Politkovskaya's Heritage Lives On

Today, public readings of texts by Anna Politkovskaya will be held in 20 countries and 80 places worldwide. With half a year passed since the heinous murder of Russian journalist and regime critic Politkovskaya, she now stands out as an international symbol for the freedom of speech.

This is the second year that the German Peter Weiss Foundation organises international public readings disclosing political lies, and it is intended that 20 March will henceforth serve as an "Anniversary of the Political Lie." Last year's event was dedicated to the lies surrounding the American invasion of Iraq in 2003.

The Weiss Foundation initiative is supported by a number of prominent organisations worldwide, among which are International PEN and Reporters Without Borders. That this year's event is dedicated to the memory of Anna Politkovskaya and the exposed position of journalists in Russia, is a worthy tribute to Politkovskaya's commitment to reveal the truth and expose the abuse of power. Today, her voice is heard worldwide, advocating freedom of speech and an open society.

Russia Silences its Free Voices?

Will the Kremlin's grip on Russian freedom of speech tighten further? This fear has grown stronger in recent days, as president Putin this week decided to merge two state agencies responsible for media and communication. The new superauthority may pose a serious threat to both independent media and a free blogosphere in Russia. The agency will both control the media and the technical means for delivering it.

On 12 March, president Putin signed a decree "On a Federal Monitoring Service in the sphere of mass media, communications, and protection of the cultural heritage." Accordingly, agencies responsible for monitoring media, Rosokhrankultura, and communications, Rossvyaznadzor, are to be merged. The new agency will thus be given the powers to comprehensively monitor both printed and Internet media, increasing possibilities for sanctions against the whole spectre of media coverage. This includes not only electronic media but also the Russian blogosphere, e.g. by keeping records on and intervening against oppositional bloggers.

As it already is, the position of Russian regular media is precarious to say the least. Except murders and mysterious deaths of critical journalists on what must now be regarded a regular basis, it has become everyday business for Russian government and financial interests to impose pressure on various media to sack journalists that will not go with the stream. For example, in 2004, Raf Shakirov was sacked from Izvestiya due to his coverage of Beslan, and last year Gazeta.ru got an official warning for writing about the Danish Mohammed drawings. These are also some of the voices who have now protested against Putin's new decree.

What is most worrisome with the new agency is that it possesses all means necessary to suppress the freedom of speech exercised in printed media and on the Internet. Thus, the agency will issue and revoke licences for both media publication and technology. Furthermore, the agency will have the resources to also monitor all forms of media, providing it with the tools necessary to quickly intervene whenever information is deemed "unfit" for public consumption.

All in all, this means that previous restrictions on printed and televised media now will be extended to all forms of online media, including the blogosphere. With these powers, the agency may close down servers hosting "inappropriate material," trace individual users - read bloggers - and bring charges against people exercising their freedom of speech, if it contradicts the interests of state.

As traditional media in Russia has been increasingly curtailed in its freedoms during the Putin presidency, the demand for alternative media has drastically increased. Here, the blogosphere has offered the forum for the free exchange of thought and ideas no longer granted the official media. Today, the Russian blogger community is the second largest on the American blog provider LiveJournal, or Живой Журнал (ЖЖ), as it is commonly referred to by Russian bloggers.

Internet has offered people an alternative arena to freely express the diversity of views we normally associate with exercising the unalienable rights of modern society. Now, the Russian government once more turns against the very same constitutional principles that it is set to uphold. In such a Russia, Big Brother watches you: War is Peace, Freedom is Slavery, Ignorance is Strength. The question for the future is: Who will first shout "Down with big brother!"

Latvia: From President to Film Star?

With only a few months left in office, Latvian president Vaira Vīķe-Freiberga might ponder upon her future career. Having failed to become UN Secretary General, she soon enters a new life - possibly as a movie star. Admittedly, this might be a grave exaggeration, as the film in question will be a documentary on Vīķe-Freiberga, and thus probably not a box-office hit.

As a new president will move into Riga castle on 1 July this year - possibly Foreign Minister Sandra Kalniete - Vīķe-Freiberga might reflect upon how to assume her rightful role in history books. However, she might not have to think for long, as a documentary film on her life has recently been put into production.

