Can the Russian economy weather the combined effect of falling oil prices and massive capital out­flows while preserving some growth or is the economy heading for a sudden stop scenario with falling GDP?

 Recent forecasts of Russian growth

Forecasts for Russian GDP growth have been revised down several times over the last couple of years, starting well before the conflict with Ukraine and the sanctions that followed. This is well illustrated by how different vintages of the IMF’s World Economic Outlook forecasts change in Figure 1.

Figure 1. IMF forecasts of Russian real GDP growth

The forecasts from 2012 projected a real GDP growth of around 4 percent per year for 2014 and 2015, and then just slightly below 4 percent over the next two years. In 2013 the April forecast was lowered to around 3.5 percent over the forecast horizon, while the October forecast the same year was revised down significantly for 2013 as the poor growth performance that year became hard to ignore. However, it nevertheless showed a strong rebound in growth in 2014 and in 2015, and going forward the forecast was back at 3.5 percent growth. Then in April 2014, there was a sharp downward revision of growth for 2014, from 3 to less than 1.5 percent, followed by a long-run growth forecast of 2.5 percent. The slippery slope of growth revision has not stopped there and the latest forecast in October 2014 projects a barely positive growth rate for 2014 and a mod­est pick-up in 2015 before a gradual climb back to 2 percent growth in 2018 and 2019.1

Implications for income levels

It may not sound very dramatic that growth falls a percent or two in the revised forecasts, but summing up all the growth revisions – both in the short-run and adding the significant drops in projected long-run growth — amounts to enor­mous losses of income for the Russian economy should the forecasts be realized. Figure 2 com­pares how income levels evolve until 2019 using the April 2012 and October 2014 forecasts.2

Figure 2. Income levels based on different forecast of real GDP growth

Source: Authors calculations based on IMF WEO forecast April 2012 and October 2014

In the April 2012 growth scenario, Russian GDP would be 12 percent higher in 2014 than in 2011 and by 2019, growth would have lifted GDP by more than 35 percent. However, the October 2014 forecast has GDP in 2014 only 5 percent high­er than in 2011 after the end of 2014 and merely 13 percent up in 2019. Comparing the two scenarios, the income level at the end of the forecast period is 20 percent lower based on the current forecast compared with the April 2012 projection.

However, also the 2014 forecast shows increas­ing income levels which given the latest devel­opment of oil prices and capital flows seems unrealistic. The following sections of this brief will detail why Russian GDP growth is in grave danger of not only continue a slow slide down but could instead enter a “sudden stop” scenario with fall­ing GDP.

Oil and growth

The price of oil is the single most important de­terminant Russia GDP growth. Figure 3 shows how real oil prices and income per capita in USD have developed over the last two decades. The rising incomes from 1999 to late 2008 were strongly correlated with a real oil price index that went from around 25 to over 180. Similarly the decline in income in 2009 was concurrent with the oil price index sliding to 116. With oil prices rebounding in 2010 and 2011 before leveling off in 2012, Russian income levels followed suit. Of course many other factors changed in the eco­nomic environment, not least in 2008/9, but in many ways this just reinforces how strong the link between oil prices and Russian incomes is.

The question is if the strong relationship evident in Figure 3 between oil prices and income levels also holds for growth rates, which would be a bit less susceptible to criticism of spurious correla­tions between non-stationary time series. Figure 4 shows that the impression from time series of price and income levels follows through also when both series are in growth rates and presented in a scatter plot. Note that the charts in­clude oil prices and not oil revenue, so it abstracts from changes in oil production. In this sense, it does not capture what would be included in the calculation of real GDP (which would include changes in production rather than prices) but simply the correlation between an exogenous variable — international oil prices — and Russian growth.

Figure 3. Oil prices and income growing together

Source: IMF oil price index, World Bank for GDP per capita in 2005 USD

Figure 4. Scatter plot of oil prices and income

Source: Author’s calculation based on data from IMF and the World Bank

A simple OLS regression presented in Table 1 quantifies the relationship in Figure 4. It is quite striking how a regression with one explanato­ry variable manages to pick-up 60 percent of the variation in growth of Russian GDP per capita. The estimated “model” basically says that without any changes in oil prices, Russian GDP growth would be just above 2 percent. This hap­pens to coincide rather closely with the IMF’s Oc­tober 2014 longer-run forecast. In addition, a 10 percent increase (decline) in oil prices adds (sub­tracts) 1.5 percent GDP per capita growth. The coefficient on oil price changes is not only high­ly significant from an economic perspective but also from a statistical. The equation is estimated with only 16 observations and no other control variables are included, so there are reasons to take the result with plenty of caution. Neverthe­less, it is not often a one-variable regression ac­counts for this amount of variation in a country’s growth rate. Again, it should be stressed that it is the price of oil – which is an exogenous variable – that is included in the regression and not the value of Russian oil export revenues.

Table 1. Regressing income growth on oil price changes

Dependent variable is GDP/capita in 2005 USD (% change)

Coeff.   Std.err.   t-stat

Real oil price (% change)      0.15       0.03       4.8

Constant                                 2.42       0.89       2.7

1.           16

Adj. R-square                          0.60

Imports, growth and capital flows

The reason oil prices are so important for Russian growth is that it determines how much the country can import, which in turn contributes signifi­cantly to domestic consumption and investment. It may be puzzling at first that imports contribute to growth since it enters the national income ac­counting identity with a negative sign.3 However, whatever is imported is either used for consump­tion or investment, and since this consumption or investment is usually accompanied by domestically produced inputs, it means that the overall effect on growth from imports is positive. Russia GDP growth also shows a strong positive correla­tion (90%) with import growth as can be seen in Figure 5.

Figure 5. Scatter plot of quarterly GDP growth and changes in import

Source: Author’s calculation based on Goskomstat data

However, imports are not included in the regres­sion above since it is part of GDP and thus an en­dogenous variable with respect to growth. The scatter plot in Figure 5 can obviously not be given a causal interpretation for the same reasons, but it is still informative that imports have shown a higher positive correlation with growth than ex­ports have. In fact, net exports, the difference between exports and imports that enter the ac­counting relationship with GDP with a positive sign, showed massive “contributions” to GDP growth in all of the quarters of 2009 when GDP growth fell significantly. Again, this was linked to large declines in imports coupled with sharp con­tractions of investments. In other words, what at a first glance can look as an improved trade balance may instead be a sign of lost confidence and reduced external financing for domestic in­vestments and consumption.

Figure 6. Net capital flows, private sector

Source: Central Bank of Russia

In many emerging market countries, capital in­flows are highly correlated with imports as well, since they are needed to finance imports when export revenues are not sufficient to do so. For Russia, strong growth in oil revenues due to in­creasing prices has made the country less dependent on capital flows to finance imports in the past. However, with lower oil prices, this will change and capital flows will be a more import­ant factor also for Russia in this respect.

Capital flows are basically determined by expected re­turns on financial and real investment in a country relative to alternative investments abroad. These expectations are in turn dependent on many different factors, including real growth prospects linked to macro economic policies, economic and legal institutions and the elusive concept of market “sentiment”. Attracting the necessary capital will be a challenge for Russia if policies do not change.

Net private capital flows have been negative in all but three quarters since mid-2008 with peak out­flows of $132 billion in the final quarter of 2008 in the midst of the global financial crisis (Figure 6). With the crisis in Ukraine, capital outflows accelerated in the beginning of 2014, reaching almost $50 billion in the first quarter alone. Over the first three quarters of 2014, outflows amounted to $85 billion, which is more than the total value of imports in the second quarter.

The net outflow of capital and lower oil prices are also leaving a mark on Russia’s external bal­ance sheet. Often when Russia’s external posi­tion is discussed, the focus is on the Central Bank of Russia’s (CBR)4 large international reserves. However, they are also not immune to chang­es in oil prices or capital flows since the CBR intervenes in the foreign exchange market to stabilize the ruble as is evident in Figure 7. Nevertheless, even after significant interventions, reserves were around $450 billion at the end of September 2014, which is a non-trivial amount for a $2,000 billion economy and the third largest in the world after China and Japan. The CBR can probably continue to intervene at a similar rate as it has done in 2014 for several years, but the question is if Russia do not have better ways to spend $50-100 billion a year. Another question is how confidence in the foreign exchange market is affected by these interventions. It may be good to keep the ruble from a complete free fall, but at the same time, the CBR does not want to find itself in a situation that looks too much like a cen­tral bank that loses much if its reserves in a reg­ular speculative attack on a fixed exchange rate.

What has been less in focus, but came into the spotlight already in the global financial crisis, is the external debt of the private and public sec­tor beyond regular sovereign borrowing. Banks and non-financial firms in the private and public sectors had together borrowed over $700 billion at the end of the first quarter of 2014, which is the latest available number. If borrowing has remained unchanged in the following two quar­ters, it would mean that external borrowing is now over $250 billion more than the internation­al reserves held by the CBR. External debt at 35 percent of GDP is in itself not alarming but if ma­jor companies are unable to access international markets it can soon become a problem.

Figure 7. External debt and international reserves

Source: CBR and author’s calculations

Despite significant interventions by the CBR, ear­ly October the ruble had lost 20 percent of its value against the dollar since the beginning of 2014, as had the stock market (Figure 8). In some ways the global financial crisis was a good les­son for the CBR on the cost of trying to defend an overvalued currency. Then the CBR lost more than $200 billion while trying to keep the ruble exchange rate fixed. The currency defense did not prevent the ruble from falling by around 30 percent at the end of 2008 and beginning 2009. Since then, the exchange rate has been allowed more flexibility, although the CBR tries to avoid more abrupt changes. Russia also intends to focus its policy on inflation rather than the ex­change rate going forward, but the question is if this is credible given what has happened in the second half of 2014.

The stock market is also affected by capital out­flows, falling oil prices, and a deterioration of confidence in the Russian economy that has come with the sanctions related to the conflict in Ukraine. At around 1,000, the RTSI is back to its 2005 level, after having peaked at almost 2,500 before the global financial crisis and then reach­ing a post-crisis peak of 2,000 in 2011.

Although the sanctions have played a role in the developments in 2014, it is clear that the decline in both the stock market and exchange rate goes back to 2011 when oil prices leveled off and growth started to slow. In other words, the struc­tural dependence on increasing oil prices to gen­erate growth again shows its importance also for capital flows, the exchange rate and stock mar­ket returns. The reform program launched by then-president Medvedev in 2009 in response to the crisis, under the “Russia forward” heading, made little difference since the most important parts were never implemented.

Figure 8. Exchange rate and stock market

Source: MICEX

Sudden stops dynamics and a more realistic growth forecast

In a paper studying the correlates of output drops, Becker and Mauro (2006) look at a long list of shocks that include both macro-financial shocks as well as real shocks. One of the find­ings is that sudden stops in capital flows cause the most damage in emerging market countries. In a typical sudden stop triggered crisis, the average emerging market country loses an aggre­gate of 64 percent of initial GDP, which is related to a large initial drop in income and several years of recovering to bring income back to the pre-cri­sis level. The sudden stop episodes in the paper are defined as a reversal of capital inflows that suddenly turn around and become outflows. In countries with insufficient export revenues, this leads to a sharp contraction in imports, which (as discussed above) leads to a significant drop in output.

Reducing imports may sometimes be interpreted as a sign of a country being able to pro­duce more at home and therefore a sign of strength. But when imports contract very quickly in response to a drop in available financing, it sig­nals something different; the lack of confidence in an economy, with large economic costs in terms of falling incomes as a consequence. This type of scenario is a very real possibility in Rus­sia given recent developments. All the indicators above — oil prices, capital flows and imports — point to a much more negative growth outlook than the IMFs World Economic Outlook forecast published in October 2014. Since July of 2014, the WTI price has fallen from around $100/barrel to just north of $80/barrel in mid-October. The IMF World Economic Outlook in October 2014 fore­casted a continued decline in oil prices for 2015 and 2016, but this was based on mid-year prices rather than mid-October prices. Futures contract over the next five years price oil around $80/bar­rel for the entire period. Although this is mostly a function of historical oil prices following a ran­dom walk so it makes it hard to predict changes up or down, it still means that there is currently no information that would suggest that oil prices will move up any time soon.

Taking $80/barrel as the relevant forecast for 2015 it would be a drop in oil prices of over 20 percent compared to mid-2014. If we use the sim­ple growth-oil price equation estimated above — which despite its simplicity generated an adjusted R-square of 60 percent — it implies that the oil effect on growth is around minus three percentage points. The intercept in that regres­sion is 2.4 so the forecast from this regression is negative growth of around half a percent for Russia in 2015. Of course this empirical estimate is not really a proper macro model and excludes a long list of other important variables that will affect growth, including policy changes.

