Next week, around 800 representatives of business, national and local governments, academia and various organizations will gather in Vilnius for the Baltic Development Forum. It is an important event. Not only will this year’s Forum, the 12th since its inception in 1999, be arranged alongside that of the Council of the Baltic Sea States Summit. It also takes place at a critical time for the world economy and the global financial system.
Happily, we can now note that, following the recent sharp downturn in the region which was triggered by the global crisis, the confidence is up in the Baltic Sea Region. Challenges remain for the recovery, especially as the turbulence in the markets ahead of the Greek recovery program can create a wait-and-see-attitude.
Companies and other borrowers throughout the Baltic Sea Region know that bank financing is scarce. Availability of long-term loans at acceptable terms is limited. This is a problem at a time when we need to invest and build for the future. The EU strategy for the Baltic Sea Region aims to make the region environmentally sustainable, competitive, accessible and safe and secure. These priorities tie in well with the overall EU 2020 priorities of smart, sustainable and inclusive growth.
As the EU’s long-term financing arm, the European Investment Bank plays an important role in this work. In the years 2007-2009, we lent more than 20 billion euros to projects in the region where we are, by far, the largest international long-term lender. The EIB has financed broadband networks, wastewater treatment plants, bridges, tunnels, port facilities, energy projects and a large number of research, development and innovation (RDI) projects. Looking ahead, it is evident that the focus on “smart growth” requires more investments in RDI, in education and digital society. For the public sector, this translates into providing better education and better professional skills. In the private sector, it means that innovative companies with high growth potential will require more resources for implementation of the “smart growth” agenda.
Access to financing is, thus, crucial if we are to make progress toward the goals set out in the EU Baltic Sea Region strategy. Today, conditions on the financial markets are difficult and bank financing is not as easily available as before the crisis. It will take time before supply of financing improves. This is for three reasons. First, banks will need to continue to reduce their balance sheets as an effect of the crisis. Second, changes in regulations such as the future Basel III rules mean there will be more stringent requirements for banks’ capital and liquidity. Third, increasing government borrowing due to higher public deficits creates a crowding-out effect.
In order to attract investors in a climate of capital scarcity, the Baltic Sea Region needs to concentrate on doing the right things. It needs stable and credible macroeconomic and microeconomic policies. It needs business-friendly regulations. And it needs skilled labor.
This third aspect is especially important. Skilled labor is a vital component in any society aspiring to smart, sustainable and inclusive growth (that is, growth combined with high employment). And if the region is to be considered attractive among highly skilled and professional people, it needs to have good living conditions. Good living conditions exist today in many parts of the region, but not everywhere. In any case, even affluent societies must constantly invest and re-invest in the future.
And good living conditions are created through improved infrastructure and cleaner environment. The conclusion we can draw is the following: there is an obvious interrelation between smart growth, sustainable growth and inclusive growth. I have no doubt that people in the Baltic Sea Region will be able to work with determination with these goals in mind.
By Eva Srejber
Ms. Srejber is Vice-President of the European Investment Bank with special responsibility for financing operations in Finland, Sweden, Estonia, Latvia, Lithuania, EFTA countries, the EU’s Eastern neighbors and Central Asia.