The documentary is to illustrate Vīķe-Freiberga's lifetime achievements against the backdrop of Latvian history from the 1920s. The director, Vilnis Kalnaellis, will have full access to the presidential film and video archives. The "Vaira Vīķe-Freiberga story" will not be opening at theatres before the end of the year, but the film is intended to be launched on the international as well as the domestic market.

However, public expectations might be higher for a potential sequel in four years' time - possibly starring Sandra Kalniete. The fact is that a "Sandra Kalniete story" might prove much more interesting for a movie audience than that of Vīķe-Freiberga.

In 2001, Kalniete published a book about the deportation of her family to Siberia during the Stalin era - With dancing shoes in Siberian snows (Ar balles kurpēm Sibīrijas sniegos). The story of her early life became an international bestseller and Kalniete was awarded several literary prizes for the book. So, one should perhaps keep one's fingers crossed for Kalniete to assume the Latvian presidency this spring - at least if you are a documentary film bum.

What Government for Estonia?

Defying all odds and opinion polls, the Reform Party stands as victor of Estonia's parliamentary elections this Sunday. Thus, Savisaars populist Centre Party was beaten by a close 1.7% margin. Together, the two reluctant coalition partners now form a majority of votes in the Estonian Parliament - the Riigikogu. It is, however, too early to say if Reformists and Centrists will continue their government cohabitation. In essence, the upcoming government formation may present almost any combination of parties in a coalition cabinet.

Sunday's election results must be characterised as a landslide victory for the Reformist Party, led by Prime Minister Andrus Ansip. The party went from 17.7% support (19 seats) in the 2003 parliamentary elections to 27.8% (31 seats) now, thus increasing its support by 10% of the electorate. Thus, the Reformists will dominate the 101 seats' parliament as its single largest party, and Ansip has also been asked to form a new government by President Ilves. Ansip is also the first Estonian Prime Minister to survive an election, and the second Baltic after Latvia's Aigars Kalvītis. This does not necessarily mean that the current government coalition will remain in power. To the contrary, the election campaign has been very tough between the main coalition partners - Reformists and Centrists. Still, it might be a good idea to keep track of reservations at Tallinn restaurant Balthasar in coming days, to see whether a new "garlic coalition" may be reformed.

Concerning Edgar Savisaars Centre Party, it held its ground, and went from 25.4% (28 seats) in 2003 to 26.1% (29 seats) in the current elections. Due to the mentioned antagonism between the Centrists and Reformists during the election campaign, few observers believe that the parties will continue their government cohabitation. Still, together they would form an absolute majority in the Riigikogu, which might partly serve as a convenient solution to governability and partly marginalise the opposition. Despite indications to the contrary, this option should not be too lightly ruled out.

As for the third government coalition partner, the Estonian People's Union, the party remains in parliament, although almost halving its votes from 13% (13 seats) in 2003 to the now 7.1% (6 seats). The People's Union is a populist and nationalist agrarian party. The party, founded by former president Arnold Rüütel, has been in government with both the Reformists and Res Publica (now IRL - cf. below), and was also a coalition partner in the outgoing Ansip cabinet. Consequently, it might prove very convenient for Ansip to form a consistent right-wing government of Reformists, IRL, and the People's Party.

What might, at first sight, appear as the great election loser is the Pro Patria and Res Publica Union (IRL). In comparison to 2003, the party went from 31.9% (35 seats) to Sunday's result of merely 17.9% (19 seats). This result was however expected, and IRL actually had a stronger showing than expected. Last spring, the two conservative parties - Pro Patria and Res Publica - merged to unify the conservative electorate, which also made it Estonia's biggest opposition party. However, prior to unification, Juhan Parts' Res Publica government had been ousted, marginalising the party in Estonian politics. In view of this, the unified party's result in Sunday's elections was better than expected, despite the fact that it lost almost half its seats in parliament. Some of this loss may also be attributed to the Christian Democrats, which competed for the same votes as IRL and did not reach the 5% parliamentary threshold. As for IRL's potential for forming part of a new government, Reform Party leader Ansip hinted in this direction before the Sunday elections. However, judging from results, a Reformist-IRL coalition would need a third party to form a workable parliamentary majority. Together, the two parties occupy 50 parliamentary seats, falling below absolute majority by a single seat.