However, one crucial factor that will contribute to the downside risk of the already negative fore­cast based on falling oil prices is capital outflows — linked to investor confidence — which sug­gests that there will be less money for imports and further negative pressure on growth rates in 2015 and forward. Capital usually flows to countries with good growth prospects and rewarding investment opportunities. Capital rarely flows to places where the growth outlook is negative and uncertain. It is not easy to predict capital flows with any precision. In the event capital outflows continue at the pace they have in the first three quarters of 2014, it will push imports down by a significant amount and perhaps shave off another 1 to 2 percent of an already negative projected growth rate for 2015.

Import growth has already turned negative in the first two quarters of 2014, and if the trend con­tinues, there is a strong likelihood that imports decline so much that quarterly GDP growth turns negative in the last part of this year. It may still be that the growth for the full year stays positive, but probably not by much. The real problems with growth will then be for 2015 if nothing positive happens with oil prices and capital flows. In sum, the no-change scenario for Russian growth in 2015 points to a real danger of a sudden stop type of output decline of 2-3 percent rather than IMF’s October 2014 forecast of 1.5 percent posi­tive growth. Needless to say, if the sudden stop scenario rather than the IMF forecast materializes it will have serious effects on Russian in­come levels in the years to come as was illustrat­ed in Figure 2 earlier.

Policy options to avoid a growth collapse

The question is then how Russia can avoid a full-blown sudden stop scenario with accelerating capital outflows, shrinking imports and a col­lapse in growth. What policies can be implement to generate growth in the economy in 2015? The first option is to do nothing and hope for higher oil prices. A significant increase in oil prices will in all likelihood provide conditions to resume import growth that can feed domestic con­sumption and investment. However, this is not in the cards at the moment as discussed above.

The economic policy areas under control of Russian policy makers include monetary and exchange rate policy, fiscal policy and the “catch-all” area of structural reforms. The lat­ter a crucial area that affect investor and con­sumer sentiment which determine capital flows and domestic demand. A closer look at these areas below suggests that the policy space is mainly in the area of structural reforms.

First out is monetary and exchange rate policy. As students of basic macro knows, in a world of capital mobility, policy makers have to either focus on targeting inflation or the exchange rate. Attempts at steering both will regularly have only short-lived effects or be associated with significant economic costs coming from trying to regulate capital flows more vigorously. Russia has over the last couple of years stated that inflation rather than the exchange rate should be the primary policy target for the CBR from 2015. The inflation target is initially set at 5 percent and supposed to move to 4 percent over the medium-term. Governor Nabiullina of the CBR states that the inflation targeting framework and associated goals will not be implemented if the cost of doing so is too high (CBR, 2014). However, with inflation now running at around 8 percent, capital flowing out of the country and the exchange rate falling, trying to stimulate growth with looser monetary policy does not seem to be a viable option regardless of the CBR pursuing an explicit inflation target or not.

Fiscal policy can possibly help stimulate demand. The low oil prices put pressure on fiscal policy as well, but the falling exchange rate means that the ruble value of oil revenues is kept up. The result is a relatively modest fiscal deficit of around 1 percent of GDP at the General government level.

Behind this is a nonoil deficit of around 12 percent of GDP. In other words, government oil revenues account for around 11 percent of GDP, which is a strong indication of the importance of oil in all sectors of the economy. The reserve and wealth funds that have been accumulated from past oil revenues provide some additional fiscal room to maneuver.5 In September 2014 the reserve fund stood at $90 billion and the wealth fund at $83 billion. These are of course significant amounts, but relative to net capital outflows of $85 billion in the first three quarters of 2014, they are perhaps a bit less impressive. It is also noteworthy how quickly the reserve fund was run down in response to the global financial crisis. From the start of 2009 to 2011 the reserve fund went from almost $140 billion to $25 billion, or a drop of $115 billion, more than what is currently in the reserve fund. The message for fiscal policy is that there is some room for providing stimulus but the funds are not sufficient to keep doing this for several years. It may be enough to add a few percent to GDP in 2015, but if nothing else then happens, 2016 will not have the same fiscal space available. At best, fiscal policy can buy a year or so of time, but it really just delays much needed reforms aimed at underlying structural weaknesses that puts a drag on confidence and economic performance.

The most obvious “reform” is for Russia to con- tribute to a peaceful resolution of the conflict in eastern Ukraine. This would alleviate the serious confidence effect the sanctions have had on investment and capital flows. More importantly, the main effects of the sanctions are still to come when important Russian companies need to refinance large loans in 2015 and 2016. If they are shut off from international financial markets it will contribute to net capital outflows as the expiring international loans are replaced by domestic ones. The impact on capital flows does not stop with the direct sanctions targeting specific firms since the confidence effect of sanctions hit all possible investments in Russia. Even if some international loans will be available to Russian firms, the conditions for such loans will be worse as long as the sanctions are around, which is a real cost for the Russian economy. It is hard to quantify the exact gain of restoring confidence and removing sanctions for the Russian economy, but in the current circumstances, confidence is a crucial element to avoid a full-blown sudden stop scenario.

In addition to the hugely important aspect of resolving the conflict in Ukraine, Russia has a long structural reform agenda ahead if its leaders want to move Russia’s citizens up the global income ranking where they currently are in 51st place just behind Argentina and a few places behind Latvia in 47th place.6 Again, this is not news to the leaders of Russia and several key elements were part of Medvedev’s “Russia forward” plan of 2009. Institutional reforms aimed at fighting corruption at all levels, creating a rule of law and modernizing government are still high on the list of priorities. However, it is hard to see how real changes in these areas are going to be made, in particular if the leader(s) that push reforms want to stay in power once the reforms are implemented.

Any internal reform efforts that directly contribute to a positive development for the Russian economy is likely to also have important indirect effects through its trading partners. Although the Russian economy is not large enough to alone make a significant impact on world growth directly — it accounts for less than 3 percent of global GDP — its importance for trade and finance should not be ignored. Besides being one of the key energy providers to the global economy, it is also capable of affecting confidence and market sentiment in the rest of the world. The exact effect is hard to quantify but in times of ample volatility in financial markets, removing one piece of uncertainty would possibly be of great importance. From a Russian perspective this is also important since improved sentiment in the global economy is likely to lead to increased energy demand and upward pressure on oil prices.

Without serious reforms aimed at rebuilding international financial confidence and trade ties, the Russian economy will likely face a sudden stop scenario in 2015 or at best find itself on a slippery slope towards stagnation. This is not in the interest of the current leaders and citizens of Russia, nor of its neighbors and trading partners. There are clear win-win propositions in terms of policies that Russia can undertake today to avoid an economic crash landing. The question is if Russia is ready to move towards the modern approach of looking for win-win solutions or if it will remain stuck playing strategic games where your gain is always my loss.

Notes

1 Note that this brief was written in mid-October 2014 and therefore based on the data and forecasts available at that point in time.

2 The original April 2012 forecast ends in 2017 and the forecast to 2019 here is based on extending the 2016 and 2017 forecast of 3.8 percent growth over 2018 and 2019.

3 The basic accounting identity says that national income is equal to private and public consumption and investment, plus exports minus imports.

4 The Central Bank of the Russian Federation, also called Bank of Russia, will be abbreviated as the commonly used acronym CBR which is also its web address www.cbr.ru.

5 The initial oil fund was called the Stabilization fund but was divided up in a National wealth fund and a Reserve fund in 2008, where the former should support future pensions while the latter has the stated purpose of financing the federal budget when oil and gas revenues decline.

6 Income ranking based on market exchange rates and IMF data from 2013.

References

Becker, Torbjorn and Paolo Mauro, 2006, “Out- put drops and the shocks that matter”, IMF Working paper, WP/06/172.

CBR, 2014, The Central Bank of the Russian Fed- eration (Bank of Russia) Guidelines for the Single State Monetary Policy in 2015 and for 2016 and 2017, Draft as of 26.09.2014. Available at http:// cbr.ru/Eng/today/publications_reports/on_15- eng_draft.pdf

IMF, 2014, “Russian Federation, 2014 Article IV consultation — Staff report”, IMF country report No. 14/175, International Monetary Fund, Wash- ington D.C.

IMF, 2012-2014, World Economic Outlook fore- casts available at www.imf.org.

Source: BSR Policy Briefing 4/2014, Centrum Balticum, www.centrumbalticum.org

In December 2014 Denmark filed a claim with the United Nations to expand the boundaries of its continental shelf in the Arctic, and Russia is going to present its new claim in 2015. It seems impossible to elicit the meaning of the ongoing process of the Arctic continental shelf delimitation without specifying its legal and geopolitical aspects. This article is intended to systematize the international legal mechanism of the continental shelf delimitation and to highlight the actual positions of the claimant states as well as the prospects of the boundary delimitation in the Arctic continental shelf.

In December 2014 Denmark filed an application to the United Nations for extension of its continental shelf in the Arctic to 350 nautical miles, which caused numerous comments in official circles of various countries, politicians, experts and observers. Some of them saw in this step the desire of Denmark to implement its geopolitical ambitions, achieve some political goals, join the battle for resources in the Arctic, or provoke military confrontation in the region and a new “cold war”[1].

Some experts, on the basis of the thesis of economic hopelessness of central areas of the continental shelf in the Arctic (according to the US Geological Survey (USGS) «Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle», about 84% of the hydrocarbon resources of the continental shelf is already within the areas of national jurisdiction of the Arctic coastal states), tend to see in the actions of Denmark the logic of the “big geopolitical game”. How justified are these estimates and what actually is it all about?

The international legal regime of the Arctic shelf is governed by the 1982 United Nations Convention on the Law of the Sea. According to Article 76, the continental shelf of a coastal state “includes the seabed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines… where the outer edge of the continental margin does not extend up to that distance”. It is important to note that the baselines – borders of inland seas – are often a subject of controversy. Due to the fact that the United States are not currently a member of the Convention, they are guided by the 1958 Convention on the Continental Shelf, according to which the continental shelf is defined as “the seabed and subsoil of the submarine areas adjacent to the coast but outside the area of the territorial sea, to a depth of 200 meters or, beyond that limit, to where the depth of the superjacent waters admits of the exploitation of the natural resources of the said areas”[2].

Figure 1. Scheme of the international legal status of the continental margin and its superjacent waters in accordance with the 1982 United Nations Convention on the Law of the Sea.

The illustration is made based on the US Navy materials: The Commander’s Handbook on the Law of Naval Operations. Digital resource. URL: https://www.usnwc.edu/getattachment/a9b8e92d-2c8d-4779-9925-0defea93325c/.

Five countries have a continental shelf in the Arctic: Russia, Canada, USA, Denmark (Greenland) and Norway. Activity on the Arctic shelf, over which sovereignty has not been recognized by any of the states, is regulated by the International Seabed Authority located in Kingston, Jamaica^[3].

In accordance with Article 4 of Annex II of the 1982 United Nations Convention on the Law of the Sea, a coastal State intending to establish the outer limits of its continental shelf beyond 200 nautical miles must submit an application (presentation) to the UN Commission on the Limits of the Continental Shelf (CLCS) within 10 years after the ratification of the Convention. Therefore, the application made by Denmark for extension of its Arctic shelf is in full compliance with the provisions of the Convention. This application was expected, and it is not dramatic and cannot give evidence about any “secret geopolitical intentions” of the Kingdom of Denmark. Russia, claiming expansion of its Arctic shelf up to 350 nautical miles, also exercises its rights granted by the 1982 Convention.

When applying for extension of a continental shelf applicant countries have the right to go by various reasons, including political arguments, but their consideration by the UN Commission on the Limits of the Continental Shelf must completely rule out political motives. The Commission’s decisions must be based on objective and independent scientific assessment of the structure of the seabed.

The United Nations Commission on the Limits of the Continental Shelf is a purely technical body composed of 21 experts in the field of marine geology, geophysics and hydrography who serve in their personal capacities (Article 2.1 of Annex II of the Convention). Members of the Commission shall be elected for a term of 5 years, and can be re-elected at the meetings of States Parties of the 1982 Convention, which shall be convened by the United Nations Secretary General, as necessary, in accordance with Paragraph 2 (e) of Article 319 of the 1982 Convention.

