The Development in the Baltic Sea Region in a Historical and Political Perspective

Thank you to the previous speaker Mr. Valdis Birkavs, a dear friend and a genuine spokesperson for Baltic Sea Region co-operation.

I would also like to thank Stephan Müchler and the Baltic Sea Chambers of Commerce Association for inviting me to their annual conference and to take part of the important discussion of how to improve trade and increased integration in the Baltic Sea Region.

* * *

Let me start by saying when I looked at your report: "3T – Triple Trade in Ten years" I was thrilled, because it is evident that your association, the Baltic Chamber of Commerce as well as my one organisation, Baltic Development Forum, share the same goals and vision for our region, the Baltic Sea Region.

Both of our organisations want to see a strong, coherent and prosperous region to competitive on the global market. We therefore need to put in great efforts within specific areas, such as removing existing barriers for the internal market and to recognise that only through growth we can achieve new jobs, prosperity and sustainable development.

As you know, there are many Baltic Sea Region organisations, hence the more organisations that support the same visions and strategies, the stronger and competitive our Region will be – we need to coordinate our work to be successful!

* * *

I was invited here today to make some remarks on the development in the Baltic Sea Region in a historical and political perspective. This I will certainly be honoured to do, but I will also take this splendid opportunity to give my view on where we are today and in which direction this region is moving? It is always a challenge to try to predict the future, but nevertheless I run the risk.

* * *

The countries around the Baltic Sea have a long, common history – yesterday we fought each other to dominate the Baltic Sea and today we try to get more and more connected – from enemies to close partners!

We have, as you all know, witnessed a remarkable development since the Iron Curtain was teared down 16 years ago and the gates for a reunited Europe were opened. The EU enlargement itself two years ago created completely new settings for regional co-operation and huge opportunities for the Baltic Sea Region to really mature as one coherent Region.

So the question to comment today will be:

Back then we could only imagine one Europe. Our wild dreams and hopes – a utopia - came true in May 2004. Our eastern neighbours joined us!

Today, eight of the Baltic Sea countries are now members of European Union. Most of them have even been wise enough to join NATO as well. The Euro currency has been introduced in some of the countries, but far to few so far.

The Baltic Sea Region - with the Nordic countries and the Baltic countries as well as Russia, Poland and Germany - has entered a new era of cooperation. Decisive and coordinated action has made us Europe's most competitive and innovative growth region.

We must take stock of our successes and build upon them as well as identify our challenges and fix our flaws in order to maintain economic growth.

Although the region has been caught between two world systems, the expanding daily business life and increasing tourism shows that the difference in culture and traditions are not that big. The region is back in more or less ‘daily life’!

All countries are today democracies and all countries have open market economies. These two ingredients are without doubt the most significant ingredients to increase growth, jobs and prosperity.

At the same time, the Baltic Sea is a sea of peace and stability with eight NATO members supporting NATO’s Partnership for Peace initiative. The Partnership for Peace initiative creates a new foundation for our partnership with Russia, which is why we all have a true interest for supporting the initiative.

In addition, the new treaty between Russia and EU and Russia standing at the door steep to the WTO is of great importance for the common development in the Baltic Sea Region; Russia has to be an integrated partner of in the Baltic Sea Region and European cooperation.

However, challenges remain to maintain our political and economic stability. The Baltic Sea Region is still facing challenges within both the old and the new democracies.

Russia’s development has been quite remarkable. I have said that on numerous occasions. During the turbulent years of the nineties, Russia became a quite well functioning open market economy with democratic institutions, which nevertheless remain quite weak and fragile.

While we praise Russia’s economic growth, we shall not forget to uphold freedom and democracy. Failure to take sides with the democratic forces in Russia will cast doubt on our commitment to worldwide democracy.

In the old democracies, hard decisions must be taken to reform our home markets. The old democracies need deep structural reforms to adjust policies to the new global realities. Furthermore, they need to join – or fully join - the European Union and NATO instead of dragging their feet.

