By Romans Baumanis, Vice President & Managing Director, PBN-Baltics

For the three Baltic nations, political gains were the most predictable and expected by-product of EU accession. From the outset, the EU and NATO accessions were primarily pursued to achieve the various countries' political objectives -- greater security for Latvia, Lithuania and Estonia. Even today, the sense of well-being that comes with EU and NATO membership is the most obvious on the streets of Riga, Vilnius or Tallinn.

The Baltic States were the first to break away from the Soviet Union in 1991. The harsh realities of the Soviet era are still fresh in the minds of most Balts, creating a sharp contrast to the short but sweet experience with democracy, and economic development over the past 13 years led the Baltic nations to their union with Europe, overwhelmingly confirmed by referenda last year.

So as citizens of the three Baltic countries get used to their new status as "Europeans," stability, free development of democratic institutions and thriving civil societies are the primary advancements most covet from NATO and EU memberships.

Economic Growth Too

The Baltic States expect to see continued rapid growth. Of the 10 accession countries, the three Baltic nations will experience the highest growth rates. GDP growth in Latvia is expected to be 6.2 percent both in 2004 and 2005, and Lithuania is forecast at 6.9 percent this year and 6.6 percent next year. Estonia anticipates 5.4 percent GDP growth this year and 5.9 percent next. Growth in foreign investment should reach 10 percent in the next two years.

Despite this growth in GDP, the economic disparity between the new EU countries and the old is significant. The Economist Intelligence Unit recently reported that the Baltic economies would take between 30 and 50 years to catch up to their established European counterparts, even at their current impressive GDP growth rate.

On the ground, economic hope is mixed with pocketbook trepidation. Fears of price increases have resulted in irrational runs on grocery stores for basic staples such as sugar, salt and flour. But the facts belie the fears: economists estimate the real impact on prices to be less than 1 percent.

Relations with Russia

While everyone is looking to the West, the relationship with neighbors to the East continues to be the most precarious and potentially most important to Latvia, Lithuania and Estonia.

The geopolitical implications of NATO and EU accessions are reshaping Russia's relationship with, and policies toward, the Baltics. As members of the EU, the Baltic nations now present interesting opportunities for Russia and Russian business. This is undoubtedly the central dynamic shaping the region's future -- a dynamic that could result in economic growth or diminution. And, from a socioeconomic perspective, it is no less difficult to adapt to rationalization with Russia than it is to being a new EU family member.

For the time being, the old Baltic–Russian paradigm, based largely on suspicion and mutual mistrust, is still very much in play. The media continue to cover stories that reinforce this stereotype: the Lithuanian President's impeachment due to obscure ties with a Russian businessman; Russian diplomats expelled from all three countries for "conduct not compatible with exercise of diplomatic functions;" Russian school children protesting in Latvia over educational reform that Latvian officials claim are masterminded in Russia; the list goes on and on.

Despite all the hyperbole, significant business deals are being consummated in the Baltics with Russian interests and vice versa. The acquisition of Mazeikiu Nafta by Yukos, Estonian Railways' successful ventures in Russia, and Latvian dairy producers aggressively targeting the Russian market are just a few examples.

The EU and NATO accession has created the necessary preconditions for a more stable, predictable and business-oriented environment between regional trading partners, including Russia. This will benefit not only business, but the societies at large. It will also present a new challenge for our governments, our countries and our citizens -- to think and act differently, not just about our new partners in the EU, but about our old nemesis to the East as well.

Email Romans: romans.baumanis@pbnco.com