The main requirement for the composition of the Commission is to ensure equitable geographical representation: at least three members shall be elected from each geographical region. Quorum for a meeting is 2/3 of the total number of participants in the 1982 Convention. 2/3 votes of the states that are present and participate in the voting process is needed for the election of members of the Commission. It is important to note that, as the first Chairman Yu. B. Kazmin pointed out, the Commission remains an independent body, officially non-accountable to the Meeting[4]. The fourth and the latest Commission waselectedatthe 22^nd Meetingin 2012. ThisCommission hastheauthorityuntilJune 15, 2017.

Inaccordance with Article 76of the 1982 ConventionandArticles3and 6of Annex IIthereto, the Commission shall perform the followingfunctions:

1) to consider the data and other material submitted by coastal States concerning the outer limits of the continental shelf in areas where those limits extend beyond 200 nautical miles;

2) to provide scientific and technical advice, if requested by the coastal State concerned during the preparation of the data referred to in subparagraph (1);

3) to provide recommendations to the coastal States on the demarcation of the outer limits of their continental shelf.

At the same time, we should note that the Commission’s recommendations are not a final and binding decision. First, according to Article 8 of Annex II of the 1982 Convention, “in the case of disagreement by the coastal State with the recommendations of the Commission, the coastal State shall, within a reasonable time, make a revised or new submission to the Commission”[5]. Second, already here we shall draw attention to the fact that international negotiations obligatorily have the decision function in the process of delimitation of the shelf.

The key criterion in determining the outer limit of the continental margin of the coastal state beyond the 200-mile zone is natural prolongation of the continental shelf. The application submitted to the Commission should contain relevant scientific evidence. Bathymetry (i.e. maps of the seabed with depth marks) and geological criteria are used to determine whether the underwater structures comply with the specified criterion.

The bathymetric criterion (i.e. associated with the assessment of the depth of the sea) involves determining the position of the foot of the continental slope (see Fig. 1) by the maximum change in the gradient, taking into account the 2,500 meter isobath (i.e. an imaginary line connecting all points along the coast where the depth is equal to 2500 meters). The assessment process for the compliance with the geological criteria is even more complex. These criteria include information on the structure and thickness of the sedimentary cover (deposits covering the shelf), the nature of the crust on the continental shelf and geological and geophysical evidence of the location of the continental foot. Sedimentary layers within the outer edge of the continental margin should be 1% (or more) of the shortest distance from the foot of the continental slope. If the data is not available on the sedimentary cover, the limit of the shelf can be marked along a line separated from the foot of the slope by no more than 60 miles.

The restrictive edge of the outer limit of the shelf is a line of 350 miles from the coast of the mainland or islands, and 100 miles from the isobath of 2500 m. However, these restrictions do not apply to submarine elevations that are natural components of the continental margin. These crustal blocks in the Arctic, with the nature of a mainland and almost inseparable from the continents, go deep into the ocean (i.e. the Mendeleev Elevation) or cross it from Eurasia to the Greenland-Ellesmerian Depression (the Lomonosov Ridge), separating the Arctic Ocean into two different structures – Eurasian (in which, for example, Svalbard and Franz Josef Land are located) and Amerasian (the Canadian Arctic Archipelagoes and Wrangel Island are located here). It is these circumstances that cause the mutual territorial “overlapping” of a number of applications.

Some experts – especially non-Arctic states – see some provocations in the applications for extension of the Arctic continental shelf by Arctic coastal states. For example, the analysts of the British newspaper “Financial Times” explain the desire of the Arctic coastal countries to justify their right to expand the boundaries of the continental shelf in the Arctic by the logic of the “geopolitical game”. The main prize of this game would be the North Pole, the control of which, supposedly, is a symbol of the “geopolitical victory” and leadership in the Arctic region and control over it^[6]. A number of researchers even argue that the areas claimed by Denmark, Canada and Russia, are economically future-less, as well pointing at the thickness and consistency of the ice cover over the central part of the shelf, the “minor” share of hydrocarbon resources in the Arctic, concentrated in this part of the shelf .

Meanwhile, according to the research by the United States Geological Survey (USGS) «Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle», the Arctic contains about 22% of the world’s conventional oil and gas reserves (or about 29.9 billion tons of oil equivalent), with about 84% of the hydrocarbon resources of the continental shelf located at depths up to 500 m^[7]. According to some representatives of the Arctic coastal states, from 94 to 97% of offshore hydrocarbon resources in the Arctic is already within the exclusive economic zones of the coastal states. These data were presented, for example, by the Russian Foreign Minister Sergei Lavrov. These figures are also indicated in the Arctic strategy of Denmark for the period of 2011 – 2020[8]. The same estimates have been given by the experts of the University of the Arctic in Rovaniemi (Finland)[9].

However, we should bear in mind the very low level of exploration of the Arctic shelf, especially in high latitudes, and current prediction-like estimates of oil and gas. There is a good chance that the Arctic shelf hydrocarbon deposits outside of the 200-mile border can be much richer than expected. According to the Russian Ministry of Natural Resources and Environment, potential hydrocarbon reserves of the central areas of the continental shelf in the Arctic are about 5 billion tons of oil equivalent, whereas the Minister S.E. Donskoy considers these estimates to be minimal[10].

If we consider that the forecast figure in exports of fuel and energy resources of the Russian Federation in 2020, according to the Energy Strategy of Russia for the period up to 2030, should reach 0.8 billion tons of oil equivalent[11], then fossil fuel resources of the central parts of the Arctic shelf may be comparable with the volume of five years of the Russian oil and gas exports at the current level. Speaking about the resource potential of the central areas of the continental shelf, it is important to stress the probability of detection of mineral resources in the central part of the Arctic shelf.

In addition, the sovereignty over the shelf gives a country the right to monitor any activity on it, including, for example, the construction of pipelines. It also assumes responsibility for the country’s environmental protection in the territory. Uncontrolled economic activity outside the areas of national jurisdiction in the area of the “common heritage of mankind” may pose a threat to the environment at the regional and global scale. Therefore, expansion of monitoring of the human activities in the Arctic shelf by the Arctic coastal States, as well as responsibility of those countries for the consequences of such actions can significantly contribute to sustainable development. Under the current circumstances of the non-alignment of the United States to the 1982 United Nations Convention on the Law of the Sea, the zone of the “common heritage of mankind” in the Arctic is not feasible^[12]. However, this leaves the question of the legal status of a number of sections of the shelf unresolved, and therefore it defines only a transient, temporary state of affairs.

Given these considerations, identification of the outer limits of the jurisdiction of the coastal states of the Arctic continental shelf is a priority task of the Russian foreign policy, as defined in the Foreign Policy Concept of the Russian Federation on February 12, 2013[13].

Let’s consider the claims of the Arctic coastal countries for the continental shelf in the Arctic:

Russia ratified the 1982 Convention on the Law of the Sea by the Federal Law #30-FZ dated February 26, 1998. Russia filed its first application in 2001. However, the Commission considered the data provided insufficient and decided that for unambiguous classification of each of the deep-water bottom uplifts in the Amerasian sub-basin (see Fig. 2), Russia should submit experiment-backed evidence of their continental nature and their structural belonging to the continental margin of the north-eastern Eurasia, as well as develop a consistent model of the evolution of the Arctic, which explains the geological nature of these bottom uplifts[14].

In the absence of these data, the outer limit of the continental shelf in the Amerasian sub-basin cannot be farther than 350 nautical miles from the baselines, i.e. the area, which Russia can claim in the region, will not exceed 400000 km². At the same time, the use of the second criterion of the limitation of the legal shelf (100 nautical miles from the isobath of 2500 m), which applies only to submarine elevations that are natural components of the continental margin, will allow to extend the jurisdiction of the Russian Federation in the Amerasian subbasin much farther. In this case,the acquired areaof theextended continental shelfof Russia will be1.2 millionsquare km^[15]. To date, according to the Ministry of Natural Resources and Environment of the Russian Federation, a new version of the application to be submitted, according to the plan, in 2015, is at the final stage of the preparation^[16].

1. The maximumUS claimsin the Arctic Ocean are the Chukchi Cap and the seabed areas adjacent to it to the north andeast, not reachingthe North Pole^[17]. In the US a Specialinteragencycoordinating bodyhas been created to substantiate the outer limit ofthe continental shelf- The US Extended Continental Shelf Task Force.More than a dozenAmericanministries,services and agencies take part in its work^[18].

Denmark ratified the 1982 Convention on the Law of the Sea on November 16, 2004. The claims by Denmark apply to a part of the Lomonosov Ridge, which lies to the right of an imaginary line of the equidistance with Canada and further to the north up to the North Pole, and further, to the Russian side of the Arctic, which thus overlaps with the claims of the Russian application of 2001. Denmark submitted its application for extension of its shelf in December 2014. It also claims for the western part of the Western Nansen Basin and in the place of the East Greenland Ridge^[19]. It is important to note that in the field of shelf delimitation Denmark has close research collaboration with Canada. In 2005, these two states announced plans to jointly explore water areas of the Arctic Ocean adjacent to their territories and process the received data, which resulted in the signing of a memorandum on cooperation in Ottawa. Denmark has scientific cooperation with all the Arctic coastal states, including Russia.

Canada ratified the 1982 Convention on the Law of the Sea on November 7, 2003. So far, the country has not applied for extension of its continental shelf. In the “preliminary information”, delivered by Canada to the United Nations on December 6, 2013, only some vague scope of potential Canadian claims is specified: the continental margin of the continental shelf in the Canadian basin, Amundsen basin, on the Lomonosov Ridge and the Alpha Ridge. It is specified that on the Alpha and Lomonosov Ridges Canadian claims concern areas that are located farther than 350 nautical miles from the baselines. It is expected that Canada may acquire approximately 1.5 million km² of the continental shelf beyond 200 nautical miles from the baselines. In the “preliminary information” it is indicated that Canada is going to submit a partial application, the timeline is indicated vaguely[20].

Norway ratified the 1982 Convention on the Law of the Sea on June 24, 1996. It submitted its application in November 2006, claiming for the shelf of the Western part of the Nansen Basin – the same site, which is also claimed by Denmark in its application in 2014[21].

Thus, underwater elevations, which are natural components of the continental margin, belong to the shelf that is claimed in applications of several countries at the same time. The largest of these elevations is the Lomonosov Ridge (in the scientific community there is almost no dispute that the Lomonosov Ridge and other disputed areas of the shelf have a continental origin; scientists’ opinions differ on where exactly these elevations join the mainland^[22]). There is a chance that the United Nations Commission on the Law of the Sea recognizes the controversial underwater elevations as a natural component of several continental margins, and, therefore, the right to sovereignty over them by two or three Arctic coastal states at the same time. However, even in this scenario, there is no potential for conflict.

Figure 2. Location of the maingeological structuresandsections of the bottom of theArctic Ocean^[23]..

Information note: The Lomonosov Ridge was discovered by Soviet scientists in 1948. It stretches over 1500 – 1700 km and connects the Eurasian continent in the area of the New Siberian Islands (Russia) with the North American continent in the area of Ellesmere Island (Canada) and Greenland (Denmark), effectively dividing the Arctic Ocean into 2 parts – the Pacific and Atlantic (see Fig. 2). In the Pacific part there is the Mendeleev Ridge (Ellesmere – Wrangel Islands). In the central part of the ridge there was found a break. Another name for the ridge is “Alpha”. Also in the Pacific part there is the Chukchi Cap. In the Atlantic part there is the Gakkel Ridge, which is an extension of the Mid-Atlantic Ridge. The Lomonosov Ridge and the Gakkel Ridge form two basins in the Atlantic part: the Amundsen basin and the Nansen basin.

From the above it follows that the so-called “control” over the North Pole by an Arctic country with the shelf in the Arctic Ocean may be solely the result of consideration of applications of the countries concerned by the Commission on the Limits of the Continental Shelf based on scientific evidence that these countries will collect and present in support of their applications. And the “prize” will be “awarded” to the country that will perform this task in the most compelling and scientific way – unless otherwise stipulated in mutual agreements by scientifically recognized claimant countries.

With regard to the thesis of the “militarization” of the Arctic region, the reason for making such estimates is attributed to the overlapping of applications, that is, due to the intersection of shelf territories claimed by coastal Arctic states (see Fig. 3). If the Commission on the Limits of the Continental Shelf recognizes that such claims are justified, these countries will have to hold diplomatic negotiations on the delimitation of the shelf on the basis of existing norms of the international maritime law. It is impossible to militarily impose a particular solution to the problem. This is the only possible approach and the only possible vision of the claimant states for resolving disputes, which is reflected in the Ilulissat Declaration of May 28, 2008^[24].

