Social Consequences of Neoliberal Economic Crisis and Austerity Policy in the Baltic States
| Published date | 01 January 2014 |
| DOI | 10.1177/0020881717718006 |
| Author | K. B. Usha |
| Date | 01 January 2014 |
| Subject Matter | Articles |
Social Consequences of
Neoliberal Economic
Crisis and Austerity Policy
in the Baltic States
K. B. Usha1
Abstract
This article tries to outline the social consequences of neoliberal economic
crisis and the domestic austerity policies in Estonia, Latvia and Lithuania, com-
monly known as the Baltic states. In order to recover from the shock of global
and Eurozone economic crises, since 2008, the Baltic states adopted severe
austerity policy comprised of enormous cutbacks of government expenditure in
social welfare, health care and education, and labour market reforms that made
employment relationships more insecure. Baltic political leaders highlighted their
austerity model as the right policy for economic recovery and claimed that it can
be emulated by other crisis-stricken countries in Europe. However, the a usterity
policy’s success claims contradict with its revealing social consequences such as
increased national debt, unemployment, out-migration, negative demographic
change, poverty, inequality, social exclusion, deterioration in health security and
misery to the common people. Moreover, the austerity policy contradicts with
the principles of the European Union’s (EU’s) ‘social Europe’ model and rep-
resentative democracy which prioritize the role of state to guarantee well-
being of its citizens. Hence, the social cost of economic crisis and austerity and
its implications for sustainable development in the long run in the Baltic states
are examined here.
Keywords
Austerity policy, labour market, migration, neoliberal globalization, economic
crisis, social consequences, trade unionism
Article
International Studies
51(1–4) 72–100
2017 Jawaharlal Nehru University
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0020881717718006
http://isq.sagepub.com
1 Associate Professor, Centre for Russian and Central Asian Studies, School of International Studies,
Jawaharlal Nehru University, New Delhi, India.
Corresponding author:
K. B. Usha, Associate Professor, Centre for Russian and Central Asian Studies, School of International
Studies, Jawaharlal Nehru University, New Delhi, India.
E-mail: ushakb@gmail.com
Usha 73
Introduction
Estonia, Latvia and Lithuania, commonly known as the Baltic states, regained
independence and sovereign statehood 25 years ago from the erstwhile Soviet
Union. After the restoration of national independence in 1991, the Baltic states
quickly embraced neoliberal economic model with a view to erode Soviet legacy,
distance from Russia and integrate with Europe. They have rapidly implemented
privatization, market reforms and liberalization policies primarily based on the
conditionalities of International Monetary Fund (IMF), World Bank and World
Trade Organization (WTO) and later EU also with their membership in it in 2004.
Until 2007, they have shown high growth rates among the EU countries and were,
thereby, even known as ‘Baltic Tigers’ or ‘shining stars’ in the post-Soviet space.
However, the growth was embedded with overheating tendencies such as high
inflation, real estate boom, increase in wages, accelerating exchange rate, increas-
ing foreign debt liabilities, rising current account deficit and so on. By 2008, the
bubble burst into an economic downturn, which was further exacerbated by global
economic depression originated from Lehman Brothers bank’s collapse due to US
government’s refusal of bankruptcy protection and Eurozone crisis. The domestic
and external negative economic situation hit these countries hard with growth
decline, increase in unemployment, low wages, low standards of living and
increasing migration to other EU countries.
Since 2008, in order to recover from the shock of economic crises, the Baltic states
adopted severe austerity policies comprised of enormous cutbacks of government
spending in the social welfare, health care and education systems, and labour
market reforms that made employment relationships more insecure. Baltic political
leaders highlighted their model of austerity as the right policy for economic
recovery. They claimed that their austerity can be emulated by other crisis-stricken
countries in Europe. European political elites honoured the three Baltic presi-
dents, Estonia’s Toomas Hendrik Ilves, Latvia’s Andris Berzins and Lithuania’s
Dalia Grybauskaite, with the prestigious Golden Victoria Award (Goldene Victoria
für die Europäer des Jahres) on the 25th anniversary of the fall of the Berlin Wall
in 2014 for their successful crisis management through austerity. This special
accolade was also a recognition for the three Baltic presidents, for their achieve-
ments in implementing European reforms, the promotion of European ideas,
peaceful struggle for freedom and the trust in the future of Europe (Press Service
of the President of Lithuania, 2014). In the award ceremony, German colleagues
called the three heads of Baltic states ‘ambassadors of the European idea’ (Sabet-
Parry, 2014; Tase, 2014).
However, looking at the specificity of Baltic case, the social costs of austerity
policy contradict with success claims of political elites. Because the transforma-
tive effect of radical austerity policy on society has resulted in misery for the
common people such as increased consumer debt, mass unemployment, increased
out-migration, brain drain, inequality, poverty, deterioration in health care, access
to education and so on. Furthermore, the austerity policy stands in contradiction
with the principles of EU’s ‘social Europe’ model and representative democracy
in which the role of state is to guarantee the well-being of its citizens as a priority.
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