The unpredictable future of the Nordic-Baltic region

The triple menace of Russian revanchist, American opportunist and eurozone disintegrative tendencies does not bode well for future prospects of the Nordic-Baltic region, the Icelandic diplomat and former foreign minister, Jón Baldvin Hannibalsson, writes.

The prospects for the Nordic-Baltic (Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, and Sweden – editor) region are radically different from what they looked like in the late 1980s and the 1990s. This is mostly due to external forces, which are in flux, rather than due to any outstanding internal failures. Let’s have a closer look.

When I became personally involved, trying to garner support for the restoration of independence in the Baltic states – in the late 80s and early 90s – most of us retained a healthy dose of optimism for the future. The grounds for our optimism have turned out to be elusive.

Revanchist Russia

I presumed that post-Soviet Russia would somehow manage to become a democracy of a sort. Despite the traumatic transition from a centralised, statist economy to a market-driven economy, we hoped some sort of a democratic governance would gradually gain hold. This would include an independent judiciary, free media and the rule of law. As a consequence, we hoped Russia could become a “normal” country – meaning a country that could cooperate with her neighbours, rather than being a threat to their sovereignty.

All those hopes have come to naught. Russia under Putin and his power-clique has reverted back to her deep-rooted authoritarianism. Russia is not a democratic country, but a plutocratic state. Instead of a free media, the state orchestrates its propaganda through submissive media. The judiciary is strictly beholden to an all-powerful state.

“Russia under Putin and his power-clique has reverted back to her deep-rooted authoritarianism.”

Although economically weak, the government has channelled a disproportionate share of its limited resources to a military build-up. Dreams of an empire are back. The privatisation process á la Rus turned out to be the “theft of the century”, in the words of the impressive Canadian foreign minister. The foreign policy is revanchist. The aim is to restore the imperial “sphere of influence”. Russia is not going to tolerate Ukraine as a genuinely sovereign state. The power-holders in the Kremlin know that without Ukraine, Russia will be unable to restore her empire. And the Baltic countries will remain under steady pressure. The preponderance of the Russian ethnic minorities in Latvia and Estonia makes direct interference in their domestic affairs a continuous threat.

So far the oligarchs have defied Western sanctions. The political will of the Western leaders to maintain harsh sanctions in the long term is questionable.

America the unpredictable

Since the Second World War and all through the Cold War, the United States guaranteed Europe’s security through NATO. This basic premise of Western security is now being questioned by none other than the president of the United States himself. No one could have foreseen this in the 1990s. If the Trump phenomenon comes to remain more than a temporary lax into insanity, it is nothing short of an epoque-making rupture in international relations. The current power-holder in the White House is a corrupt businessman who feels more at home in the company of Russian oligarchs or Arabian oil-mandarins than in the councils of democratically elected leaders. Admittedly, policy statements from the president vary from day to day, and even by the hour; one day NATO is obsolete, but not the next. So, unpredictability is the order of the day.

“The current power-holder in the White House is a corrupt businessman who feels more at home in the company of Russian oligarchs or Arabian oil-mandarins than in the councils of democratically elected leaders.”

But at least the president has consistently refused to confirm unflinching support from the US for Article 5 – the collective security guarantee of the Western alliance. This not only strengthens the hand of the Kremlin in the current power game in Eastern Europe – if allowed to stand – it simply forces the leaders of the European Union to reconsider the basic premises of European security. Not a small order, by any standard. Does this not affect the traditional policy of neutrality and non-alliance pursued by Sweden and Finland? Will Baltic and East-European leaders be forced to insist on activating a common, European defence and security policy in response?

Donald Trump speaking at a rally in Fountain Hills, Arizona, in March 2016. Courtesy: Gage Skidmore/Wikipedia

The eurozone sclerosis

In the early 90s, leaders of the newly independent countries in Central and Eastern Europe were united across the political spectrum in seeking membership in the European Union and NATO. The primary concern was security within the framework of the Euro-Atlantic alliance. NATO was there to provide hard security. The European Union was there to provide long-term prosperity. Now, both those basic premises are being questioned: NATO, because the basic US-security guarantee is being withheld, without the EU responding in any way; and the European Union, because of its failure to deal decisively with the consequences of the post-2008 financial crisis.