It is important to note that in the 2013 Kiruna Declaration of the Arctic Council all the Arctic countries (including the US) have committed themselves to act in accordance with the international law, including the law of the sea^[25]. It is significant that it was the potential for the use of international legal mechanisms of delimitation of the disputed territories of the Arctic shelf that the Russian Foreign Ministry stressed in its official commentary published in connection with the Danish application for the continental shelf in 2014^[26].

Figure 3. Scheme of the Arctic shelf: 200-mile zone and the territorial claims of countries, including the application of Denmark in 2014.

Source: Denmark challenges Russia and Canada over the North Pole // BBC News Europe. Digital resource. URL:  http://www.bbc.com/news/world-europe-30481309

2,000 km

1,000 miles

Alaska (USA), Russia, Norway, Greenland (Denmark), Canada

The North Pole, the Lomonosov Ridge

Applications/claims:

Danish application: 2014.

Russia

Canada

USA

200-miles line

It should be noted that there are two main principles of possible delimitation of maritime areas and the Arctic shelf between states. According to the “median line method”, delimitation is done based on the principle of the equidistance of the boundary line from the shoreline (or base points of the coastline) of the neighboring states. According to another method – “sectoral” – the pole is seen as a point from which straight lines are drawn along longitudes. The specific method of drawing dividing lines between the neighboring countries is not specified by the Convention on the Law of the Sea, except for referring to the principle of mutual consent and justice^[27].

Currently, the Russian Federation already has positive experience in the field of contractual delimitation of the continental shelf in the Arctic (namely in the eastern part of the Western Nansen Basin). On 15 September 2010, Russia signed an agreement with Norway “On Maritime Delimitation and Cooperation in the Barents Sea and the Arctic Ocean”.

Summarizing the above, it should be emphasized that allegations of futility, politicization and high conflict potential of the international process of delimitation of the continental shelf in the Arctic are incorrect and unfounded. On the contrary, we should talk about the strategic importance of this issue for all Arctic coastal countries, as well as about the effective mechanism for its solution embedded in the international law which is based on objective and impartial scientific assessment of the seabed, as well as openness of the Arctic coastal countries for a dialogue, their willingness to cooperate and find mutually beneficial solutions. The Minister of Foreign Affairs of Denmark (Martin Lidegaard) in connection with the Danish application to the United Nations Commission on the Limits of the Continental Shelf, said: “This is not an act of aggression. This is an attempt to fairly and accurately provide data of the geological expertise. We hope for constructive cooperation with experts from the United Nations and the subsequent bilateral negotiations with neighboring countries”[28].

The delimitation of the continental shelf in the Arctic is quite complicated and can take a long time. However, objectively and fairly established boundaries may for centuries provide the basis for efficient studying and development of the region, as well as for strengthening of the close partnership among the Arctic coastal states.

Bibliography

1. “A new cold war: Denmark gets aggressive, stakes huge claim in Race for the Arctic” // National Post. Digital resource. URL: http://news.nationalpost.com/2014/12/15/a-new-cold-war-denmark-gets-aggressive-stakes-huge-claim-in-race-for-the-arctic/; “Denmark challenges Russia with the Arctic claim” // PRIO Blogs. Digital resource. URL: http://blogs.prio.org/ArcticPolitics/2014/12/denmark-challenges-russia-with-the-arctic-claim/; “Canada sparks Cold War over Arctic” // The Chronicle Gerald. Digital resource. URL: [http://thechronicleherald.ca/opinion/1175277-canada-sparks-cold-war-over-arctic].
2. “Denmark lays formal claim to North Pole” // Financial Times. URL: [http://www.ft.com/intl/cms/s/0/b7e66b1c-8442-11e4-8cc5-00144feabdc0.html#axzz3QCY2ciY1]. (Accessed 15.01.2015).
3. «The Russian application for the Arctic shelf will be ready by the end of the year». // Rossiyskaya gazeta. URL: http://www.rg.ru/2014/06/30/reg-szfo/arktika.html. (Accessed 19.12.2014).
4. «The Ministry of Natural Resources and Environment of the Russian Federation will submit an application to the United Nations for expansion of the limits of the Arctic shelf in spring 2015» // ITAR-TASS. Digital resource. URL: [http://itar-tass.com/politika/1540165]. (Accessed 15.01.2015).
5. Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle. Digital resource. URL: [http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf].
6. Doc. SPLOS/73. 14 June 2001. P.10. Para. 61.
7. Kongeriget Danmarks Strategi for Arktis 2011–2020. // Danish Embassy in Canada, official website. [Digital resource]. URL:[http://canada.um.dk/da/~/media/Canada/Documents/Other/Arktis_Rapport_DA.pdf] Page 24. (Accessed 15.12.2014).
8. Regeringen og Grønlands selvstyre indgiver i dag krav på kontinentalsoklen nord for Grønland. The Danish Ministry of Foreign Affairs, official website. Digital resource. URL: [http://um.dk/da/udenrigspolitik/udenrigspolitiske-nyheder/newsdisplaypage/?newsid=7d92317d-823e-4412-8bd4-5cbcadccb45e]. (Accessed 15.01.2015).
9. The Extended Continental Shelf Project. URL: http://continentalshelf.gov/about.html. (Accessed 19.12.2014).
10. TheIlulissatDeclaration. Digital resource. URL: [http://www.oceanlaw.org/downloads/arctic/Ilulissat_Declaration.pdf]. (Accessed 15.01.2015).
11. VoronkovL.S. TheArcticfor 8. Evolution of the role of the NATO in the Arctic. // Russia in global politics. Digital resource. URL: [http://globalaffairs.ru/number/Arktika-na-vosmerykh-16045]. (Accessed 15.01.2015).
12. Vylegzhanin A.N. Non-participation in the Convention on the Law of the Sea gives advantages to the USA. // RIA Novosti. Digital resource. URL: [http://ria.ru/arctic_news/20120719/704132667-print.html]. (Accessed 15.01.2015).
13. Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015.
14. Gudev P.A. Challenges and threats to oil and gas production in the Arctic. // Ecologichesky vestnik Rossii, # 2 (15).
15. EvdokimovYu. Hot Arctic //Battle on the Ice: the Arctic shelf in the world politics and economics of the 21^st century / Eds: V. Andrianov, N. Vasiliev, B.M. Golkin, 2009.
16. Canada claimed for the Lomonosov Ridge. Article. Digital resource. URL: [http://pro-arctic.ru/06/12/2013/press/6010]. (Accessed 15.12.2014).
17. The commentary by the Information and Press Department of the MFA on the Danish application for the Arctic continental shelf. MFA of the Russian Federation, official website. Digital resource. URL: [http://www.mid.ru/brp_4.nsf/newsline/C4533848E85A09A0C3257DB00053569C]. (Accessed 15.01.2015).
18. 1958 Convention on the Continental Shelf. Digital resource. URL: [http://www.conventions.ru/view_base.php?id=34]. (Accessed 19.12.2014).
19. The Foreign Policy Concept of the Russian Federation. Approved by the President of the Russian Federation V.V. Putin on February 12, 2013. Subparagraphs 31, 38, 73. The official website of the President of the Russian Federation. URL: [http://news.kremlin.ru/media/events/files/41d447a0ce9f5a96bdc3.pdf]. Accessed [15.12.2014].
20. Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? TheRussianInstituteforStrategicStudies, 2011. URL: [http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf]. (Accessed 19.12.2014).
21. TheenergystrategyofRussiatill 2030. The Ministry of Energy of the Russian Federation, official website. Digital resource. URL: [http://www.minenergo.gov.ru/activity/energostrategy/]. (Accessed 15.01.2015).

[1]“A new cold war: Denmark gets aggressive, stakes huge claim in Race for the Arctic” // National Post. Электронныйресурс. URL: http://news.nationalpost.com/2014/12/15/a-new-cold-war-denmark-gets-aggressive-stakes-huge-claim-in-race-for-the-arctic/; “Denmark challenges Russia with the Arctic claim” // PRIO Blogs. Digital resource. URL: http://blogs.prio.org/ArcticPolitics/2014/12/denmark-challenges-russia-with-the-arctic-claim/; “Canada sparks Cold War over Arctic” // The Chronicle Gerald. Digital resource. URL: [http://thechronicleherald.ca/opinion/1175277-canada-sparks-cold-war-over-arctic].

[2]1958 Convention on the Continental Shelf. Digital resource. URL: [http://www.conventions.ru/view_base.php?id=34]. (Accessed 19.12.2014).

[3] Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? The Russian Institute for Strategic Studies. Moscow, 2011. URL: [http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf]. (Accessed 19.12.2014). P. 42.

[4]Doc. SPLOS/73. 14 June 2001. P.10. Para. 61.

[5] Gudev P.A. Challenges and threats to oil and gas production in the Arctic. // Ecologichesky vestnik Rossii, #2 (15). Pp. 34-35.

[6] “Denmark lays formal claim to North Pole” // Financial Times. URL: [http://www.ft.com/intl/cms/s/0/b7e66b1c-8442-11e4-8cc5-00144feabdc0.html#axzz3QCY2ciY1]. (Accessed 15.01.2015).

[7]Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle. Digital resource. URL: [http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf].

^[8] Kongeriget Danmarks Strategi for Arktis 2011–2020. // Danish Embassy in Canada, official website. [Digital resource]. URL:[http://canada.um.dk/da/~/media/Canada/Documents/Other/Arktis_Rapport_DA.pdf] P. 24. (Accessed 15.12.2014).

[9] Canada claimed for the Lomonosov Ridge. Article. Digital resource. URL: [http://pro-arctic.ru/06/12/2013/press/6010]. (Accessed: 15.12.2014).

[10]“The Ministry of Natural Resources and Environment: the Russian Federation will submit an application to the United Nations for expansion of the limits of the Arctic shelf in spring 2015” // ITAR-TASS. Digital resource. URL: [http://itar-tass.com/politika/1540165]. (Accessed 15.01.2015).

[11]The energy strategy of Russia till 2030. The Ministry of Energy of the Russian Federation, official website. Digital resource. URL: [http://www.minenergo.gov.ru/activity/energostrategy/]. (Accessed 15.01.2015).

[12] Vylegzhanin A.N. Non-participation in the Convention on the Law of the Sea gives advantages to the USA. // RIA Novosti. Digital resource. URL: [http://ria.ru/arctic_news/20120719/704132667-print.html]. (Accessed: 15.01.2015).

[13] The Foreign Policy Concept of the Russian Federation. Approved by the President of the Russian Federation V.V. Putin on February 12, 2013. Subparagraphs 31, 38, 73. The official website of the President of the Russian Federation. URL: [http://news.kremlin.ru/media/events/files/41d447a0ce9f5a96bdc3.pdf]. Accessed: [15.12.2014].

[14] Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? The Russian Institute for Strategic Studies. Moscow, 2011. URL: http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf. (Accessed: 19.12.2014). P. 44.

[15]Same. Pp. 44-45.

[16] «The Russian application for the Arctic shelf will be ready by the end of the year». // Rossiyskaya gazeta. URL: http://www.rg.ru/2014/06/30/reg-szfo/arktika.html. (Accessed: 19.12.2014). P. 44.

[17] Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015. P 244.

[18]The Extended Continental Shelf Project. Information from the website: www.continentalshelf.gov URL: http://continentalshelf.gov/about.html. (Accessed: 19.12.2014).

[19] Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015. PP. 244-247.

[20]Same. PP. 247-248.

[21]Same, PP. 248 – 249.

[22] Evdokimov Yu. Hot Arctic //Battle on the Ice: the Arctic shelf in the world politics and economics of the 21^st century / Eds: V. Andrianov, N. Vasiliev, B.M. Golkin, 2009. P. 37.

[23] Gubanov A.I. Delimitation of the Arctic continental shelf: international law problems and perspectives. Monograph. – M.: IKD “Zerzalo-M”, 2015. P. 308.

[24]The Ilulissat Declaration. Digital resource. URL: [http://www.oceanlaw.org/downloads/arctic/Ilulissat_Declaration.pdf]. (Accessed: 15.01.2015).

[25] Voronkov L.S. The Arctic for 8. Evolution of the role of the NATO in the Arctic. // Russia in global politics. Digital resource. URL: [http://globalaffairs.ru/number/Arktika-na-vosmerykh-16045]. (Accessed: 15.01.2015).

[26] The commentary by the Information and Press Department of the MFA on the Danish application for the Arctic continental shelf. MFA of the Russian Federation, official website. Digital resource. URL: [http://www.mid.ru/brp_4.nsf/newsline/C4533848E85A09A0C3257DB00053569C]. (Accessed: 15.01.2015).

