia including Kaliningrad should, of course, be included, but there is still a hell of a long way to go because Russia has not developed in the democratic way I would like to see, and they still have a lot of bureaucracy and a lot of bias vis a vis, for example, the Baltic countries and Poland. There are two areas where cooperation is obviously vital. The first is the environment in the broadest sense. The second is energy. We have this discussion about Russian gas and the “energy weapon,” and fear of the Nord Stream project. I am also very critical of the political side of this project, but as I have said to the leaders of the Baltics, while we need to take your concerns seriously, you need to look at the possibilities for defusing the Russian gas weapon. There is the idea of a gas pipeline through Poland to Lithuania, and a project has been made in this regard. This would mean that the gas coming from Nord Stream to Western Europe would also go to the Baltic countries. On top of that it is also necessary to create a single European market for natural gas. This would make it impossible for Gazprom to use the gas weapon against the Baltics. A single market for gas and no special deals, and this big project supported by the EU would mean that the three Baltics are no longer energy “islands.” So I say to the Baltic leaders, why aren’t you out there screaming for this to be done? Why are there so many obstacles?

Aren’t there limits to the amount of integration between the EU members around the Baltic Sea given they have such differing levels of economic development? For example, a few years ago there was the so-called Laval case, where a Latvian construction firm got a contract in Sweden to build a kindergarten. In simple terms, the firm paid its workers less than its Swedish competitors, the Swedish unions got upset and the Latvian company was forced out of this market. Isn’t this obviously a red line for integration and cooperation?

This is a case of following the laws of the country you are operating in anywhere in the EU. It’s the same in Denmark, if you want to work in Denmark you have to play by Danish rules. The Baltics have the chance to attract investment because of their low labor costs, but my advice to them would be not to count on this for very long, because if you look at the speed with which you were approaching us before the crisis – and you should get back on that track – then this is only a very short-term advantage. Time will deal with this problem, and if we think back only a year or two and look at the wage inflation in Latvia, then it is clear that you were moving out of that situation.

Estonia is moving towards the euro whereas Denmark and Sweden don’t look like they will adopt it in the conceivable future. Is this a problem?

It’s mostly a problem for the stupid Danes and the stupid Swedes! There is absolutely no sane, serious economic reason as to why we should stay out. We will have to pay for that, and I sincerely hope the Estonians will get in. And I think it is in the interests of the other two Baltics to see them spearheading their way into the euro.

This year’s BDF conference will be devoted to competitiveness. Aren’t the Baltics at a crossroads, because on the one hand they can’t compete with Asian countries on labor costs but at the same time productivity is very low.

The Baltic countries have brains and they have been rather successful. We can see right now that they are starting to export themselves out of their problems, so of course they can do it. One area where they need a shot of energy is entrepreneurship. This is where they are lagging behind and perhaps more could be done by some of their partners in the region. There need to be more local entrepreneurs, and by that I don’t mean oligarchs. People here are smart and highly educated, but there’s still much to be done.