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Economy at a glance
At the start of World War II, both Latvia and Estonia
declared complete neutrality. However, Latvia, who
was cut off by its main economic partners, concluded
on October 1939 the Soviet-Latvia Mutual Assistance
Treaty, along with a new trade agreement in with both
the Soviet Union and Nazi Germany. Those treaties
and trade agreements were of no use since the Soviet
Union and Nazi Germany had signed in August 1939
the Molotov-Ribbentrop Pact, in which they agreed
to divide up the countries situated between them.
Latvia, Estonia and Lithuania were indeed falling in
the Soviet sphere of influence.
The Orzel inci-
dent, when a
Polish submarine
looked for shel-
ter in Tallinn after
escaping invaded
Poland led the
Soviet Union to
accuse Estonia of
breaking its neu-
trality and threat-
ened the country
with war, unless
provided with
military bases in
the country.
The Estonian government complied in September
1939. In 1940, elections proclaimed the Estonian
Soviet Socialist Republic, that was incorporated in
the Soviet Union months later. In June 1940, Latvian
government was accused of conspiracy against the
Soviet Union and threatened on an invasion. The
Soviets demanded the government to be replaced and
the entrance of an unlimited number of Soviet troops
on Latvian sovereign soil. Knowing the Red Army had
entered Lithauania the day before, Latvia allowed the
entrance of Soviet Troops, that occupied the coun- Baltic States also joined the United Nation and the
try on June 17. Elections were held shorty later and
the results were announced in Moscow, leading a
“People’s Assembly” to be elected and declared Latvia
a Socialist Soviet Republic in July, that was incorporat- European Commission in May 2010. It was followed
ed in the Soviet Union on August 5, 1940.
21th century: a new freedom for the Baltic countries.
As the liberalization in the communist regime began
in the mid-1980s with Mikhail Gorbachev, several
political organization were constituted in both Latvia
6 7
and Estonia. Latvia and Estonia are global financial crisis of 2008
They started to pledge for the restoration of national economically integrated with caused some of the most severe
independence. On August 23, 1989, that marked the the economies of their northern recessions in Europe on the
50th anniversary of the Molotov-Ribbertrop pact to neighbours, and within the Baltic market. Their GDP felt by
the fate of the Baltic nations, Latvians, Estonians and
Lithuanians joined hands in a giant human chain, European Union which they -4,6% for Latvia and -3,6% for
called the Baltic Way, that stretched 600 kilometres joined in 2004. The two countries Estonia in the year that followed
are members of the Eurozone, the crisis. In 2009, as the crisis
from Tallinn, by Riga to Vilnius. This was a symbolic making the Euro their national swept across Europe, the fall
representation of the united wish of the Baltic States currency. increased, leading Estonian GDP
for their independence. Estonia proclaimed its inde- to a - fall of 16,2% while Latvian
pendence on the 30th March 1990, followed by Latvia After the 00s, the Baltic GDP reached -19,6%, leading the
on the 4th May States were called the Baltic Baltic countries to experience
1990. Both coun- Tigers as they implemented the deepest recessions in the
tries obtained the important economic reforms world.
recognition of their and liberalisation, along with
independenc e low-wage and skilled labour In 2010, the economic situation
in August 1991, force, that attracted foreign stabilized, allowing in 2011 the
after unsuccess-
ful attempt of the investment and economic Baltic states to experience one
Soviets to reinstat- growth. The Baltic Tigers had of the fastest recovery in the
the highest growth rates in European Union: Latvia’s GDP
ed their authority. Europe between 2000 and 2007, grew by 5,5% while Estonia’s
with rates of unemployment GDP grew by 8,3.
Newly indepen- under the average EU rates. The
dent Estonia began
negotiating with
the EU in 1998 and
submitted a refer-
endum in September 2003, when 66% of voters
chose to join the EU. By the end of 1999, the heads
of the European Union governments invited Latvia
to begin the negotiation, regarding its accession to
the European Union. A referendum held in September
2003 in Latvia gave 67% of voters in favour of the
EU membership. In application of the Athens Treaty,
Latvia and Estonia became members of the European
Union on the May 1 2014.
It is important to note that Lithuania also became
a member of the European Union at the same time.
World Trade Organization, as well as the NATO. In
2011, Estonia became the first ex-Soviet republic
to join the Eurozone after receiving approval by the
by Latvia in 2014. Today, Latvia and Estonia are both
well integrated in the Western Europe institutions.
On the 1st July 2017, Estonia will take its turn at the
Presidency of the Council of the European Union.