[27] Konyshev, V.N., A.A. Sergunin. The Arctic in the international politics: cooperation or competition? The Russian Institute for Strategic Studies. Moscow, 2011. URL: [http://www.hse.ru/data/2011/11/01/1269302651/%D0%90%D0%A0%D0%9A%D0%A2%D0%98%D0%9A%D0%90_%D0%A0%D0%98%D0%A1%D0%98.pdf]. (Accessed: 19.12.2014). P. 43.

[28] Regeringen og Grønlands selvstyre indgiver i dag krav på kontinentalsoklen nord for Grønland. The Danish Ministry of Foreign Affairs, official website. Digital resource. URL: [http://um.dk/da/udenrigspolitik/udenrigspolitiske-nyheder/newsdisplaypage/?newsid=7d92317d-823e-4412-8bd4-5cbcadccb45e]. (Accessed: 15.01.2015).

The natural development of an economic model for the Baltic countries is an integrated process that is determined by political rather that economic reality. A quarter of a century after these countries gained economic independence (which existed long before August 1991), we can put Baltic economic developments into perspective.

Russian and foreign analysts always hit a wall when trying to view the economic development of Estonia, Latvia and Lithuania from both neo-Keynesian and neoclassical standpoints. Why? Because after 1991, the economy of the Baltics was harshly dictated by political reasons. The basis for the Baltic economic model were separatism and nationalism rather than balance and efficiency.[1]In reality. this European-looking model is not what it seems.

Prior to Perestroyka, the economic situation of the Baltic nations within the Soviet Union used to be as follows: in 1986, the fixed asset value was 5875 rubles for every Soviet citizen. This figure had noticeable disproportion throughout the country: on one hand, it made 8007 rubles in Estonia, 6923 rubles in Latvia, 6111 rubles in Lithuania; on the other hand, there was as low as 5500 rubles per citizen in Belorussia, 4500 rubles in Moldavia, 3823 rubles in Azerbaijan and 2291 rubles in Tajikistan.

The republics found themselves to be divided by a growing salary gap. In 1940, workers and employees’ salaries in different republics saw a maximum dispersion of 10 rubles. Then it reached 21 rubles in 1960, 33 rubles in 1970, and as high as 78 rubles in 1988. The contrasts looked even more striking in agriculture, with the difference between the top and bottom kolkhoz members’ salaries making 74 rubles in 1970 and 159  rubles in 1989.[2]It is worth noting that the Lithuanian, Latvian and Estonian Soviet Republics were holding the lead.

“Production reconstruction and enhancement process in the Baltic countries showed a faster rate than elsewhere in the Soviet Union, mainly due to the fact the Latvia and Estonia were reserves of qualified workforce for the whole Soviet state.  Moreover, infrastructure in the Baltic region was almost intact during the war».[3]

The share of Baltic population with over 300 rubles of total income was the biggest in 1990. The national average for the whole USSR equaled 8.8 percent while reaching 19.8 percent in Estonia, 14.5 percent in Latvia and 13.8 percent in Lithuania. The poverty rate in these republics was also among the lowest, people with 75-ruble income making 1 percent of the whole Estonian and Latvian population and 1.2 percent of Lithuanians, whereas it was republics with the highest poverty headcount that developed into the severest autocracies in post-Soviet era.[4]

Since this region was the most efficient from the investment point of view, Moscow sought to allocate new industrial facilities here.  Compared to other regions, it took less time to master production in the Baltics.

The share of new fixed assets in the Baltic republics was higher that the USSR average, with more up-to-date and less obsolete facilities and technology. Agriculture showed a similar picture: kolkhozes and sovkhozes were distributed fertilizers, machinery, forage, imported elite breeding cattle, etc. on more favorable terms.

In the early 1990s, Vilnius, Riga and Tallinn provided much similar models of economic development in the form of regional cost-accounting plans. The Baltic nations, yet Soviet at the time, viewed the future reforms  based on their nostalgic, and sometimes inadequate, ideas and memories of what the so-called ‘first republics’ used to be. The mythology of their past played a key role in their denial of the present life within the USSR. It was as early as 1991 when we used to point out the importance of the Soviet heritage in the later economic development of the countries.[5] Later this idea was multiply referred to and developed in a number of academic papers.[6]L. Grigoriev and his fellow contributors believe that ‘the Baltic countries boasted the best starting conditions (compared to other post-Soviet states) for building a market economy, with huge innovational potential was accumulated there. The region was more like a laboratory where improved Soviet economic models were tested. The Baltic republics always enjoyed a privileged status among others, as seen from the investment figures of 1970–1980: the investment volume per capita was the highest.‘

The leaders of the Baltic ‘people’s fronts’ were not experts in market laws and could not estimate the real value of the national resources since they all were previously living in a centralized state-controlled planned economy, where one single center was busy allocating funds as well as distributing the product.

After having seized power, the newly formed elite had to deal with the opposition which was all concentrated around key Soviet industrial facilities. Such factories and plants as Latvian VEF, RAF, Alfa or Estonian Dvigatel, Eesti Kabel, Kreenholm comprised the core and the basis of the opposition. Disrupting these would put an end to opposition. Low competitiveness of these firms was another pretext for de-industrialization. This process would also result in weaker trade union movement and potentially less social packages. However, Estonian and Latvian reformers (and their congenial Russian counterparts) acted in a different way, saying that “the destruction of what is unsustainable is not an argument against, but in support of the transformation”.[7]

Despite these facts, the biggest companies in the Baltics states were still those of the Soviet heritage as late as in 1997.

Table 1.  The Biggest Latvian Industrial Companies (according to the number of employed)[8]

Table 2. The Biggest Lithuanian Industrial Companies (according to the number of employed).

Table 3. The Biggest Estonain Industrial Companies (according to the number of employed).

The privatization of the Soviet heritage was greatly positive for the Baltic economies, encouraging progressive growth all through the most troublesome period of early 1990s.

At that very time, financial and monetary reforms took place in Estonia, Latvia and Lithuania. A strong and stable national currency safeguards a nation’s independence and economic stability. In the Baltic nations, deficit-free budget has become the strategic goal one was desperately trying to achieve. This cost the countries a lot, with serious budget limitations introduced especially affecting the social sphere. Borrowing was not even taken to account as a possible solution, until in recent years. By this time, however, the national financial systems have de jure seized to exist. One fact is worth noting in relation to this circumstances: when visiting Vilnius on Jan 14, 2015, Donald Tusk, Chairman of the European Council (Poland’s ex-Prime Minister) called euro adoption in Latvia ‘a historic moment’[9]. No one was curious then, though,  why Mr. Tusk had done his best in his country for this ‘historic moment’ to be avoided there.

The fact is that joining the European Union had a relatively narrow effect on Baltic nations, since these countries already had the right to sell 60- to 65 percent of its commodities on a duty-free basis while being associated partners of the EU. Moreover, since 2001 industrial commodity trade there has been totally duty-free.[10]

Liberalism can be called the second cornerstone of the Estonian economic policy, meaning renunciation of protectionism, free and toll-free trade with neighbors (alcohol, tobacco and some other goods excluded), and relatively low taxes (business tax rate is 26%). This kind of approach encourages saturation of inner market and comparatively low prices, as well as foreign investment and cargo flow growth, which are per capita higher than in Russia. However, this approach creates certain obstacles. Taking into account the protectionist and discriminating fee policy currently maintained by other countries, the inner market stays vulnerable as Estonian-made goods are not competitive enough. This leads to the domination of imported goods, making it harder for its own producers to develop, especially in agriculture.

The third important point is fast, successful reforms in agrarian and  municipal sphere, as well as housing and utilities.

The economic recession during the transformation crisis was deep in the Baltic nations: the economy fell –35% in Estonia, –49% in Lithuania and –52% in Latvia. IEstonia was the first to cope with its consequences in 2001 and reach the pre-crisis level of 1989. The result was its GDP growing 158 percent of this base. Economic progress of Latvia and Lithuania was not that impressive: 115 and 111% respectively.[11]

The comprehension of the complicated development processes and the acknowledgement of initial mistakes in reforming become (though still not frequently) the subject for discussions among the economists in the Baltic counries.[12]Before 2008, such discussions were yet not acceptable in the ‘Baltic tiger’ countries that showed 7 to 9 percent growth each year. There was not much talk of the 12 to 19 percent decrease at the time. Instead, the fact that the country survived the 2008-2009 crisis was treated as a true success story.[13]

Table 4. GDP Growth, %.

The Baltic countries’ dependency on Russian oil and gas and energy supply was a serious challenge for Latvia, Lithuania and Estonia, as well as the fact that the three were included in the Soviet-era cargo transportation system in which cargo flows from their sea ports were eastbound. The result was that the Baltic region obtained a predominant status of a  transitional, by-pass cargo hub. Russia is Latvia’s third largest trade partner, with 10 percent of its trade operations, and Estonia’s fourth biggest trade partner (with 8.4%). Speaking of Lithuania, Russia is number one partner for the country, holding 25% of all trade volume, which is three times higher than with Lithuania’s second biggest partner, Germany (8.4%).[17]However, a shrinking trade volume with Russia has also tended to cause macroeconomic decrease. Unlike in 2013, in 2014 Estonia was the third among the Baltic states as far as GDP growth is concerned. Annual GDP growth was 2.4% in Latvia, 2,9% in Lithuania and 1,8% in Estonia[18]. These figures may look optimistic in present-day Europe, but they will never allow, as people used to say in the USSR, ‘to catch up and overtake’ any other EU country – except for Greece, perhaps.

Expert say that the total exports from the Baltic countries to Russia may fall 18 to 25 percent in 2015, resulting in $780 million deficit for Lithuania, Latvia and Estonia, however, their growth is expected to lose 1.3 to 1.7 percent less that last year. In terms of money, the countries are about to lose $1.58 billion[19]. Isthissum critical? Let’s see: the estimated budget revenue in 2015 is about 7.25 billion euros for Latvia[20], same for Estonia and a little more for Lithuania. Apparently, 250 million euros for each country is big money.

To summarize the above, the economic model that was built in the Baltic countries is economically viable, at least on the mid-term horizon. IF the outer conditions are relatively stable, one can predict a 1.5 to 2.0 GDP growth. In case military and infrastructural expenditures grow, the real income growth will be close to zero. Stagnation of exports and decrease in transit will contribute to destabilization of the economies in the region.

However, the real problem lies elsewhere. The fact that real historical problems of the past are constantly emphasized helps to preserve anti-Russian sentiments on the level of the elite, that tends to capitalize, politically and even financially while encouraging and practicing Russophobic rhetoric. The window of opportunities for co-operation with Russia is constantly shrinking. The Baltic elites preferred to stay away from consistent solution-seeking process and take part in political, rather than economic, discussions. One of the reasons for this (which has never mentioned before, nor will be in the foreseeable future) is that no elite in the Baltics is free to choose its political agenda. In this context, the Baltic countries are quite similar to Belarus rather than Poland or Russia.

There is an opinion that is often heard in the economist community, that European economic development has been derailed. In the past, we knew that politics and economy interact dialectically; nowadays, economy simply becomes a tool for policy to achieve its goals. The golden age of the European economy that lasted from the 1950s till about 2007, has come to an end. European growth will no longer be 3-5 percent, and this situation will take place until the whole political and economic paradigm is changed.

The brilliant success of European integration is obvious. Europeanist ideas that resurrected after WWII have proved to be robust and viable. However, new challenges of 2008-2015 put an end to the  model of development which our European home had. This is true for the Baltic nations which are fully dependent on both European and their own model of development.

[1] Шадрин А. Экономический фактор политики сепаратизма в республиках Советской Прибалтики // КМЦ Прикладной этнографии Института этнологии и антропологии РАН Москва, 1996.

[2] Агафонов Н.Т, Литовка О.П, Исляев Р.А. Государственная стратегия регионального развития России: смена парадигмы территориальной организации общества СПб 1998 с.39

[3]Misiunas R. Taagepera R. The Baltic States: Year of dependence 1940-1980 L. 1983 р.104

[4] Гареева Н. Э.,  Шкель С. Н. Теория модернизации и социально-экономические факторы демократизации в контексте политических трансформаций на постсоветском пространстве
http://gisap.eu/ru/teoriya-modernizatsii-i-sotsialno-ekonomicheskie-faktory-demokratizatsii-v-kontekste-politicheskikh

[5] Межевич Н.М. Геополитическое положение Эстонской ССР: мифы и реальность // Политическая география и современность. Региональные и прикладные аспекты: Л.ЛГУ, 1991

[6] Самонис В. Трансформация литовской экономики: от Москвы к Вильнюсу и от плана

к рынку. Варшава: CASE, 1995; Григорьев, Л.М. Конкуренция и сотрудничество: экономические перспективы Восточной Балтики Москва 2005.

