Regional integration as a resource or challenge: the Nordic / Baltic case

Baldur Thorhallsson with Alyson Bailes University of Iceland

Workshop - Economic Challenges:

Smallness, Strategy, Solutions?

Reykjavík 18 November 2011

Structure

• Small states• Vulnerability• Alliance-making / shelter• Our case: the Nordic / Baltic States• Regional and sub-regional shelter• Benefits• Costs• Summary – questions to address…

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Small states

• Objective variables

• Subjective variables

• Difference

• Small in comparison with others

• Relational conceptualization

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Vulnerability

• Political problems !

• Economic problems !

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Economic Vulnerability

• Open and dependent on other economies

• Specialized economies

• Economic fluctuations

• Fewer resources to pursue their interests

• Less leeway for risk

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Theory of weak states

• Four elements determine the strength of states– Geographical character– Material resources– Human resources– Organizational capabilities

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Small states in the international system

• Limited international power• Reactive

• A stable international system• Small states show a high level of support for legal

norms

• Small states as norm setters• Small states as mediators

Seeking shelter

• Bilateral or Multilateral

• Compensate for greater vulnerability

• Compensate for the fluctuation of their economy

• Limits political and economic constraints

• Most European states have sought multilateral / supranational shelter

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Shelter

• reduction of risk before the crisis event

• assistance in absorbing shocks when risk becomes severe

• help in recovering after the event

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Economic Shelter

• direct economic assistance

• a currency union

• help from an external Central Bank,

• beneficial loans

• favourable market access

• common market

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Different choices of the Nordic and Baltic states

• Only Finland+Estonia in EU+Euro

• Latvia, Lithuania seeking Euro

• Denmark: EU + Euro opt out• Sweden: Euro opt out

• Norway and Iceland: only EEA+Schengen

• Faroes and Greenland fully ‘opted out’

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EU / Euro / EEA

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Sub-regional groups

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Sub-regional inclusiveness

• ‘Soft governance’ groups• Tackle local agendas

• No regulatory force• Limited resources

• More important for infra-structure plans, border control, civil security

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Explanations • Finland + Baltics

– economic reasons– exposure to a large neighbour

• Sweden + Denmark– less exposed

• Norway– exposed– own wealth

• Iceland/Faroes/Greenland – less exposed– vulnerable

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So not just smallness…

• Elsewhere in Europe, the small seek maximum integration– The EU– The smallest and bilateral relations

• Different in the North– Cost and benefits by taking EU ‘shelter’

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Benefits• Larger and more stable markets - competition• Freedom of trade• Assure supplies – more stable prices• Share and spread risks

– draw in investments, invest abroad, share /diversify ownership

• Emergency help

• More co-control than with a 1-state shelter • Exploit supranational features

– influence via Commission, EP, Court, lobbying etc

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External benefits

• Part of a larger trading bloc– better leverage over terms + rules of trade

• with individual large partners• in international organizations

• Part of a larger currency bloc

• Chance of defence if economic interests ‘attacked’ by an outsider

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Costs

• Sovereignty• Identity

• Still a small voice• Help in trouble! - Harsh conditions !

• Burden• Conflicts• Harder to get out / shift sides

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Summary…. questions to address

• All sought shelter

• The source and extent of shelter differ

• Why?

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