Baltic States

Financial crisis cripples Baltic states

www.socialistworld.net, 06/11/2008
website of the committee for a workers' international, CWI

Workers’ struggles mount

Davis Kaza, Rattviseparteit Socialisterna (CWI in Sweden)

Estonia, Latvia and Lithuania are now entering a deep recession after several years of record growth. The Swedish banks, mainly Swedbank and SEB, who have driven the loan-based growth are now deepening the crisis by almost completely stopping lending. The future of the Baltic States, which for 50 years was decided by the bureaucrats in the Soviet Union today rests in the hands of Swedish capitalists. At the same time, the working class, who got only the crumbs from the bosses and government during the period of record growth, are starting to fight for their rights.

The recession has hit Estonia and Latvia the hardest. The International MonetaryFund (IMF) predicts the Estonian and Latvian economies will shrink during 2008, and possibly also during 2009. In Latvia, industrial production fell by 11% in August compared to the same month in 2007. The construction industry has almost collapsed and retail sales are falling. Both countries also have large balance of payments deficits.

This is a real crash-landing for Estonia and Latvia, who were congratulated for their, on average, 10% growth in 2005-2006. Lithuania is also entering recession, but not in the same brutal way as its two neighbours in the north. However, industrial production and retail sales are diminishing there too.

The recent years of growth were largly based on foreign invesments and extensive credit. The countries’ low wages attracted foreign investors, while domestic consumption was driven by foreign banks which were very generous when it came to lending out money. This blew a bubble of astronomic proportions in the real estate market, especially in Latvia where apartments in central Riga could go for 1 million lats (1.4 million euros). That bubble is bursting now. Inflation has soared. In September, it was over 10% in all three Baltic countries.

The majority of banks in the Baltic area have foreign owners. It has mainly been the Swedish banks who have been lending out money. Swedbank and SEB have80% of the market in Estonia, 67% in Lithuania and 43% in Latvia. Many of the loans have been given at low interest rates, without any securities or conditions, similiar to the American sub-prime loans. As the recession loomed in 2007, the banks pulled on the brakes and stopped giving out loans, which caused stagnation in the economy.

Now we are starting to get reports of people who can’t repay their loans and come to the bank with the keys to their houses. Both Swedbank and SEB have, according to the news site E24.se, begun to call up companies in the real estate business demanding to get back their debts early. The major Swedish banks risk making big losses. Swedbank and SEB together have as much as 350 billion Swedish kronor (3.5 billion euros) in debt in the Baltics. The banks are doing all they can to downplay their losses, but according to some experts quoted in E24.se it can be as much as 25% of the total loans!

The future of the Baltic states is today largely controlled by big Swedish banks – instead of Soviet bureaucrats as in the years of occupation. The crisis has lead to major cuts in all three of the Baltic states. In Latvia, the budget for 2009 represents a slap in the face for all civil servants as a freeze on wages is proposed, in a county where the inflation is 16 %! This puts the question of democratic workers’ control of the banks on the agenda. Baltic workers must take control of their future – not Swedish bank directors!

The freeze on wages has provoked great anger amongst police, health professionals and teachers. Despite the highest wage rises in Europe in the past few years, it has been difficult for Latvian workers to get by on a normal montly salary. Many are forced to take on extra jobs, others seek employment abroad. An estimated 50,000 Latvians are employed abroad, mainly in Great Britain and Ireland.

As a response to the wage-freezing budget, the Latvian federation of free trade unions (LBAS) and many of its affiliates have called for protests and strikes. On the 12 September an LBAS members’ bulletin stated that, ”if the government does not take back its absurd proposition…all that remains is ope, air meetings, demonstrations, marches, strikes…In short: the government must come to its senses or fall!”.

This autumn, a series of protests took place. On 26 September the first day of action was held. 1,500 health workers and teachers from all over the country held a demonstration outside Saeima (the Latvian parliament) at 10 o clock in the morning. At the same time, doctors at health centres held a one hour warning strike. Later that same day 200 police and fire-fighters held a demonstration. The common demands raised by these groups were for higher wages and compensation for high inflation.

On the 4 October, another demonstration was organised by the police Trade Union ,LAPA, with 300 participants. There could have been even more participants, but many policemen are forced to work extra hours as security guards on the weekends and could not, therefore, participate. Banners and posters read ”ice age for wages – but the prices grow and prosper” and ”show solidarity – give the ministers of parliament the wages of fire-fighters”

Another demonstration was organised outside Saeima on 11 October. This demonstration attracted 1,500 participants and even though it rained the fighting mood remained high. On the placards, there were slogans such as ”Where did our ’seven fat years’ go?” and ”Freeze the government – not our wages”. The demonstration was ended with a choir from the Latvian opera singing the Latvian national anthem and a slave song from the opera Nabucco by Guiseppe Verdi.

The healthcare Trade Union, LVSADA, which has been organising all healthcare groups in Latvia called for a total healthcare strike for 30-31 October. The government has tried to play different groups against each other. The Latvian prime minister Ivars Godmanis said to the newspaper Diena on 22 October that he was prepared to raise wages for teachers. No promises have been made for police and health workers.

In Lithuania, the teachers went on strike in March, demanding 50 % wage raises to compensate for the rising inflation and many years of low wage increases. In the beginning of October, college teachers and students held protests and a two hour warning strike for higher wages and more government funding for higher education.

Also, in Estonia, there has been a rise in workers’ struggle, even if this hasn’ manifested itself in any big demonstrations and strikes, unlike its Baltic neighbours to the south.

One effect of the protests and strikes has been that ethnic Latvians and Lithuanians have united in the struggle with the countries’ Russian-speaking minorities. For example on the demonstration held by the police on 4 October, banners in both Russian and Latvian could be seen. Especially in Estonia and Latvia, ethnic Estonians and Latvians have been pitted against the Russian minority since independence in 1991. The discrimination of the Russian-speaking minority led to the ”statue battle” in Estonia, where thousands of Russian-speaking protestors were demonstrating against the moving of an old statue.

In all of the Baltic States governments have - since independence in 1991 - to a lesser or greater extent, played the ’Russian card’ to divide workers along national lines. In the latest election in Lithuania, three right-wing populist parties together won 37 % of the votes.

The need for new workers’ parties, bringing together both Estonian, Latvian, Lithuanian and Russian-speaking workers is urgent. At the same time, this is a difficult task because misconceptions of socialism and everything to the left are still widespread in the Baltics, after 50 years of Stalinism and Russian occupation. On the other hand, there are very few illusions as to what the capitalist system has to offer. The dissatisfaction with high prices and low wages is widespread and in some layers of society there is a tendency to hark back to the days of Stalinism, which, after all offered people some sort of basic safety net.

This increase in workers’ struggle is a breath of fresh air from which an awareness of the need for a united struggle within the communities can grow. Within the working classes of the Baltic states with more experience and greater confidence, the ideas of real democratic socialism can gain an increased audience.