Just Barely

Here's a well-written, concise summary of the economic situation in the Baltic States.

Still afloat in the Baltic, just

Thanks, Jeff.

Worst Crisis Since 30s

More negative news about the economy, only this time about the U.S.A.:
Worst Crisis Since '30s, With No End Yet in Sight

Baltic States' Banking Systems in Trouble

A while back I heard (probably on the radio) that heating costs in Vilnius are now as high as they are in Brussels. I wonder if salaries here are half or a just a third of what people make in Brussels? Doesn't seem to make sense, does it? I understand that this is mostly the result of market forces, but that doesn't make tolerating it any easier (and I know in my heart that the owners and upper-level managers of the heating company here are getting filthy rich). Well, I have to admit that I'm not on the city's centralized heating system, but I figure it won't matter too much since we're heating with natural gas and the price of that has also gone through the roof. I think this winter will be telling as people struggle to pay for heating and food. I haven't seen any figures about whether salaries and pensions here are keeping up with inflation, but as far as I know, they aren't in most parts of the world. But it's not only the people here that are having a tough time of it...

Here's an article I found recently about the banking systems in the Baltic States. It's from right here: http://www.delfi.lt/news/economy/business/article.php?id=18507054. The translation is mine.

Citigroup: Estonian, Latvian and Lithuanian Banking Systems in Trouble

SEB Bank is getting ready to announce losses in Estonia and Latvia, and the profits of Swedbank in the Baltic States are dropping because of greater losses in the loans sector. This news was reported by Baltic Business News and based on a report Citigroup sent its clients.

Losses caused by bad loans means that dividends for the next 2 years will stay at the same level as they were the previous year, Ronit Ghose, an analyst at Citigroup, wrote.

"The economies and banking systems of the Baltic States, especially in Latvia and Estonia, are in trouble", Ghose wrote. "Our visits to Tallinn and Riga this week have caused us to worry even more about a collapse because it hard to imagine a quick turnaround in this region...

The article goes on to say that pre-tax profits of SEB in the Baltic States would drop 40 percent from EUR 261.62 million (USD 372.05 million) to EUR 156.97 million (USD 223.23 million) and that the profits of Swedbank from operations in the Baltic States would most likely drop from EUR 502.31 million (USD 714.34 million) to EUR 439.52 million (USD 625.05 million).

Economic Review

A review of some recent articles about the economy in this part of the world. I'll just translate selected parts of each article.

DnB Nord: We Live Half as Well as the Richest EU Countries

The highest standard of living in the European Union can be found in Denmark ... and its standard of living is twice that of Lithuania. Growing at the same tempo it did last year, Estonia could catch up with Denmark in about 2020, and Lithuania and Latvia would require another three to five years.

If our country does not make the adjustments that are needed, however, it could, according to its rate of growth, become an outsider among its neighbors.

These comments were made on 12 June by DnB Nord Bank chief analyst Rimantas Rudzkis when he was presenting the bank's economic review of the six Baltic Sea countries.

"No one believes that the economies of Lithuania, Latvia or Estonia will hit rock bottom. The talk is about a loss in tempo", the analyst emphasized.

He said the the inactivity of the government could cause Lithuania to become an outsider compared to Latvia, Estonia and Poland since, for example, the reform of the educational system in Estonia took place long ago, the labor market is more flexible, and the taxation system is simpler, not only in Estonia, but also in Latvia.

"If the business and investment climate here doesn't get better, we are in danger of becoming outsiders. These problems in Lithuania have been brewing for quite some time, but nothing is changing. Most likely Prof. Kestutis Glaveckas was correct when he said that it would take a crisis for us to start solving such problems", Rudzkis said.

He admitted that the political situation in Lithuania is not favorable since no one political party has a solid majority.

"It seems to me that investors from the West probably think that our conflicts with our neighbors to the east are troubling. Investors are not interested in ideologies. They are interested in earnings and they go to those countries that get along better with such a market as Russia", the analyst added.

The article continues...

And another article:

World Bank: Baltic Countries Are Dealing Well with Crisis

According to a report (the EU10 Regular Economic Report) prepared by the World Bank, the ten former communist countries that are now members of the European Union are adapting fairly well to the slowdown in the global economy...

And another article:

Dalia Grybauskaite: It Is Necessary to Forget Cheap Fuel and Food

European Commissioner Dalia Grybauskaite continues to call the activities of the Lithuanian cabinet of ministers "a feast in a time of famine" that is only getting bigger as time goes on. She says that the government is not properly fighting rising food and fuel prices, and in place of negotiations about keeping the Ignalina Nuclear Power Plant open for a longer period of time, only technical consultations are taking place.

