Tensions in the Baltic Region Ratchet up as Lithuania Readies to Join the Euro Zone

Written by | Friday, December 26th, 2014

On January 1, 2015 Lithuania will become the latest of the Baltic states to join the euro zone. Like its Baltic counterparts, Estonia and Latvia, the country is hoping for lower borrowing costs and more investment to flow in. Lithuania, being one of the poorest but also fastest growing economies in the European Union, announced it would provide Ukraine with military aid saying that Russia is a “terrorist country”. This has further intensified tensions with Moscow which have been simmering since the country became the first republic to leave the Soviet Union in 1990.

Russia has recently started a go-slow approach on the border with the Kaliningrad enclave, which is home to the Russian Baltic sea fleet and, as many Lithuanians think, also nuclear weapons. Since the beginning of the conflict over Crimea, the situation along the Russian borders with the Baltic countries has become increasingly precarious. Lithuania, Latvia, and Estonia have not only felt the burden of Western anti-Moscow sanctions but also witnessed Russia’s military grandstanding on their borders.

West-imposed sanctions against Moscow have severely hit the cross-border activity between Lithuania and Russia with the number of Lithuanian cars crossing the border having fallen by a factor of ten. The sanctions have moreover had a negative impact on the country’s transport and dairy sectors, with the former employing about 100,000 people. Yet, the Lithuanian government has been among most vocal critics of the Russian actions in Ukraine despite the fact that that it still accounts for about 20 percent of Lithuanian exports.

Although many would like to see the economy again more intertwined with Russia, economists think that the overall orientation is to focus more on the west and emerging markets in Asia as these are the regions where businessmen are most likely to look for future business opportunities. “It’s better to work with less risky markets, make use of having a stable currency like the euro in Lithuania, have lower profits but long-term stability in business,” Lithuania’s Prime Minister Algirdas Butkevicius said.

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