Searching European Identity Latvian 3rd Year of Membership in the European Union Andzs Ubelis MSC Eco. student Cardiff University Deputy State Secretary, Ministry of Finance, Republic of Latvia EPRC Glasgow, 20 March, 2007

2 Content of Presentation I. Past - EU accession – success story II. Present - Resume after 3rd year in EU III. Future – in the search of new European identity

3 I. EU accession – success story  9 years of reforms ( )  economic transition (Free Trade Agreement with EU, Russian crises 1998) and shifting trade from East to West  market liberalisation  harmonisation of the legislation  building institutions and improving governance

4 I. EU accession – success story  Accession process  proving commitment for reforms  getting on a fast track – escaping from the group of 2007 enlargement (1999 Helsinki)

5 II. Resume after 3rd year in EU  Status of a new member state  newcomers in an old club – EU15 vs EU10 (EU12):  EU6 vs Cohesion countries  Donors vs Beneficiaries  Liberal economies vs Social Model

6 II. Resume after 3rd year in EU  Costs and Benefits  good financial package for  little success with EU agenda (constitution, legislation on free movement of services)  limited influence at European scale: only one clearly visible political leader from Latvia on European / International scene poor representation in EU institutions  joining Euro zone becomes a challenge

7 II. Resume after 3rd year in EU  Baltic tiger walking on the edge  high real GDP growth rates (10% and more)  inflow of FDI and capital  high inflation  current account deficit  indebtedness  risk of overheating  risk of devaluation of national currency and financial crisis

8 II. Resume after 3rd year in EU  Baltic tiger walking on the edge  Macroeconomic policy “trap” for the Government and the Central Bank  EU accession  economic growth  higher demand for labour  higher wages  higher prices  inflation  EU accession  agenda for joining Euro zone  pegging Latvian Lat to Euro  the Central Bank loosing control over monetary policy (interest rates, exchange rates)  can’t control inflation  EU accession  opening EU labour market  outflow of labour force (e.g. to UK, Ireland)  Government has to rise salaries and reduce taxes to motivate people stay in Latvia  can’t control inflation

9 II. Resume after 3rd year in EU  Baltic tiger walking on the edge  Structural changes in economy required to sustain the growth  rising productivity  higher value and less labour intensive added services and production  less capital intensive production  more export oriented services and production  smart use of EU funding

10 III. Further perspectives – in the search of new European identity  Why new European identity needed for Latvia  setting medium term development targets for the nation – also requires searching for a new global / regional (e.g. Europe, Baltic Sea Region) role  mobilizing and targeting scarce resources (human, intellectual, financial) for action at international / EU scale

11 III. Further perspectives – in the search of new European identity  Possible identity scenarios - endogenous  from fast growing economy  to most competitive economy  standing for liberal values - free movement of services, reducing tax burden  building knowledge based economy  benefit from having 2 most competitive European economies at our door step - new identity for Baltic Sea Region  from periphery and buffer zone with Russia  to the bridge with Russia and former Soviet Union

12 III. Further perspectives – in the search of new European identity  Possible identity scenarios - endogenous  from beneficiaries of extensive EU assistance  to effective manager of public financing in EU  from a country dependent on supplies of fossil energy from Russia  to front runner of sustainable energy policy in Europe

13 Conclusion Latvian accession to European Union proved to be success. However accession itself does not grant to a country a status of a successful member state. It’s now in the hands of Latvians to prove their ability to become successful Europeans.