The view from Latvia: Is the EU failing us?

Latvia, like the rest of Europe, is experiencing the still-ongoing consequences of the COVID-19 measures, all of which directly affect the economic state of the country and its regions.

Small and medium-sized businesses are especially affected, for which the government has not yet developed a system of assistance, and the criteria for assistance do not allow all enterprises to apply for assistance from the state.

It should be noted that the crisis in Latvia did not begin in March 2020, but at the end of 2019. The drop in GDP was associated with a drop of transit and production sectors. A crisis or an epidemic has become the perfect cover for the lack of an economic development plan for the country.

The inadequate and purely conceived economic conduct of the government has led to the simple fact that the economic crisis will continue, and a more powerful wave awaits us, experts say. The government was not ready for the second wave of COVID-19 and the third wave is approaching for which we are not ready again.

Latvia is unique in that we are not trying to apply restrictive measures to save businesses that work in other European countries, but we come up with our own illogical measures that do not work, and we see that the number of cases is growing. Correct and logical measures will help to return to normal life, and this will allow the business to work productively and develop.

In most other countries, except for Latvia, the government tried to support and prevent a drop in consumption of the inhabitants of their country, thereby supporting production. In Latvia, an unfortunate measure to ban trade in a number of goods led to the closure of production. This ultimately reduced tax revenues to the state treasury by 18.5%.

White flags at shopping centers symbolize a decrease in turnover and that the safety factor is running out. Enterprises that, due to restrictions, were unable to sell seasonal goods did not receive working capital to purchase new goods. The government was slow to realize the opportunity to support the business by allocating money for working capital that could be used to pay off rent and pay utility bills.

Political bias and economic well-being, you can not have both 

At the same time, the current authorities did not take any measures for the state economy or rejection of non-priority projects. If we compare with other countries, the reduction of government officials began everywhere. In Latvia, the number of officials has not been reduced, even with a decrease in the amount of work. From every €1 of tax paid to the treasury, €0.15 is spent on the maintenance of the state apparatus.

At the same time, during the COVID-19 measures, Latvia turned out to be one of the leaders of the sanctions policy that was deadly for business. For 30 years, Russia and Belarus have been using Latvian ports. Objectively, for central Russia and Belarus, our three leading ports of Ventspils, Riga and Liepaja are more profitable than Russia’s Ust-Luga. The tariffs are 25-30% lower, and the speed of cargo clearance is faster. 

However, after many years of anti-Russian rhetoric, the result was Russia’s refusal to work with Latvia. The Kremlin used its administrative resources, and the goods were re-directed to bypass the Baltic countries.

At present, we have lost the banking business, as well as transit and trade, with our Belarusian and Russian neighbors. Consequently, the economy became hostage to politics. There was hope for China, but scientists are sounding the alarm and note the slowdown of the Gulf Stream, which could nullify all the efforts of Russia and China on the northern sea route. 

China has a well-known project known as “One Belt, One Road”. Beijing was ready to work in both Latvia and Estonia, but in line with following American policy, the Chinese were not allowed to enter the Baltic. Now, after the breakdown of the EU-China investment agreement due to the Uyghur issue, there is no need to wait for investments from the Chinese. Hence, due to political problems, port complexes – which just a few years ago were still among the most promising in the Baltics, are now threatened.

At the municipal or city level, the situation is the same as at the state level. My own home city of Jelgava has 800 years of history and development. 20 years ago, European quality minibuses were produced and one of the largest sugar factories operated.

At the end of the 1990s, the RAF plant, with 4,000 employees was liquidated, and in 2006 the Jelgava “cukurfabrika”, which produced sugar for the whole country and for export; provided jobs and developed agriculture; engaged in the cultivation of sugar beets, was shuttered.

The political elites made concessions to the EU in exchange for positions and places in the Brussels apparatus. Now, Latvia buys sugar from Denmark. In 2010, a major investor in the production of railroad cars came to Jelgava, but again political interference prevented the start of large-scale production in the city, although the amount of financial injection into Jelgava was equal to the entire annual budget of the city. This time, the investor was from neighboring Estonia, but politics intervened here too.

The volatile year of 2020 showed us that things are not changing for the better. In addition to the war of sanctions with Russia and China, the “war of vaccines” was added. At the same time, the old national political establishment continues to live according to the principle “the state is us”, prioritizing its own interests, and not the country’s economy.

I want to note that the COVID-19 measures have demonstrated the weaknesses of the EU. Recently, the European Commission diversified the procurement of vaccines by returning it to the Member States – each country has the right to purchase it independently. 

What will happen next? If the EU cannot resolve important issues, maybe we, the 27 independent nations that make up the bloc, need more autonomy in economic matters, especially when it comes to the implementation of national projects and in changing the course of the political teams that turned out to be woefully inadequate when trying to effectively tackle the pandemic-induced socio-political and economic crisis.