[7] Путь в Европу // Под. общ. ред. И. М. Клямкина и Л. Ф. Шевцовой. М.: Новое издательство. 2008. С. 39.

[8] Берзиньш Ингус Они дают нам работу[8] http://www.baltic-course.com/archive/rus/13/reyting.htm Дата обращения 11.03.2015

[9] Руководство ЕС приветствовало вступление Литвы в еврозону http://dw.de/p/1EKhU

15.01.2015

[10] Бройсс Ф. Макроэкономические последствия расширения ЕС для его старых и новых членов // Проблемы теории и практики управления. 2003. № 5. С. 29.

[11] Актуальные вопросы мировой экономики: 2010 – 2012. Под общей редакцией Григорьева Л.М., Иващенко А.С. Балтийский форум 2012 с.53

[12]Grigas A., Kasekamp A., Maslauskaite K., Zorgenfreija L., “The Baltic states in the EU: yesterday, today and tomorrow” // Studies & Reports No 98, Notre Europe – Jacques Delors Institute, July 2013.

[13]Dudzińska Kinga  The Baltic States’ Success Story in Combating the Economic Crisis: Consequences for Regional Cooperation within the EU and with Russia // POLICY PAPER

No. 6 (54), POLSKI INSTYTUT SPRAW MIEDZYNARODOWYCH March 2013

[14] RAA012: SISEMAJANDUSE KOGUPRODUKT JA KOGURAHVATULU (KVARTALID) // Eesti Statistika andmebaas. URL: http://pub.stat.ee/px-web.2001/dialog/varval.asp?ma=RAA012&ti=SISEMAJANDUSE+KOGUPRODUKT+JA+KOGURAHVATULU+%28KVARTALID%29&path=../database/Majandus/15Rahvamajanduse_arvepidamine/06Sisemajanduse_koguprodukt_%28SKP%29/02Pehilised_rahvamajanduse_arvepidamise_naitajad/&search=SISEMAJANDUSE+KOGUPRODUKT+JA+KOGURAHVATULU&lang=2. Дата обновления: 11.03.2013.

[15]Eurostat http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tec00115

[16] Statistical Yearbook of Lithuania, 2012 http://web.stat.gov.lt/uploads/metrastis/1_LSM_2012.pdf

[17] Зельценберг В. Легче застрелиться: страны Балтии подсчитывают убытки от девальвации рубля http://bb.lv/rinki-i-kompanii/item/9160776-legche-zastrelitsya-strany-baltii-podschityvayut-ubytki-ot-devalvatsii-rublya  22.12.2014

[18] По росту ВВП Эстония заметно отстает от остальных стран Балтии http://rup.ee/rus/novosti/ekonomika-i-biznes/po-rostu-vvp-estoniia-zametno-otstaet-ot-ostalnykh-stran-baltii 27.03.2015

[19] Как российский кризис скажется на экономиках стран Балтии http://rup.ee/rus/novosti/mirovaia-ekonomika/kak-rossiiskii-krizis-skazhetsia-na-ekonomikakh-stran-baltii 25.03.2015

[20] Доходы госбюджета Латвии в 2015 году составят 7,25 млрд. евро http://www.baltic-course.com/rus/finansi/?doc=99880 БК, Рига, 09.12.2014.

The relations of Russia with the North European countries have a special place in European politics. The atmosphere of these relations has evolved over many centuries, when countries traded and fought with each other, concluded dynastic alliances, explored the Northern sea and shared cultural and scientific achievements with each other. These relations were deep and multifaceted. Their bloom came in the days of the Hanseatic League, among whose participants were many Russian cities ― Novgorod, Pskov, Tikhvin, Belozersk, Tot’ma, Torzhok, Tver, Velikyi Ustyug, Revel and others. However, not only trade relations determined the nature of mutual relations between Russia and the North European countries, as marriage of state also played an important role. A significant mark in Russian history was left by Empress Maria Feodorovna, born Danish Princess Marie Sophie Frederikke Dagmara, who became the wife of Emperor Alexander III and mother of the last Russian Emperor Nikolay II.

Perhaps the most serious test of the relationship took place during the Great Northern War, when Peter the Great “cut the window” into Europe in spite of Sweden and strengthened the military position of Russia on the Baltic Sea. European capitals were not happy about the strengthening of Russia on the Baltic Sea, but after a while Stockholm and Copenhagen admitted the increasing influence of Russia on world politics. A century after Poltava Victory at the beginning of the XIX century, Russia made an enormous contribution to the development of the Finnish state, including it in its membership and granting the broadest autonomy to the Grand Duchy of Finland. Finally, in the XX century, the Soviet Union made a major contribution to the liberation of Europe from fascism; Soviet troops took part in the liberation of North Norway from Nazi troops.

The present stage of this relationship was marked by the “cold war”, when during the confrontation between West and East the policy of restraint and neutrality was used by social democratic governments of Sweden and Finland, what helped to create at that difficult time a climate of trust between the countries, belonging to different military-political blocs. Despite the fact that the level of mutual trust at that time was not always very high, it was fully offset by restraint in military and strategic issues, as well as the desire to preserve regional stability.

As you know, three of five North European countries (Norway, Denmark and Iceland) were fully integrated into the North Atlantic alliance, the first two even worked out plans in case of an armed conflict with the Soviet Union, while Sweden and Finland remained neutral. At the same time Finland had a special place in the relations with the West and the Soviet Union. Its sovereignty was partially limited by a treaty with the Soviet Union in 1948, in which both countries made a commitment “not to conclude any alliance and not to participate in the coalition directed against another High Contracting Parties”[1].

The disappearance of the USSR and the victory of Western democracy inspired many people to revise previous models of interaction. In the 1990s, the Finnish model was rejected by the supporters of the Euroatlantic choice and new generation of politicians of the North European countries, representing the right-wing conservatists. At the same time due to a misunderstanding were forgotten unique achievements of this model of relationship. Meanwhile, the historical significance of the model “Finlandization” lay in the fact that with the help of it Finland, on one hand, significantly reduced the risk of being involved in a confrontation between East and West, and on the other hand ― it was able to take full advantage of the economic benefits of its geographical location and the Soviet-Finnish border. The model of “Finlandization” opened access to capacious Soviet market for the high-quality Finnish goods and helped our northern neighbour to avoid confrontation with Moscow, didn’t allow to draw The Country of Thousands of Lakes in dubious military and political maneuvers that could have escalated into an armed conflict.

Whatever it was, already at a new historical stage in the 1990s and the first half of the 2000s, the basis of these relations contained the idea of maintaining a sub-regional stability, improving the climate of trust and sustainable development. Thus the development meant not only an increase in turnover, but also the creation of democratic institutions, which would bring together the political systems of Russia and the North European countries. The indicator of progress in this direction was the emergence of subregional organizations (CBSS, BEAC), as well as the attempt to create a common space of development, expressed in the concept of “Northern Dimension”.

This stage of relations between Russia and the North European countries lead to serious contradictions, which had the ideological character. Russia agreed to adopt Western liberal democratic model for the creation and development of the Russian government institutions and local governments, but strongly disagreed with the fact that the Western liberal ideology would completely replace its national identity, abolish religious standards and force Russia to sacrifice its national interests in the nearest countries. For example, the North European countries really did not understand Russia’s reaction to the infringement of the rights of Russians in the Baltic States, believing that the imperial period of Russian history should have stayed in the past.

From its side, Russia did not understand a lot in the politics and actions of the North European countries. It was difficult to realise, for example, the reason for increased military budgets of Sweden and Finland against the significant reduction of the Russian military capacity after the collapse of the USSR and the subsequent reductions in the 1990s. It was hard to understand, why the withdrawal of the Soviet troops from the Baltic countries was not accompanied with a normalization of relations with Moscow, but instead led to a serious deterioration of relations in almost all important areas ― political, economic and humanitarian. Russia sincerely hoped that the North European countries, which took care of young democracies in the Baltic States, would be able to convince them of the need to ensure the equal rights of Russian-speaking population, especially since similar rights were provided to all national minorities living in the North European countries. Russia did not understand the need of the entry of the Baltic States into NATO, as well as the upsell of the thesis about the “Russian threat” by the leadership of the republics.

Over the past 10-15 years Russia’s relations with the countries of North Europe continued to develop on its special path, alternating the periods of recovery and recession. Significant milestone of this relationship became the restart of the program “Northern Dimension” in 2006. As a result, Russia was proclaimed the main target of this initiative, as originally proposed by the author of the idea of “Northern Dimension” – Finland. The program received a new framework document, identified new joint projects. ND had at its disposal two new partnerships ― in the field of transport and logistics (2008), as well as in the field of culture (2011).

However, two years later relations were spoiled by the events in the Caucasus, where Russia came to the defense of the interests of Abkhazia and South Ossetia, and the Scandinavian countries supported Georgia’s position. Then Swedish Foreign Minister Carl Bildt compared Russia’s actions to protect its citizens with the actions of Hitler’s annexation of the Sudetenland. After 8 years, he also condemned Russia’s annexation of the Crimea, comparing the policies of the President of Russia with the seizure of Kuwait by Saddam Hussein[2]. The fact that these statements were not a spontaneous and short-term splash of emotions, was confirmed by the events of 2008, when Poland and Sweden became the ideological inspirers of “Eastern Partnership”, the purpose of which was the gradual integration of the former Soviet Union in Western institutions. Anti-Russian orientation of the initiative was read between the lines.

In fact, the crisis in the Caucasus in 2008 and the promotion of the “Eastern Partnership” exacerbated the competition between Russia and the EU for the political dominance in the former Soviet Union, and a very active role in the EU’s eastern policy was played by two countries ― Poland and Sweden. From the point of view of Western countries, it looked as a competition between a neo-imperial project, which was supported by Russia as the center of Orthodox Slavic civilization and Western liberal project, aimed at establishing the economic, ideological and informational control over the European CIS countries, as well as the states of Transcaucasus. In this case, the coexistence of “Northern Dimension” and “Eastern Partnership” did not mean a fundamental difference of opinions between Finland and Sweden.

Preserving a common approach and a common strategy towards Russia, Stockholm and Helsinki disagree on tactics: if the project “Northern Dimension” is supported by Finland and is aimed at the gradual democratization of Russia and rapprochement with the West, the project “Eastern Partnership”, which is backed by Sweden, in fact recognizes that Russia is unlikely to be part of the Western world in the foreseeable future, and aims to establish control over the newly independent states established on the ruins of the Soviet Union.

Political upheaval and civil war in the Ukraine in this sense are not the starting point of the crisis in relations between Russia and the North European countries, but is a new stage of ideological confrontation, which was indicated in the middle of the 2000s. The aforementioned Swedish politician does not hide it as well. According to Carl Bildt, Russia in the 1990s demonstrated commitment to Western values, but with the coming of Vladimir Putin to power Moscow faced tough opposition to the Western policy. Former Minister of Foreign Affairs of Sweden believes that the contradiction between Russia and the West is of a fundamental ideological character: “The new anti-Western and antidecadent line of Putin is built on deeply conservative orthodox ideas»[3].

It must be noted that the offensive Western policy towards Russia, combined with tough rhetoric of certain Western politicians have almost fully revived the political atmosphere of the “cold war”, and the media of the West has begun to carefully sculpt an “enemy image” from Russia. How long will the new “cold war” be, and how long will be the economic sanctions against Russia? This raises the third question: what is the position of countries on this issue? In particular, what do leaders and leading politicians of the North European countries think about it?

Many years of mutually beneficial cooperation have taught many to conclude that the North of Europe is quite a well-off region and Russia’s relations with the countries of the region seem to be promising and mutually beneficial. And, in fact, there were no open conflicts in the North of Europe with the participation of Russia, except for those systematic violations of the rights of Russians living in the Baltic states, and they mostly boil down to two main problems: failure of Latvia and Estonia to grant citizenship to all residents, who were born there and lived at the time of the declaration of independence of these countries, as well as the denial of the right of these people, and especially ― their children ― to receive education in their native language. In 2010, Russian initiative was to settle the dispute between Russia and Norway regarding the section of the Barents Sea between two countries. Thus, all potential conflicts in the region have been minimized.