Such a partner might well be the Social Democrats, which also increased its votes from 7% (6 seats) in 2003 to 10.6% (10 seats) now. Prime Minister Ansip has also hinted that a leftist alternative might be preferrable, but whether this might include the Social Democrats or the Centre Party is unclear. Personal animosity between leading Reformists and Social Democrats is a factor that must be calculated with in this context, and in the end this might rule out a Social Democratic role in government.

Another alternative to a non-centrist government is the newcomer to Estonian politics, namely the Green Party. With 7.1% of votes (6 seats) they passed the parliamentary threshold with a wide margin. Speaking for such an alternative would be that a new party might be quite gullible for the other coalition parties once in government. A coalition between Reformists, the People's Union, and the Greens - as well as other combinations - is an unexptected option that might present too tempting an alternative to resist for Ansip.

All in all, next to everything seems up for grabs at the moment. As the obvious government former, Reform Party leader Ansip might choose next to any coalition partners he sees fit, and the few contradictory indications he has made so far only add to the impression of an unpredictable political landscape in the country. Still, the main result of the elections is - as a matter of fact - that relative political stability has been achieved for the first time since Estonia regained independence in 1991. As its neighbour Latvia, Estonia now strengthens the tendency towards a more robust political system in the Baltic States. This, in itself, constitutes a great success, regardless of which parties in the end will form the next government.

Russia: The Death of a Journalist

Another mysterious death of a critical journalist mars Russian media, Kommersant reports. Ivan Safronov, aged 51, was found dead at the entry of his Moscow apartment building on Friday afternoon. Authorities label the death a suicide in lack of other viable explanations. Still, the tragedy remains an enigma to friends, colleagues and family, as Safronov had no obvious reason for committing suicide. This raises questions about foul play.

Ivan Safronov was a relatively well-known security and military reporter for the Russian newspaper Kommersant. As a retired colonel, he had unique insight into the workings of the Russian security community. Safronov was also known as an outspoken critic to influential groups among the so called siloviki. His openness sparked irritation amongst high-ranking security officials, and only the other years the Federal Security Service (FSB), made allegations against him for disclosing state secrets. However, charges were dropped since Safronov had shown that his sources were openly accessible on the Internet.

Concerning the circumstances surrounding Safronov's untimely demise, they are equally simple as enigmatic. As previously stated, the journalist was found dead at the entry of his Moscow apartment building. Apparently, he had fallen from a staircase window on the fifth floor of the house, situated a couple of floors above his own apartment. Left behind him on the landing was a bag of oranges, which only adds to the peculiarity of the case. There were no eyewitnesses to the event, although some students heard a loud thump, as Safronov apparently hit the ground. Calling for an ambulance, the students were rejected with the words: "We can't pick up every drunkard in Moscow on a Friday night."

Then, did anyone push Safronov out of the window? Probably not. He was quite a sturdy man, so throwing him out of a window would have taken at least a couple of people and had probably stired quite some commotion. Also, none of Safronov's neighbours heard anything, and there were no signs of struggle by the third floor window. Still, questions linger on among fellow journalists in both Russia and abroad. Hence, the propensity in the media to cite all circumstances surrounding Safronov's death.

So, should one assume that Safronov fell victim to enemies within the security establishment? As of now, there is no evidence to support this. Still, why Safronov would kill himself, as authorities assume, remains a mystery as there were no indications in this direction prior to his death. So, is the international attention to this case only an attempt to exploit the tragic death of an individual? Perhaps, and perhaps not. The reasons for Safronov's death will probably remain an enigma for posterity to solve. In the meantime, it will be recorded as the death of yet another critical Russian journalist, and thus only add to the image of how exposed the position of media is in current Russia. Let us but hope that this does not serve to obscure the human tragedy of Safronov's death.

Estonia's e-voting Elections

As Estonia is approaching parliamentary elections on Sunday 4 March, it is becoming the first country in the world to use electronic voting over the Internet in national elections. Since the web ballots opened this Monday, more than three percent of the electorate have cast their votes using the Internet. Although this is not more than some 30,000 voters, the introduction of web voting in national elections must be considered a great success.