"For a country that wants to introduce the euro, Lithuania looks bad and is going to look even worse."

"There is always a way out. Only competence and political will is needed", Dalia Grybauskaite, the European commissioner for financial programming and the budget [from Lithuania], said to journalists on 20 June...

The rest of the article goes on to say that she thinks both those things (competence and political will) are missing. The prime minister didn't take kindly to her criticism and said her criticism was harmful to the country and accused her of politicking (Kirkilas: Grybauskaite's Criticism of the Government Is Harmful to Lithuania). In turn, Grybauskaite said that she was only passing on the opinion of the European Commission (Grybauskaite: Criticism of Lithuania Is Official Opinion of European Commission).

I haven't begun stockpiling food and weapons yet (would probably need to move to the United States to do such a thing), but I have a feeling that things could get quite bad and no matter what will certainly get worse before they get better.

On the Verge of a Catastophe?

I found this article here, on Alfa.lt, and it seemed rather interesting. The global ecomonic crisis, if it can be called that, is worrying, but I'm in no position to say whether we're any worse off here than anywhere else in the world (besides the fact that prices for about everything but food and services were always too high [close to or higher than prices in Western Europe] and now food and services are catching up). This article suggests that indeed things are worse here. The translation is mine, and as usual, I am solely to blame for any mistakes or omissions (except of course those that occur in the original article).

Lithuania -- On the Brink of Disaster

"What can you do when the members of your family complain about the rising prices of food, gasoline, and airline tickets?" a British journalist asked in the Sunday Times. The answer was this: "Just for a minute consider how someone from Ukraine, where food prices have risen 30 percent in the past year, feels."

Britons are complaining that it will not be possible to tolerate inflation, which in April reached 3 percent, while in Eastern Europe and Russia consumer prices have experienced double-digit growth. People in Eastern Europe are already beginning to panic, although the most important cause of inflation, the rising cost of food products, is the same in both Eastern and Western Europe. The difference is that in poorer countries the amount of money spent on food makes up a bigger part of the cost of living: 60 percent in Ukraine, 40 percent in Russia, almost 26 percent in Lithuania, and barely 10 percent in the United Kingdom.

Besides that, there is a very serious situation in the Eastern European labor market not only because there are too many cleaners or plumbers, but also because inflation is having a strong effect on salaries. In the private sector in Hungary, salaries have gone up 9 percent over the past year. Even if prices for food products go down at the end of the year, inflation will not be stopped.

The West has become concerned about rising inflation in Eastern Europe. First of all, that is because they have been encouraged to pump massive investments into those countries in the belief that as the economies of those countries grow, inflation will fall. But those "new markets" are suffering from a problem that make the "credit bubble" in the West look like a fairy tale in comparison. Experts from the investment bank Morgan Stanley have already called Eastern Europe the next place for a catastrophe and have begun comparing it to Asia in 1997.

Eastern Europe is deeply in debt and that debt is quickly getting bigger. In Latvia in 2002–2006, real estate prices grew 40 percent (though they have gone down a bit recently). The complaints of people in the West do not appear to be worth any attention if compared to what is going on in Latvia and its neighbors.

There are experts, however, who say that the situation in Europe will not affect other regions of the world such as Asia and Latin America. The countries of Asia have truly recovered from the crisis of more than ten years ago. Even though inflation stands at 8 percent in China, if food prices are not counted, the figure falls to just 1.8 percent. Latin America is now being flooded with money, and prices for the most important raw materials are growing in leaps and bounds. It would be naive to expect that the "new markets" will protect the West from recession, however. Climbing inflation could destroy macroeconomic stability. In the worst case, investors will lose faith in the local currency. There is more faith in Eastern Europe, where investments are made in euros and Swiss francs. Some economists have warned, however, that having such faith may lead some to jump out of the frying pan and into the fire since large debts will not be the cause of the crisis in those countries, as has happened more than once. "Everything can be blamed on easy money", Morgan Stanley economist Joachim Fels says. Professor Carmen Reinhart of Maryland University agrees with him: "Technology, the height of people, and fashion change. What doesn't change is the desire of governments and investors to fool themselves."

Nine countries on the brink of disaster:
1. Jamaica
2. Ukraine
3. Kazakhstan
4. Bulgaria
5. Surinam
6. Latvia
7. Lithuania
8. Vietnam
9. Sri Lanka