However, it did not prevent the Norwegian oil company Statoil from withdrawing from the joint project of developing the Arctic shelf with Russia; Norway declared that its sanctions and EU sanctions against Russia wouls be cancelled only when Russia changed its policy in Ukraine. Explaining the position of the state, Norwegian Foreign Minister Børge Brende recalled that the sanctions against Moscow were introduced after the annexation of the Crimea, as well as other “violations of the international law in the eastern regions of Ukraine[4].

It should be noted that Norway not being a member of the EU, was free on the question of participation in the sanctions, as well as on the issue of the degree of its rigidity and duration. For example, Turkey, which, together with Norway being a member of the North Atlantic Alliance, decided not to join the sanctions at all, because it saw it as a threat to its national interests in the Black Sea region.

The fact that Norway did not simply join the sanctions, but chose their toughest variant, signifies either a serious crisis in bilateral relations, or that the foreign policy of Norway on the question of sanctions is completely subordinated to politics of Washington or Brussels. This situation has opened another unpleasant situation for Russia’s foreign policy: the signing of a bilateral agreement between Moscow and Oslo on the delimitation of the disputed waters of the Barents Sea in 2010 and reciprocal steps by President Medvedev had absolutely no effect on improving the climate of bilateral relations. Nevertheless, even in Norway one can hear louder voices of opposition to the current position of the country with regard to Russia. Thus, ex-Minister of Foreign Affairs Jonas Gahr Støre recalled “the millennial experience of a peaceful neighborhood” with Russia.[5].

Thus, the events of the Ukrainian crisis has shown that the most irreconcilable and active critics of Russia’s actions are the North European countries, namely Sweden, Norway and Denmark. Acuity of their position is not inferior to the positions of the United States and Canada, and on the degree of hardness it’s stronger that one of France and Germany. On the contrary, Finland and Iceland at the outset showed much more balanced position, based on considerations of economic pragmatism dominated the political arguments.

Finland’s position from the beginning tended to a compromise, and Prime Minister Alexander Stubb has repeatedly spoken out against imposal, extension and tightening of the sanctions, as the importance of Russia for the Finnish economy is too huge[6]. It can be explained by the fact that among all North European countries, Finland faces the greatest losses from the sanctions regime, as well as the impact from Moscow responses, which imposed a total ban on exports of beef, pork, vegetables and fruit, meat, poultry, fish, cheese, milk and dairy products to Russia.

Denmark and the Danish Board of Agriculture and the Economy also warned on the serious impact of Russian counter-sanctions on its economy. According to the National Institute of Statistics of Denmark, exports to Russia in 2013 amounted to 2.14 billion USD, of which 891 million USD accounted for agricultural exports. At the same time, the share of Russia in the exports of Denmark does not exceed 1.9%, which allows the country’s leaders to insist on the continuation of anti-Russian sanctions. This, in particular, was declared by Prime Minister Helle Thorning-Schmidt[7].

According to the polls carried out in March 2014 by Taloustutkimus, the majority of Finnish society (60%) is foreign to anti-Russian sentiment, and Russia is not perceived as a threat. Finnish President Sauli Niinistë agrees with the opinion of the Finnish society: “We are neighbours. Unlike other neighbours of Russia, we are not members of NATO. Our relations with Russia are based on bilateral contacts”[8]. The position of Finland is not opportunistic, but consistent and is based on the mood of the majority of Finnish society, which has been recently shown by the events, when the Finnish leadership voted against the supply of arms of Kiev authorities^[9].

Against the balanced and moderate position of Finland Sweden is continuing to demonstrate hardness against Moscow. Swedish Foreign Minister Margot Wallström said that Russia poses a serious threat to the security of Europe, however, along with the pressure on Russia one should continue political dialogue as well[10]. The announcement of Ambassador of Sweden in Russia Veronika Bard Bringus was in similar mode, when she did not exclude the possibility of exit of Swedish companies from the Russian market[11]. The main argument of the Ambassador was the situation with the Swedish concern Oriflame, which was accused by Russian tax authorities of deliberately understating the company’s revenues for the reduction of tax payments to the Russian budget. After losing the lawsuit in the Russian arbitration court, the company announced its intention to appeal to the international investment arbitration.

It should be noted that the current crisis in Russian-Swedish relations is not accidential. Stockholm has long been regarded Russia as a threat to its security, and therefore critically perceives any Russian actions of political or economic nature, aimed at strengthening the security of Russia in the Baltic Sea, whether it’s laying of the pipeline “Nord Stream” or the development of the military infrastructure of the Baltiysk and Kronstadt.

The story of unsuccessful search for “Russian submarine” in Swedish territorial waters in October 2014 recalled a similar story from “cold war”, when in 1981, a Soviet damaged submarine was discovered close to the Swedish naval base at Karlskrona. Stockholm reacted to Russia’s actions to ensure security of Abkhazia and South Osetia with obvious disapproval, accusing Moscow of violating the territorial integrity of Georgia. A similar position was taken by the Swedish Ministry of Foreign Affairs in Crimean issue.

Playing the “Russian card” and the spread of the thesis of the “Russian threat” was the brand style for a number of leading Baltic politicians. The toughest position on the Russian question among the Baltic States has traditionally been shown by President of Lithuania Dalia Grybauskaite. In her opinion, three Baltic countries faced “Russian threat” and they should be ready to respond to it during three days at least, until they get assistance from NATO members[12]. However, a different position was shown by Latvian President Andris Berzins, who does not support the imposal of sanctions and calls for their soonest cancellation. His views are shared by Foreign Minister of Latvia Edgar Rinkevich and Ventspils Mayor Aivars Lembergs.

Some political consequences of the deterioration of relations of North European and Baltic countries with Russia within the framework of the Ukrainian crisis followed shortly. In particular, it was reflected with newly resumed talks on accession of Sweden and Finland into NATO, the North European countries and the Baltic States published their plans to deepen cooperation in defense and security. So, the ongoing projects within the North European defense cooperation (Nordic Defence Cooperation ― NORDEFCO) were joined by the Baltic States ― Latvia, Lithuania and Estonia[13].

Minister of Foreign Affairs of Sweden, Margot Wallström was the initiator and inspirer of the plan; she declared that military cooperation between the North European countries and the Baltic countries would decrease defense expenses and improve cooperation on border security. Russia replied immediately by performing tactical flight exercises in the Barents Sea, which were attended by the crews of fighter-interceptor MiG-31 and tactical bomber Sukhoi Su-24M of Central Military District[14].

Thus, Russia’s relations with the countries of Northern Europe are developing in an unfavorable scenario; however, there is still some potential for a gradual improvement in case of easing policy by the majority of the North European countries in respect of Russia. In this situation, the most pressing question is what position will prevail: the policy of deepening confrontation or a pragmatic and balanced policy aimed at overcoming the sanctions crisis. It seems no one can state the way of further development of relations between Russia and the North European countries, as Brussels and Washington both have a strong impact on the foreign policy of the North European countries. We can only hope for traditional Scandinavian sanity, willingness of all parties to move towards each other and take into account the legitimate interests of Russia.

The list of bibliography:

1.         Dogovor o druzhbe, sotrudnichestve i vzaimnoy pomoshi mezhdu Sojuzom Sovetskikh Socialisticheskikh Respublik i Finljandskoy Respublikoy. URL: http://www.heninen.net/sopimus/1948_e.htm

2.         V Danii opasajutsja posledstviy rossijskikh sankciy URL: http://russian.rt.com/article/44314

3.         Karl Bil’dt. Putin povel sebja kak Saddam URL: http://www.bbc.co.uk/russian/multimedia/2014/07/140708_v_bildt_hard_talk_int

4.         Litva pugaet Pribaltiku «rossiyskoy ugrozoj». URL: http://www.stoletie.ru/lenta/litva_pugajet_pribaltiku_rossijskoj_ugrozoj_423.htm

5.         MID Norvegii: tol’ko izmenenie politiki RF v otnoshenyi Ukrainy privedet k snjatiu sankciy. URL: http://versii.com/news/320114/

6.         Nad Barencevym morem proleteli 40 istrebiteley URL: http://www.stoletie.ru/lenta/nad_barencevym_morem_proleteli_40_istrebitelej_555.htm

7.         Norvegiya dolzhna prodolzhat’ politiku dobrososedstva s RF. URL: http://www.norge.ru/news/2015/02/14/26538.html

8.         Nosovich, Aleksandr. Baltijskiy kontrast: Finljandiya otkazalas’ otvorachivat’sa ot Rossyi. URL: http://www.rubaltic.ru/article/politika-i-obshchestvo/baltiyskiy-kontrast-finlyandiya-otkazalas-otvorachivatsya-ot-rossii/

9.         Posol Shvecyi: v RF sozdajutsja prepjatstviya dlja raboty shvedskihk companiy URL: http://1prime.ru/state_regulation/20150306/804132680.html

10.       Pravoslavie ― glavnaya ugroza dlya Zapadnoy civilizacii: mnenya. URL: http://www.iarex.ru/interviews/47573.html

11.       Prem’er Finljandiyi: Ukraine ne nuzhna voennay pomoshh’ URL: http://vz.ru/news/2015/2/4/727740.html

12.       Strany Severnoy Evropy I Baltiki dogovorilis’ ukrepit’ voennye svjazi. URL: http://vzgliad.ru/news/2014/11/30/717796.html

13.       Shadrina, Tat’jana. Finljandijaotkazalas’ otsankcij k Rossii URL: http://www.rg.ru/2014/08/14/finlyandiya-site.html.

14.       Wallström, Margot. Rysslandettallvarligt hot mot Europasfred. // SvenskaDagbladet, 6 mars. URL: http://www.svd.se/opinion/brannpunkt/ryssland-ett-allvarligt-hot-mot-europas-fred_4388101.svd

[1] Договор о дружбе, сотрудничестве и взаимной помощи между Союзом Советских Социалистических Республик и Финляндской Республикой / Agreement of Friendship, Cooperation, and Mutual Assistance with the Soviet Union. URL: http://www.heninen.net/sopimus/1948_e.htm

[2] http://www.bbc.co.uk/russian/multimedia/2014/07/140708_v_bildt_hard_talk_int

[3] Православие – главная угроза для Западной цивилизации: мнения. / Orthodoxy is main threat to Western civilization . opinions / URL: http://www.iarex.ru/interviews/47573.html

[4]МИД Норвегии: только изменение политики РФ в отношении Украины приведет к снятию санкций. URL: http://versii.com/news/320114/ / MFA Norway: only changes of Russia’s policy in respect of Ukraine will lead to cancellation of sanctions

[5] Норвегия должна продолжать политику добрососедства с РФ. URL^: http://www.norge.ru/news/2015/02/14/26538.html. / Norway must continue policy of neighbourliness with Russia.

[6]http://www.rg.ru/2014/08/14/finlyandiya-site.html

[7]http://russian.rt.com/article/44314

[8] Носович, Александр. Балтийский контраст: Финляндия отказалась отворачиваться от России. URL: http://www.rubaltic.ru/article/politika-i-obshchestvo/baltiyskiy-kontrast-finlyandiya-otkazalas-otvorachivatsya-ot-rossii/ / Nosovich Alexander. Baltic contrast: Finland refused to turn back from Russia

[9]Премьер Финляндии: Украине не нужна военная помощь URL: http://vz.ru/news/2015/2/4/727740.html / PM of Finland: Ukraine does not need military aid

[10]Wallström, Margot. Rysslandettallvarligt hot mot Europasfred. // SvenskaDagbladet, 6 mars URL:http://www.svd.se/opinion/brannpunkt/ryssland-ett-allvarligt-hot-mot-europas-fred_4388101.svd

[11]Посол Швеции: в РФ создаются препятствия для работы шведских компаний URL:http://1prime.ru/state_regulation/20150306/804132680.html / Ambassador of Sweden: Russia imposes difficulties for activity of Swedish companies

[12] Литва пугает Прибалтику «российской угрозой». URL: http://www.stoletie.ru/lenta/litva_pugajet_pribaltiku_rossijskoj_ugrozoj_423.htm / Lithuania threatens Baltics by “Russian threat”

[13]Страны Северной Европы и Балтики договорились укрепить военные связи. URL:http://vzgliad.ru/news/2014/11/30/717796.html / The North European countries and Baltics agreed on strengthening military cooperation

[14]URL:http://www.stoletie.ru/lenta/nad_barencevym_morem_proleteli_40_istrebitelej_555.htm

At present the mechanism of the CBSS which unites eleven countries of the region and the European Commission operates better than a Swiss watch. It is well-oiled and partners are quick on the uptake in most issues. Russian Foreign Minister Sergei Lavrov provided most exact description of the understanding in an exclusive interview with the Amber Bridge. He said in 20 years of activities the Council of the Baltic Sea States fully justified its initial idea, developed into a full-fledge cooperation forum, and demonstrated an ability to upgrade.