Estonia is not new to electronic voting. The first proposals were raised already in 2001, but then the President vetoed the decision. Thus, it was not until the 2005 local elections that the system was put to the test. Then, not more than 9,000 people used the Internet for voting. Now, when three days remain till the elections, more than three times the number of voters have chosen electronic voting. For practical reasons though, voting was limited to 26-28 February, presumably coinciding with the time allowed for general preliminary voting. Of these votes, the electronic ones constituted some 19%, which is an impressive figure.

What about practicalities then? It is really quite simple. You need access to the web, a national identification card, and a card reader the cost of 6-7 euro. Then you are set to vote. As many Estonians already are used to filing their income tax declarations in this way, many voters already have everything needed for casting their votes on the Internet.

Then, what if you regret your choice come election day? The principle is simple. Electronic votes are considered preliminary votes, and you simply go to your polling station, withdraw your preliminary - electronic - vote and then cast your vote as usual. It is as easy as that. The question is how many people actually will do that. Experiences of preliminary voting show that only a fraction of votes cast ahead of elections are altered on election day. So, as the system will work nicely when a solid majority is expected, it will probably be questioned when it comes to close elections. Also, as with all preliminary procedures of this kind, allegations of election fraud might possibly be raised. Still, Estonians trust their preliminary voting system - electronic or not.

So, why is it that a small country on the Baltic Sea becomes the first country in the world to allow electronic voting in national elections? Estonia is considered the world's most web-dense country. For young people, using the Internet for daily chores has become a habit. As for e-voting, this is also the group expected to use this opportunity the most - at least judging from the 2005 local elections, when most e-voters were under the age of 35. Whether e-voting will influence election results remains to be seen. The election campaign remains very tough until the last moment, and one should not preclude the possibility that e-voters might miss out on political events in the days remaining till the Sunday elections.

Give Peace a Dance?

Who would not agree that a night at the disco is better than a night with a Kalashnikov? Hence, "the supply of discotheques in conflict resolution is often underrated. The loudest music wins." That is what Swedish foreign minister Carl Bildt said during a seminar with the presidents of Georgia and Estonia - Mikheil Saakashvili and Toomas Hendrik Ilves - at the German Marshall Fund's Brussels seminar on the Caucasus this Monday.

President Saakashvili was quick to agree with Bildt, proposing to build "lots of discotecques" to contribute to peace in the Caucasus. "There is a lot to be won if you can get people to dance instead of running around the streets with weapons," the two statesmen argued.

Following up on this idea, Carl Bildt later wrote on his blog: "I suspect that we during the seminar introduced the idea of 'discotecques for peace.' It was about giving - with small means - young people in confrontation and conflict zones a possibility to naturally spend time with each other. A night at the disco is better than a night with a Kalashnikov. Especially in South Ossetia."

As much as this idea might seem daft, one should not underestimate the significance of a neutral meeting-ground during conflict. Giving people a chance to concentrate on something else for once except war and conflict, indulging in pleasure instead of shooting at each other might, at first glance, seem like a good idea. Also, bars and restaurants have in recent years become the target of terrorist attacks, much motivated by the fact that they represent values not tolerated by extremists and war-mongers.

However, when regarding the issue more closely, one wonders who would constitute the disco clientele. Who could really afford going to the discotecque in a conflict or war zone? The answer is obivous for all who have seen conflict: It is mainly the profiteers of war that can allow themselves such luxury during conflict. Ordinary people just would not even consider it when they can hardly win their daily bread, and for them establishments of this sort are only associated with criminality, prostitution, and possibly foreign soldiers and aid workers.

Still, the idea might seem novel and original. However, it is far from a new concept. Dancing for peace first came in vogue during the "flower-power" era in the late 1960s, and formed part of the expanding international peace movement. Peace dance festivals have since been a recurrent phenomenon to promote pacifism. For Carl Bildt, this is perhaps a sign that he is getting old, as his youth was much spent combatting exactly this sort of "leftist" ideas. But perhaps he has come to realise that with more discos "peace will guide the planets, and love will steer the stars."

