Brexit and the Baltics
September 1, 2016
The Baltic reaction to the United Kingdom’s referendum on European Union membership strongly aligned with the response of other EU member states. Their opinion is best summed up by Estonian President Toomas Hendrik Ilves’ statement: the decision to leave the EU was a “disappointment,” but one that “will be accepted.” Of course, the decision provoked several serious concerns among Baltic leaders. The status of Baltic citizens in the UK, British cooperation within NATO, and the ramifications for the EU budget, were all urgent questions. Yet, as the dust begins to settle, the damage of the “Leave” vote appears less extensive than initially expected.
The next steps the UK will take are still unclear. While debate continues in the UK about the finality of their decision, most EU states are more concerned with how and when the exit will take place. The Baltics have always supported EU solidarity, and they ranked among the strongest supporters of Britain remaining in the EU. The region has previously supported exceptions to European integration requested by the UK, hoping to maintain EU unity. In an effort to sustain European solidarity, the Baltic stance continues to reflect that of the European Council, which as of its last meeting seeks a maximally “orderly exit” of Britain, and aims to promote close cooperation between the remaining 27 EU states.
Baltic leaders have now shifted their focus to answering more tangible questions. A primary issue is the rights of Baltic citizens in the UK. With over 65,000 Latvians, 115,000 Lithuanians, and 10,000 Estonians residing in the UK, a large proportion of the Baltic populations could be affected by changes enacted in the British migration policy. This question is particularly urgent because a sharp reduction in migration was a key political pillar of the “Leave” campaign. In response, the government of the United Kingdom released a statement on the status of EU nationals in the UK, highlighting that there has been no change to their rights and status as a result of the referendum.
However, whether the UK maintains such a stance remains to be seen. The new Prime Minister, Theresa May, has stated that the free movement principle that provides EU residents access to other countries of the Union could be used as a negotiation piece for Britain’s access to the European single market. If the UK does lose market access, Baltic citizens living there will be directly impacted. The chance of any significant retrospective changes for the almost two hundred thousand Baltic nationals in the UK are thought to be small, but many observers also believed the threat of a successful “Leave” vote to be minimal. Even though the status quo has been preserved for now, the Baltic states remain vigilant in case of further change.
Another pressing issue is any potential change in the UK’s support to Baltic defense initiatives. The UK is considered one of the core partners guaranteeing regional security. Among Western allies, it maintains the largest military budget in Europe. Within the EU, Britain is one of the strongest advocates for economic sanctions against Russia. The UK’s exit from the EU is not intended to affect its membership in any other international organizations or its ability to carry out any other obligations. However, a decision of this magnitude warrants reevaluating Britain’s participation in other cooperative frameworks that might previously have been taken for granted.
Former Prime Minister David Cameron stated in the recent NATO Summit that no changes would take place in European security initiatives after Brexit. Britain’s plan to lead a military battalion in Estonia is still in force, alongside pledges to patrol Baltic airspace until 2018. These are strong reassurances to the security of the Baltic states, but only in the short term. It is unclear whether the position of the EU towards Russia will change once one of Russia’s strongest critics leaves. If so, the Baltic states will have to increase pressure within the EU for a strong stance against concessions on sanctions or appeasement in political negotiations.
Finally, the Baltics are concerned with Brexit’s impact on their economic well-being. The UK averages about 4% of Baltic exports and is their 8th top trading partner. The worst-case scenario is predicted to include a 1-5% increase in tariffs on the majority of exported goods. Remittances, which form approximately 3% percent of Baltic GDP, will suffer, partly due to depreciation of the pound. A broader concern is the effect on the EU budget and structural funds. As the third largest total contributor to the EU budget, the UK will stop contributing 8 billion euros a year to the EU budget. This loss would proportionally disturb the total amount of funds accessible to the Baltic states. Depending on the payment regime negotiated and whether other member states fill in the gaps, the Baltics could stand to lose a few hundred million Euros of support from the EU. In the worst case scenario, this could create a notable dent of 10% on the regional GDP growth, which would decrease over the next few years.
The implications of any of these possible scenarios may vary depending on the course of geopolitical events. Without Britain, Germany and France become the two most powerful players in the EU, splitting Britain’s former influence among themselves. The extent to which these two powers cooperate may have significant implications for the position of the European Union in the wider global market. A loss of cooperation within the EU would cause further market instability. On the other hand, Brexit may be the jumpstart required for a closer union. Economically, at the onset the economic crisis of 2009 and the Greek debt crisis, the Baltic states found themselves defenseless against a wider financial downturn. Thus, any further fiscal and economic integration would strongly align with Baltic interests, as shared risks would be split more evenly between other EU states. Politically, there has been an increase in Euroscepticism among the three states, but only to a small extent. While there are sentiments of injustice felt against the Greeks being bailed out, fear of refugees, and EU instability – the role of the EU as a fundamental vanguard against Russia trumps these worries. The aforementioned concerns have not had a significant effect on the growth of far-right parties. For the three states, a closer union may reinforce Donald Tusk’s proclamation that Brexit is “an incident and not the beginning of a process.”
Overall, the consequences of Brexit on the Baltics are hard to predict, and even harder to quantify. What is certain is that there will be initial economic difficulties. No state has ever left the European Union, so there is no precedent for understanding the effects of such a decision. The UK itself does not know whether it wants to cooperate with Europe based on the Swiss model, the Norwegian model, or in a completely unique way. What the Baltic states must pay attention to is whether Brexit signals future instability. Within the EU, the three Baltic states must push for closer unification and use Brexit as a learning opportunity. Beyond this, the Baltics must maintain a strong case for continued protection against Russian aggression, if the EU shifts away from this commitment. They must keep in mind that the UK is not only a core member of NATO, but is a permanent member of the UN Security Council, and should be maintained as a close ally regardless of its relationship with the EU. In terms of security, it is to be hoped that Western Allies will continue working with the strong posture they have until now. However, the Brexit vote proved that worst does sometimes come to worst, and such situations require preparation.