Countries that remain outside those two great organisations, that have guaranteed peace, democracy and growth for so many years, should look north to find a good example on how to make the most of the post-Cold War era. They should look to Finland. This country remains an example for the rest of Northern Europe to follow.

The old democracies must accept the competition from the new democracies in the region and in Europe and their competitive edges, in particular low taxes. It would be fatal to choose a protectionist model. Unfortunately, will still see some countries in the Baltic Sea Region that choose the road of protectionism. This is not boosting regional progress!

Rather the old democracies should open its economies and compete with the new ones. It would be wrong to demand that the new democracies ‘import’ policies from the old; the old should learn from the new and embrace the dynamic injection from the enlargement. In the Baltic Sea region we must look upon the enlargement as an opportunity and not a threat.

We must achieve a truly open internal market and there should be free movement for all four common areas: labour, capital, services and products. Regrettably, we have not yet accomplished this. For example, the new EU Service Directive showed a half-hearted effort to improve the internal trade of services. The future lies within the service sector concerning for example the creation of new jobs and we therefore need to move the last constrain.

We cannot have a situation where we have European Union where we make different rules for different countries. This gives a huge effect on growth and prosperity, not at least here in the Baltic Sea Region.

I would like to repeat what wise leaders has said previous to me – tear down the existing ‘walls’ in the Baltic Sea Region and Europe. Let us benefit from of our different competitive advantages and let the Baltic Sea Region integration and co-operation flourish.

* * *

The latest progress reports on European competitiveness and the revised Lisbon Agenda shows very clearly what we already knew: Achieving and maintaining competitiveness relates on the ability to connect and integrate.

The fastest growing regions in Europe today are those that have most successfully manage to integrate within the region and into the international competitive system. And this is the Baltic Sea region’s foremost strength. However, to maintain momentum, the region also needs to learn its weaknesses.

You mentioned in your report "3T – Triple Trade in Ten Years" that we need to change attitudes and we consequently need more reliable data and statistics. Baltic Development Forum acknowledges this dilemma.

This is one reason among many, why Baltic Development Forum has initiated the State of the Region Report.

This report is a regional benchmarking tool, issued annually by Baltic Development Forum, aiming at facilitating a fact-driven dialogue on regional co-operation to improve growth, competitiveness and innovation in the Baltic Sea Region.

The Report provides a neutral assessment of the Baltic Sea Region’s microeconomic fundamentals that determine the level of prosperity our region can sustain in the long-term. It includes a review of the national Lisbon action plans put forward by the EU Member States of the Baltic Sea Region.

In addition, it also reconsiders important subjects as:

• Innovation capacity and incentive
• Cooperation in Research and Education
• Framework conditions for business including single market
• Building a Baltic Sea Region Brand
• Russia in the Baltic Sea Region

The State of the Region Report is prepared by a team of researchers from Harvard Business School and Stockholm School of Economics prepares. The Nordic Investment Bank and the Nordic Council of Ministers support the Report in 2006-2007.

* * *

Let me brief you shortly about the Summit in Stockholm last autumn, which gave us a good picture how the Baltic Sea Region is performing in political and economic terms – the signs are both good and bad!

The 2005 Stockholm Summit clearly showed that now is the time for our political leaders to overcome their national short-term interests and demonstrate true leadership, and thereby turn the Region’s economic potential into reality.

In this regard, the fulfilment of the Lisbon Strategy goals, the liberalisation of the internal market, and an increased integration with the Russian Federation were defined as top priorities. The President of the European Commission, Mr. Barroso, was one of the keynote speakers at the Summit and he obviously could not agree more. Here recognised the Baltic Sea Region as the "Beacon to the rest of Europe".

We also need to profile the Region more clearly domestically and globally by establishing a distinct identity reflecting what this dynamic Region really represents.

Baltic Development Forum, with our members and partners, therefore leads a comprehensive effort to establish a strong and recognised brand for the Baltic Sea Region.

Vision, passion, and commitment are the most important tools to make the Baltic Sea Region a winner region in terms of growth, competitiveness and innovation.

Baltic Development Forum will continue to work with governments, business leaders, leading academics and other key decision makers to encourage these traits and assist in building a prosperous and attractive Baltic Sea Region.