As for the "discos for peace" proposal one cannot but wonder how distant and distraught political leaders are from the realities of war and conflict, thinking that such ideas might give peace a chance to dance. What is there then left to say but: "Send in the clowns!"

Russia's Nationalisation Trap

Which are the common assets of a nation and who should be allowed to utilise them? This is a question of heated debate for current Russia, as the vital energy sector is gradually being nationalised. It is privatisation in reverse - for everyone to see - no matter what the Kremlin might claim. The question is: Is it good for Russia?

In terms of economics, monopolisation - in this case nationalisation - may be motivated if the sector in question constitutes a natural monopoly. This may mean one out of two things: Either the social costs of monopoly production are lower than under competitive circumstances, or if the fixed costs of entry into a sector are so high as to be predatory, it allows but one viable and effective producer. Areas associated with natural monopolies are e.g. water services, postal services, telecommunications, and so on. However, as examples in global economy show, natural monopolies are not a sine qua non. Private companies may offer such production and services, as are associated with natural monopolies, more efficiently and at a lower price, than a state monopolist may. This is not always the case, and monopoly may in some instances be preferrable to competition. However, one should not automatically rule out competition only on the basis of existing economies of scale appearing to naturally favour a monopoly situation.

So, in view of current nationalisation of the Russian energy sector, could it be argued that it constitutes a natural monopoly? Most probably not. Instead nationalisation may threaten the industry as a whole.

What an industry such as the energy sector needs is long-term engagement and development. It needs large-scale investments over a long period of time in construction and maintenance. It also needs technical skills and know-how along the entire scale from prospecting to sales. Finally, it needs means of development - the capacity to expand and extract new resources and deliver them to costumers under efficient and competitive circumstances. These are qualities that a state actor does not necessarily posses.

So, does the Russian state have the financial resources and the commitment to maintain and develop the energy sector? For obvious reasons, it is a question still to be determined. However, judging from the current situation and the way the Russian state acts, perspectives are bleak for efficient state-owned energy production in Russia. First, Russian state-owned energy companies do not fit the profile depicted above. The situation clearly needs the dynamics only attainable under competive conditions. Secondly, Russian state interests tend to come in conflict with the rational needs of the energy sector.

The 2003 Yukos scandal and its aftermath clearly indicates a conflict of interests between the state and private enterprise in the energy sector. It is often argued that Yukos founder, Mikhail Khodorkovsky, had become too mighty and did not know his place, by meddling into politics. He was considered a political threat to power. However, reviewing the case from an economic perspective is even more disastrous. What really was at stake, were the large investments into energy infrastructure that Yukos planned to make - the various pipelines the company wanted to build. If these plans had been realised, they would have made Khodorkovsky more or less politically independent from Russian state leverage. Still, economically, such investments would potentially have brought profits and prosperity to Russia's economy and, indirectly, to its people. Furthermore, they were exactly the kind of investments that were economically sound and would have developed the energy sector in a positive direction. Thus, by victimising Yukos for political reasons, Russia was rendered an economic loss that the state was unable to compensate for. Consequently, as Khodorkovsky's 2005 nine-year jail sentence serves to show, the interests of the state and private business are far from always compatible.

Since then, the tendency arising from the Yukos scandal has strengthened. Private companies in the energy sector meet with state or pseudo-state opposition. Deals once made are put into question. Pressure is brought to bear on outside actors, such as when Gazprom recently seized control over the Sakhalin offshore project, ousting a foreign consortium led by Shell. Environmental motives are given for action against foreign investors, whereas Russian companies would never meet with such demands. Also, as the Yukos case shows, expropriation has become a new method for the state to forward its own and associate interests.

The perspective becomes even more horrendous when reviewing the issue from a security point of view. In Putin's opinion, it seems that not having full control over Russia's energy resources would pose a threat to the country. Accordingly, Russia cannot depend on private, and often foreign, companies for its energy production. Furthermore, the country cannot depend on transit of oil and gas by pipelines running through foreign states. Consequently, new state-controlled pipelines are built bypassing intermediate countries, such as the Nordstream pipeline projected to run through the Baltic Sea. From an economic point of view, it is highly questionable whether this and similar pipeline projects are financially viable, especially as the costs for developing and expanding already existing pipelines over foreign territory would be much lower, as would even be the case of building new ones. Therefore, it is obvious that Putin's obsession with control is detrimental to almost any economic rationale.

