The Baltic States in the Economic and Monetary Union: Standing in the Shadow of Germany or Helping to Counterbalance the ‘South’?

Abstract

The Baltic States have been guided in EMU by two motives of, first, being part of the EU’s core to hedge against external security risks and, second, maintaining economic policy tools to catch up with the rest of the EU. Their approach to co-operation with Germany has been influenced by the latter’s role in reinforcing military presence of NATO in the Baltics and the importance of economic links with Germany. However, their preferences diverge from those of Germany on some issues of EMU governance such as banking union or tax harmonisation. With respect to the debates on eurozone reform, the Baltic States have remained cautious and largely adopted the role of ‘fence-sitters’. They express their support for the implementation of the fiscal rules already in place and thus stand in the shadow of Germany in the latter’s debate with the ‘South’. They coordinate their positions with the Nordic EU members, which excludes Germany, allowing it to play the role of a mediator between the ‘South’ and the ‘North’. Given the emergent ‘institutional fabric’ of the relationship to Germany, the Baltic States use both bilateral contacts to Germany and multilateral venues to pursue their preferences.