* * *

With its 100 million people, the well educated population, solid businesses, transport infrastructure and common cultural framework, the Baltic Sea Region is a persuasive region with vast possibilities.

The region has experienced substantial economic growth over the last decade and the inclusion of new member states has created new playgrounds for inhabitants and industry in both new and old member states.

Today however, the scene is global! To an extent before unseen, trade and travel has become international, and national borders are less significant in terms of free movement of goods and services and the mobility of labour.

Globalisation of demand, specialisation of production, enhanced competition and logistic innovations continues to challenge companies in all countries.

The former more or less steady production for storage and subsequent sale is increasingly being replaced by production for demand, and efficient, flexible and secure transport chains are now of outmost importance for the survival of most companies.

In this light the transport infrastructure of the Baltic Sea Region does not yet lives up to the needs of tomorrow, or even today.

This shortage represents a serious threat to the industry and economic development of the Baltic Sea Region. For the region to prosper and for economic growth not to be hampered, and to avoid the start of a negative spiral towards stagnation and languishing of the region compared to other regions, it is necessary to seriously consider this situation.

The region is currently a leader in economic growth and innovation. But at the same time the themes of the 2005 summit clearly show the importance of improvements in co-ordination and communication between the private and public sector.

Transport and trade between regions and sectors must function very efficiently today and be flexible enough to tackle future demands and fluctuations. It has to be "Just-in-time"!

For historical reasons the different parts of the transport system of the Baltic Sea area has not been developed in the most optimal way according to today's situation, because it reflects geographical borders and trading patterns of former times, which are now undergoing dramatic changes.

This creates a unique opportunity to develop from a more basic starting point a multimodal transport system, utilising the synergy from combining road, rail, air and sea transport and including freight transport as well as passenger transport.

Thus, in order to avoid the region falling behind in economic as well as social and cultural terms, the transport sector in the Baltic Sea Region has to be rapidly altered and developed, and in this respect the intraregional connections are equally important as the interregional transport corridors connecting the Baltic Sea Region as a "Gateway" between east (Russia, Asia) and west (EU, USA)

* * *

Finally, I have to say a few words about our most recently ongoing transport project.

Since the Stockholm Summit, the Baltic Development Forum has in close co-operation with other stakeholders in the region, entered into a new Interreg financed transport project called "InterBaltic", which includes 43 partners from the entire Region.

Within the Baltic Sea region we see increased focus on exploitation of natural resources in the north (seafood, petroleum, minerals, forest products, energy etc.)

This, combined with a generally high economical growth, is resulting in increased cargo flows both within and in and out of the region.

In addition we experience a very rapid increase in transport through the region as a result of increased trade between Russia and China on one side and Western Europe and USA on the other. On this background the main challenge addressed in this pan-Baltic project is to prepare for the future growth in transportation and logistics.

It is vital to bring this issue from analysis mode into concrete actions. In accordance with national international policy, a key objective is also to promote environmentally sustainable transport by shift of cargo from road to rail and sea – specifically to further develop the concept of Motorways of the Sea.

The overall outcome of this pan-Baltic project is thus to give private and public decision makers on international, national and regional level a mutual framework for closer co-operation, knowledge and practical experience to build up efficient intermodal transport systems. This is imperative in order to cope with increased future cargo flows as well as promoting regional development for the whole Baltic Sea Region.

I can only stop where I started my speech, the Baltic Sea Chambers of Commerce Association and Baltic Development Forum, share a common vision, what needs to be done and how, and a responsibility to highlight important issues like changing attitudes, involving Russia, supporting free trade and improving the regional transport and infrastructure.

We are on the right track, but we should never rest on our lairs. We need to work jointly to address and to propose concrete actions to the decision-makers within politics and business, so that we even in the future will be one of the most competitive and innovative regions at the global market.

I welcome you all to participate in the Baltic Development Forum Summit in Helsinki, 29-31 October this year, to discuss these issues further and to influence the regional agenda and to coordinate our joint efforts.

Thank you!