So, who stands to gain from nationalisation of the Russian energy sector? Who is allowed to utilise the common assets and to what end? The obvious answer would, of course, be the Russian state. However, with lacking long-term commitment to maintenance and development, the overall GDP stands to lose from state ownership. The state will be forced to either carry the burden of investments or see energy incomes dwindle due to neglect and inefficiency. Consequential interruptions of delivery to costumers would not vouch for Russia's role as a reliable producer. So, why should Russia voluntarily assume these great costs, when private companies could freely do it with greater professionalism than the state would ever be able to do?

The other obvious answer would be that the Russian people would gain from nationalisation. However, to what extent are the energy incomes redistributed to the people, and if so, would it be in the true interest of the people? First, the Russians receive little of the energy profits. It is true, there have been some attempts at state social reform and economic support lately, but it is questionable whether this is motivated out of real concern for the people. An example is Russia's population decline, where Putin seems more worried about the decrease in the future number of conscripts for the military and similar issues, than the social malaise of the people itself. Also, if too great a proportion of the incomes would actually be distributed to the people, it might cause economic crisis due to consequential hyperinflation. Finally, a state-run energy sector would probably be less efficient than a private alternative, creating comparatively lower profits. The effect would be an overall lower GDP, negatively affecting the Russian people. Thus, it seems that the Russians have little to gain from nationalisation of the energy sector.

Then, does nationalisation of the state sector strenghten Russia in its foreign relations? Initially, it might seem that control of the energy - as a strategic resource - would strengthen Russia's international power. The threat of "turning the tap" would seem to be a constant leverage for Moscow towards foreign states, mainly the EU, dependent upon Russian energy. However, this is countered by an equal risk that foreign states would turn to other producers or seek alternative energy solutions, such as e.g. nuclear power. Still, as the example of the European Union shows, Russia is more dependent on the EU than the EU is of Russia. Also, the EU is becoming increasingly weary of Russian ambitions and the country's reliability as an energy deliverer. Moscow has declined to ratify the European Energy Charter Treaty. European initiatives to develop the energy contents in a renewed Partnership and Cooperation Agreement (PCA) have met with outright opposition from Russia. Thus, Moscow is sending an increasingly clear message to Bruxelles about its intentions: Russia is not to be trusted as a reliable partner to the European Union. Regretfully, these are exactly the sentiments beginning to grow in Bruxelles and European capitals.

Today, it is obvious that Putinist ideology is the foundation of the current nationalisation of the Russian energy sector. It is the sort of étatism that belongs to the 19th century. It is a statist view that emphasizes control over rationality. It is an antiquated geopolitical outlook that puts the map before the realities of modern society. It is a perspective where the power of a state is measured by the quantity of its population, not of its output. It is a perspective that sees foreign relations as a zero-sum game. That president Putin wants the state to assume control of Russia's energy resources is but another factor in this overall scheme. For him, that the state owns a country's resources is only the natural state of things - how it should be. Reviewing this perspective, the conclusion is apparent: Putinist ideology simply is a notion that lacks understanding of the modern world.

Still, what the modern world is about is cooperation to the common good of those who participate in it. Thus, what Putinist ideology disregards is a fact so obvious that it needs neither stating nor reiterating: Modern power derives from the relative gains of cooperation - not from conflict or absolute capabilities. Making it alone is simply not an option in the modern world, and still this is the absolutist approach that Putinist Russia is opting for. That it is no viable long-term option for any state, seems of no concern to the country's leadership. Sooner or later, Putin's path will, regretfully, come back with a vengeance to Russia and its people.

In the meantime, the common assets of Russia are utilised to the detriment of the country and its people. Nationalisation is not good for Russia, and thus the Russian people may gradually come to understand that Putinism is simply not good enough for them. Until then, Russia is caught in a nationalisation trap.

A Bursting Baltic Bubble?