It is easy to understand why environment is on the agenda. The problem is a kind of a wellbeing camertone and is vital for all Baltic littoral countries. Statistics cause concern of most people in the unique region who attentively follow the situation in the sea. The last world war dumped a lot of “surprises” in the Baltic Sea which threaten it with major environmental catastrophes. The talk is about hundreds of thousands of tons of shells and mines buried on the seabed, but periodically washed ashore. There are also bombs with toxic agents. If their hulls are destroyed they can kill fauna and flora on a major scale.

Scientists have already discovered mutant fish in the Baltic Sea and explain the growing numbers by a possible leak in shells with toxic agents. Experts said the problem was discussed rather than handled for a long time. Complex joint effort was taken during the construction of the Russian-German Nord Stream underwater gas pipeline. Russia and other countries possess technologies that can efficiently defuse the deadly cargo on the Baltic seabed.

Now back to the April conference in St. Petersburg. There is no doubt it will be a landmark in the laborious but urgent joint work of scientists and scholars of Northern Europe. If we turn back several pages of the latest history we shall see that when the CBSS was founded in 1992 few people believed the institution was viable. If Germany, Denmark, Norway, Finland and other western countries initially treated Russia as an equal and valuable partner, some neighbors in the east of Europe continued to display increased caution towards it.

But time always puts everything in place. “Seabed sediments” were gradually washed out of politics while the work of the CBSS becomes more substantial and productive with years. The substantive portfolio of vital solutions for the region is constantly augmented. Joint efforts of regional leaders promote efficient cooperation in economy, science, environment, healthcare, culture, and in the fight against organized crime…

I lived in Lithuania for thirty years and worked as a correspondent of a central newspaper. I still have many Lithuanian friends there. They often visit me in Moscow and I often go to Vilnius. They love their country and are upset by mistakes in the home and foreign policy while I feel all developments in Russia with my heart. It is only logical as each of us is a patriot of his country. But we are also patriots of our unique region. The world is a tiny place while the Baltic Sea coast is a small golden dune on its surface.

Naturally, partnership among Baltic Sea countries presupposes a broader cooperation level and integration in resolving common regional problems. That is taking place. The flow of time convinces us there is no alternative to partnership. All CBSS members are sure of it.

Alexey Morgun,

Editor-in-Chief, Amber Bridge

Lithuanian Prime Minister Algirdas Butkevicius (sixteenth head of government in 21 years of national independence) has been for long overshadowed by such bright Social-Democratic leaders as Brazauskas, Kirkilas, and Jursenas. Observers believe the convincing victory of Social-Democrats under Butkevicius leadership to the Saeima last autumn was predetermined by the election program of the party rather than by the charisma of its leader.

The Social-Democrats listed energy reform, the fight against unemployment and mass emigration, and elimination of the gap between the rich and the poor as their home policy priorities. The first decision of the new government fulfilled its election promise and raised the minimum wage to 1000 lits (close to 300 euro). It pledged to better consult society on all key issues and promote public consensus.

Butkevicius numerously said that when the taskforce discussing energy sector reform (with a new nuclear power plant or without it) provides conclusions they will be definitely submitted for public discussion. There will no longer be non-transparent decisions characteristic of the Conservative government.

In a brief time as the prime minister Butkevicius approved himself as an experienced and prudent politician. So far he succeeded to reconcile contradictions in the ruling coalition and softly but resolutely resist the attempts of President Dalia Grybauskaite to push her decisions through.

Lithuanian voters were attracted by election promises of the current government which offered a “reset” in relations with Russia. The prime minister numerously said Lithuania will promote mutual trust and build up cooperation based on future rather than the past. Opposition claims that new authorities turn their back on the West and betray their main strategic partner, the United States, by looking at the East were rebuked by Butkevicius who said the country should not turn its back either on Russia or the USA. We asked the head of government how Lithuania plans to build up relations with neighbors.

Mr. Butkevicius, The government program envisages and you also numerously stressed the necessity to “reset” relations with Russia. What should politicians do to thaw bilateral relations with neighbor s?

First of all, I have to say it bluntly that I am a supporter of constructive dialogue. I hope for the same position of the Russian side. I stand for enhanced mutually beneficial cooperation with Russia, specifically in economic relations. Trade turnover between our countries is big at present, but it should continue to grow. Favorable business conditions and the initiative of entrepreneurs from both sides are necessary for that.

The comprehensive agreements between the European Union and Russia which are being designed at present have to give a new impetus to bilateral cooperation. Political, economic, and cultural relations between the two countries shall be based on mutual respect and understanding.

Lithuanian relations with Poland and Latvia have not been smooth of late. You have already paid official visits to the countries. Have you agreed with the Latvians on energy issues (construction of a nuclear power plant and a liquefied gas terminal) and with the Poles on problems r elated to national minorities?

Relations between Lithuania and neighboring Latvia and Poland are very close and productive. There are numerous big and strategic projects in trade and investments which confirm it. We are united by the commitments in the framework of the European Union and NATO and we jointly fulfill them. We are members of one family. Naturally, there may be different opinions on various issues, but we always listen to the arguments of the other party. I was convinced in it again during my first

foreign trips to Riga, Tallinn, and Warsaw. Together with the prime ministers of Estonia and Latvia we reiterated our resolute intention to develop cooperation of the Baltic troika and more intensively promote the Baltic trademark which has already been recognized in the world.

We are united by common interests in the energy sphere, including energy independence and efficiency and the common internal market in the EU context. Latvia and Estonia continue to declare their interest in the construction of the Vysaginas nuclear power plant. They are currently waiting for Lithuania to complete the feasibility study of the project.

Polish Prime Minister Donald Tusk said relations between Lithuania and Poland are good. Poland would be glad to maintain such relations with other countries, but they should be the best with Lithuania. We shall join effort to achieve them. The position was confirmed by Polish President Bronislaw Komorowski who visited Vilnius on February 16 to celebrate the day of Lithuanian Independence together with us. Our concrete projects have shaped out already: the agreement has been signed to build LitPolLink energy bridge and we shall jointly apply to the European Commission for financing the gas bridge between Lithuania and Poland. Both countries will unite efforts in the implementation of the Eastern Partnership program of the European Union.

As for national minorities, the problems should be resolved by each country at home. They are resolvable. We have nothing to conceal from close neighbors and we shall not reject fruitful experience and advice.

Will there be a similar meeting with Russian Prime Minister Dmitry Medvedev in the near future? Which steps are being made to implement your idea of closer cooperation at the diplomatic level?

I accepted the invitation of Russian Prime Minister Dmitry Medvedev to participate in the conference of heads of government of the Baltic Sea countries which is to be held in St. Petersburg this spring (in the framework of the Russian presidency in the CBSS – ed.). It will be my first meeting with the chairman of the Russian government. No doubt one meeting and one talk are not enough. We have to expand opportunities for consistent and fruitful cooperation.

R e p r e s e n t a – tives of the rightwing forces, mostly Conservatives, blame authorities for readiness “to cede to Moscow” in exchange for cheap gas. What would you say?

In a democratic society there is usually a healthy tension between the government and the opposition and discussions are underway on all issues. It is important not to lose the guideline of national interests. I would like also to stress that my government will work for solutions that are beneficial for all residents of Lithuania, but not at the expense of energy or national security. Our priorities include the drive towards increased energy independence through implementation of the provisions of the Third Energy Package of the EU (which contains proposals to liberalize the energy market, calls to unbundle vertically integrated energy companies, and regulates ownership and use of gas pipelines by handing over transportation networks to independent operators – ed.), construction of a liquefied gas terminal, increased energy efficiency due to active renovation of multi-apartment houses, as well as development of renewable energy. We shall also look for solutions that allow to decrease gas prices and consequently heating tariffs for ordinary consumers.

Don’t you fear bitter criticism from the rightists if the government works for rapprochement with Russia?

Russia is our neighbor which maintains with Lithuania not only close energy ties and historic experience, but also has a common European agenda. No party and no group of people enjoy a monopoly in relations with Russia or any other country. Lithuania is a democratic country and a member of the European Union. Decisions are adopted publicly and transparently and take into account public interest and long-tem national development prospects. I do not doubt there is a place for Russia in the strategy: friendly, economically strong, and democratic state.

Radicals accuse new authorities of “betraying national interests”. What would you say about it?

I have not heard such accusations and have nothing to comment.

According to official statements, the current main task of Lithuania is to win energy independence from Gazprom. Is it possible in the current situation and what did you mean by expressing hope that Gazprom would behave “like a gentleman”?

The national energy independence means, inter alia, the right to choose energy suppliers. There is no such possibility in the gas sector at present but it will emerge after the implementation of Third Energy Package which stipulates liberalization of the market. Gazprom will have to take into account the laws of the European Union and Lithuania and restructure the Lietuvos dujos gas distribution company which it partially owns. I hope Gazprom will behave “like a gentleman” and will carry out the necessary changes in cooperation with the government of Lithuania. Practical work to ensure energy independence is already underway. In 2014 the construction of a liquefied gas terminal in Klaipeda will be completed. It will allow gas supplies from any country of the world. It will definitely influence the pricing policy of traditional gas suppliers in favor of Lithuanian consumers.

Does Gazprom advance any demands which are unacceptable for Lithuania?

Constructive talks are currently underway however the Lithuanian position at the negotiations is clear enough: the implementation of the Third Energy Package and decreased prices for ordinary consumers.The citizens of the country opposed the construction of a new NPP at a consultative referendum. You used to be also against the agreement signed with Hitachi. Did you change your mind?

The new government will avoid unbalanced and hasty decisions on the Vysaginas nuclear power plant. It is clear today the plant can go on only as a regional project and we shall take all effort to make it regional in reality. I have instructed to create a taskforce to discuss the issue which is to submit its proposals in late spring.

The agreement with Hitachi was signed in complete secrecy. Will you stand up to the commitment and inform the public which way Lithuania should go in the sphere of energy?

As soon as the abovementioned taskforce provides proposals the Saeima and the public will be immediately informed.

The Lithuanian shale gas prospecting and production project causes many public claims as well. It turned out the agreement with the American Chevron has already been signed. What can you say about it?

Shale gas prospecting and production is one of the guidelines for energy security in the region. The contract with the company envisages only prospecting. The public will be informed about the progress and results of prospecting for shale gas.

Despite reserved official relations between Lithuania and Belarus, Lithuania and Russia businessmen and ordinary people actively cooperate. How can we simplify people-to-people contacts? What is the progress in visa-free regime in border areas?

As for the visa-free regime, Lithuania has invested a lot into upgraded infrastructure of Lithuanian-Russian and Lithuanian- Belarussian checkpoints and border zone. We informed Belarus about our readiness to implement the agreement reached by the governments of the Republic of Lithuania and the Republic of Belarus on border-crossing trips by residents of border areas of Lithuania and Belarus. We are waiting for a confirmation from Minsk that it is also ready to implement the agreement.

Some people in Lithuania are dissatisfied with the fact that Russian actors come to perform in the country, Russian movies are shown on TV and in cinema halls.

They view it as expansionist policy of the neighboring country. What do you think about it?

I believe no borders exist for the arts and the tours of Russian performers in Lithuania can be only welcomed. Genuine art always finds its listeners and viewers without any advice from authorities. I would like to hope that Lithuanian actors will also find their admirers on the immense space of Russia.

Algirdas Butkevicius was born in 1958 in the village of Paezeriai in Padviliskis district. He graduated as engineer-economist from the Vilnius Engineering and Construction Institute, studied in the Lithuanian Governance Academy and underwent traineeship in the United States. He joined the Social-Democratic Party in 1992 and was elected its chair in 2009. From 2004 to 2008 he was finance minister and then transport and communications minister in the Social-Democratic government of Algirdas Brazauskas and then Gediminas Kirkilas.

In the 2012 parliamentary election the Social-Democrats headed by Butkevicius received most of the votes. They created a coalition with the Labor Party, the Order and Justice, and the Electoral Action of Poles in Lithuania to form the constitutional majority in parliament and a coalition government. In November the Saeima approved Butkevicius as the Lithuanian prime minister. Lithuanian residents hope the new government will improve the economic situation in the country, as well as good-neighborly relations with Russia. Public opinion polls show Butkevicius is ahead of Lithuanian President Dalia Grybauskaite in popularity ratings.

Thank you for the interview .

Galina Afanasyeva,

for Amber Bridge