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… 2

Small states Objective variables Subjective variables Difference Small in comparison with others Relational conceptualization 3

Vulnerability Political problems ! Economic problems ! 4

5 Economic Vulnerability Open and dependent on other economies Specialized economies Economic fluctuations Fewer resources to pursue their interests Less leeway for risk

6 Theory of weak states Four elements determine the strength of states –Geographical character –Material resources –Human resources –Organizational capabilities

7 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 8

Shelter reduction of risk before the crisis event assistance in absorbing shocks when risk becomes severe help in recovering after the event 9

Economic Shelter direct economic assistance a currency union help from an external Central Bank, beneficial loans favourable market access common market 10

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’ 11

EU / Euro / EEA 12

Sub-regional groups 13

Sub-regional inclusiveness ‘Soft governance’ groups Tackle local agendas No regulatory force Limited resources More important for infra-structure plans, border control, civil security 14

Explanations Finland + Baltics –economic reasons –exposure to a large neighbour Sweden + Denmark –less exposed Norway – exposed –own wealth Iceland/Faroes/Greenland –less exposed –vulnerable 15

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’ 16

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 17

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 18

Costs Sovereignty Identity Still a small voice Help in trouble! - Harsh conditions ! Burden Conflicts Harder to get out / shift sides 19

Summary…. questions to address All sought shelter The source and extent of shelter differ Why? 20