Instead of being a step forward in the European integration process, the European Monetary Union has turned out to be a force for disintegration. The crisis revealed major structural flaws in the monetary union, which have not been amended. The austerity policy, imposed by Germany upon the weaker member states, has turned out to be an unmitigated disaster. The victims of this ill-conceived policy have suffered a lost decade of economic stagnation and social disruption.

“Instead of being a step forward in the European integration process, the European Monetary Union has turned out to be a force for disintegration.”

The sad economic performance of the peripheral eurozone countries compares unfavourably with the quick and resounding recovery of Iceland, which suffered a devastating crisis, but rejected EU-type austerity policies in favour of fiscal stimulus, with resounding success. The miserable performance of the eurozone countries and their disruptive social consequences has undermined confidence in the future of the European Union, both within member states and among those outside. In the case of Iceland, overwhelming support for EU membership immediately after the crisis has completely evaporated in light of the failure of the current EU leadership in dealing with the crisis.

This triple menace of Russian revanchist, American opportunist and eurozone disintegrative tendencies does not bode well for future prospects of the Nordic-Baltic region.

The Nordic model: still standing tall

In light of the aforesaid, it may sound paradoxical, but the fact is that the Nordic model is still standing tall. That is even an understatement. It is the only socio-economic model emerging from the ideological conflicts of the last century, which has stood the test of time in the age of globalisation. Soviet-type communism has been wiped off the surface of the earth – relegated to the dustbin of history. And unbridled capitalism – or market-fundamentalism of the neo-liberal variety – has only been saved from complete bankruptcy through a massive rescue operation by its arch enemy – The State. And it may be only serving time.

The global financial mechanism, run for the benefit of “maximising shareholder value”, continues to usurp the real economy and concentrate wealth and income in the coffers of a tiny elite. This system is inherently corrupt and utterly unsustainable. The massive eradication of jobs due to the ongoing technological revolution of automation will ultimately make this financial rentier system unworkable. Underneath the surface deep-rooted social discontent is gathering strength, waiting to erupt, although the manifestations of it are still diverse and incoherent. But we are waiting for the gathering storm.

Amid those reverse surroundings, the Nordic model has turned out to be surprisingly resilient. The Economist, a staunch advocate of market-liberalism for more than a century, couldn’t conceal its envy. On almost every criteria of socio-economic success, the Nordic countries come out at the top of the class. This is surprising because the neo-lib critique of high taxes making those countries uncompetitive and ultimately technological laggards, devoid of entrepreneurial spirit, had gained much credence. But here we are: economic growth, productivity per hour of work, technological innovation, participation in the labour market (especially by women), quality of education, social mobility, quality health care, equality of income, affordable housing for all, access to unspoiled nature – a vibrant democracy – you name it, they’ve got it.

“On almost every criteria of socio-economic success, the Nordic countries come out at the top of the class.”

This outstanding performance disqualifies the neo-liberal critique in one swoop. The facts speak for themselves.

Why is this solid performance not being emulated by others? Why do our friends across the Baltic Sea not look to the Nordic model to counteract the polarising effects of their market-fundamentalist policies? Why do the countries of Southern or Eastern Europe, suffering from the devastation of German-imposed austerity, not look to Copenhagen or Stockholm for advice on how to combat systemic unemployment and the increasing polarisation between rich and poor? Not withstanding the success or failure of the social-democratic parties in the Nordic countries, this is where social-democracy works. In the rest of Europe, it does not. Why?

The Western Nordics: Victims of Climate change?

The Nordic cooperation – if you include the western Nordics – encompasses a huge area. Greenland is on a continental scale of its own and the Northern Seas are vast. But the populations are tiny and what is holding us together may be tenuous. Are there any cultural ties between Greenlanders and Icelanders? If so, they are not immediately visible. Is Iceland – still the preserve of our ancient, common Viking-language – a shareholder in the common Nordic model? Having been turned into a laboratory for neo-liberal experiments – with disastrous consequences – Iceland is still reeling from that experience.

In spite of our speedy recovery from the financial crash in 2008, the restoration is based on the same precarious foundation, with the underlying problems unsolved. Our welfare state is in tatters and our physical infrastructure has proven to be wholly inadequate to sustain the tourist boom flooding the country. Continuing with the experiment of the smallest independent currency area in the world is simply too risky for comfort. The business class has turned out to be surprisingly corrupt, hiding their wealth in tax havens to avoid paying their fair share of taxes. Not exactly a description of a Nordic welfare-state.

“Having been turned into a laboratory for neo-liberal experiments – with disastrous consequences – Iceland is still reeling from that experience.”

In the next few decades, the fundamental effect of climate change will put the precarious ties holding us together to a severe test. The melting of the ice will not only make rich mineral resources accessible to the world, but also open up the northern sea routes for heavy traffic between the rising Pacific powers and the Atlantic Sea board. Will the tiny population of Greenland be able to assert control over the multinationals, awash in cash, queuing up to exploit their natural resources? Will Iceland be turned into a transportation hub – a new Rotterdam in the High North – for heavy cargo, shipped from the “new workshop of the world” – China and South-East Asia – on its way to America and Europe? Follow the money. Will this gradually lead to an undue influence from China (and perhaps Russia) in this hitherto Nordic region?

And what about the European Union?

None of the countries involved – Greenland, Iceland, the Faroe Islands and Norway – are members of the European Union. Given the EU’s inability so far to solve its inherent crisis, none of those countries are likely to apply for membership any time soon. That means the European Union does not even have a seat at the table in the Arctic Council, except through Swedish or Finnish representatives. And what about the security dimension in the High North? The United States closed down its naval presence in Iceland in 2006, on the premise that Russia had become a partner for peace.

China is already an active participant in Arctic councils – investing heavily in scientific research in the area. The Middle Kingdom is historically known for its long-term thinking. So, everything is in flux.

Norway and Iceland (along with Lichtenstein) still maintain what is left of the European Free Trade Association. They manage their relationship with the European Union on the basis of the EEA-agreement from 1994. Both are rich and resource-based economies. That explains why Norway has twice rejected membership of the EU; it is also the main explanation why Iceland is unlikely to renew its application any time soon.

The EEA-agreement provides those two countries with full access to the European inner market – without saddling them with the disadvantages of the common fisheries policy – which is an unmitigated disaster – or the European monetary policy (EMU), which is structurally flawed to a fault at German insistence. This means those two countries are under no pressure to seek other arrangements with the EU, in spite of the sovereignty infringement involved (ie they receive the rules and legislation, governing the inner market by fax).

The Brexit-flop and the future

With British politics out of control – after prime minister Theresa May’s failed bid to strengthen her hand in the post-Brexit negotiations with the EU, the EEA-agreement has once again been presented as the ultimate safety valve, safeguarding the UK’s massive trading interests vis-a-vis the EU. Were this to be so, it indicates how utterly the Westminster government has lost its grip on the course of events after Brexit. And it means a total reversal of declared policy. Immediately after the Brexit referendum, the UK government rejected an EFTA membership, since its sovereignty deficit would be wholly unacceptable for a major country like the United Kingdom. Also, it would involve continued British contributions to the EU-budget, as well as accepting free movement of people and foreign jurisdiction.

This is a measure of how dismally the British Tories have handled the Brexit affair, if they end up with no alternative but the EFTA. On the other hand, an EFTA membership and access to the internal market through the EEA agreement would make perfect sense for independent Scotland, were the UK to break up into its constituent parts after Brexit. This is not as farfetched a possibility as it may seem for the time being. Scotland, after all, voted against leaving the EU, and the home government is insisting on Scotland’s rights to maintain access to the inner market. This, indeed, could become an interesting outcome of Brexit – one of the greatest political flops of recent history.

So, what is the future of Nordic cooperation?

The resilience of the Nordic model points to its strength. The tenuous ties linking the western Nordics to the heartland of Scandinavia in a foreseeable sea of change points to its weakness. The internal division between the hardcore eurozone members on the one hand and the reluctant members and outsiders on the other, seems to exclude the possibility of a common path for the future. The dominance of external forces – Russian revanchist policies, the unpredictability of US opportunism, and the debacle of the eurozone crisis still unresolved – all point to a future of uncertainty, in which the security dimension presents the greatest risk.

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Cover: The Nordic countries. The opinions in this article are those of the author. This article was originally published in Diplomaatia magazine.

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About the author: Jón Baldvin Hannibalsson

Jón Baldvin Hannibalsson is the former head of Iceland’s Social Democratic Party (1984–1995) and the minister of finance, foreign affairs and external trade (1988–1995). Hannibalsson actively supported the restoration of independence of Estonia, Latvia and Lithuania.