Are the Baltic states facing an impending economic crisis? So seems to be the case, due to the current overheating of both Estonian and Latvian economies. Earlier this week, Standard & Poor's as well as Deutsche Bank warned that Latvia's economic imbalances might cause a currency devaluation. Estonia risks a similar fate in the runup to its 4 March parliamentary elections. Only Lithuania seems to be getting off scot free.

In January, Standard & Poor declared Latvia Europe's "most dynamic economy in 2007" with a GDP growth of 8.9%, and with neighbouring Estonia coming in second, with a 7.5% growth. Estonia and Latvia - along with Slovakia - are the fastest growing economies in Europe.

Growth, however, has a price. Both economies are facing an inflationary spiral with most economic indicators going wild. In the battle over customers, Latvian banks have lended money to consumers at an interest lower than the inflation rate, and Estonian banks have followed suit.

However, Latvia's problems are the most acute. Since January, economic growth has risen to 11%, by far exceeding the 6-7% that are long-term economically sustainable. High domestic demand and corporate investment rates add to the problems. The increase in imports - clearly over what the country exports - has also created a worryingly negative balance of trade.

As for the labour market, supply cannot meet demand as many Latvians work abroad. The annual wage-rises of an average 10% have so far been compensated by a corresponding growth in productivity, but this year the tendency is towards an impassable 20% rise.

What may really topple the economy, however, is the negative real interest rate combined with a high rate of public lending - largely in euro-loans. According to some sources, this has caused prices of real estate to double in recent years.

All in all, if Latvia were now to devalue its currency - the Lat - banks would be forced to compensate themselves by a drastic increase in interest rates. With loans largely in foreign currency, consumers would face acute solvency problems, potentially with a consequent crisis for the banking system. As it appears, recession seems to stand at the door.

So, what has the Latvian government done to curve inflation and battle economic overheating? Precious little, one must admit. Already last spring, Standard & Poor predicted several years' delay for Latvia's inclusion into the eurozone, postponing it for 2009-2010 at the earliest. Prognosis was based on sustained price growth, driven by demand and rising inflationary expectations. This, in itself, should have been a clear stop-sign for the Latvian government.

All the same, the Latvian economy is basically in good shape. The country's foreign debt is low and the state economy is under control. And, obviously, economy is booming. So, why waste a winning concept, seems to have been the reasoning of the government. Some measures have been made, but they have either failed or been dubious as for their effects.

Also, it is quite obvious that the government had had more reasons to be content. In October, the government coalition, led by conservative People's Party (Tautas Partija) leader Aigars Kalvītis, was the first to be re-elected since the country regained independence in 1991. No wonder the government had a laid back attitude to developments, wanting to enjoy its honeymoon with the voters as long as possible.

However, now the government has come to a rude awakening, as the situation has quickly gotten out of hand. The question is if it will dare to challenge the banking and financial sector, which - as in Estonia - belongs to its key support groups. It is questionable if the Kalvītis cabinet can rise to the challenge. In the meantime, the fear that the Baltic bubble bursts will linger on.

Getting too hot?

"Russia is a northern country and if temperatures get warmer by two or three degrees Celsius it's not that bad - we could spend less on warm coats and agricultural experts say that grain harvests would increase further." Thus, Russian president Vladimir Putin jokingly put it in 2003, opening a major international conference on climate change in Moscow. For long, Russia was hesitant to signing the Kyoto protocol on global climate change, before Moscow eventually subdued to international pressure in 2004.

Let's face it: Environmentalism is simply not something one would expect from Putin and his crowd of siloviki and oil barons. As Russia signed the Kyoto protocol in November 2004, it was against the strong advice of both the Ministry for Industry and Energy and the Russian Academy of Sciences. In exchange, Moscow received EU support for Russia's admission to the WTO, why the Kremlin probably considered the deal a fair trade. Warm feelings for preventing the greenhouse effect had little to do with Putin's position on Kyoto.

Russia's traditionally energy intensive industries would normally vouch for a negative stance on limiting the country's greenhouse gas emissions. However, this has posed no great problem for Russia, as the Kyoto protocol is calculated on the 1990 emission levels. Given the economic and industrial collapse of the early 1990s, Russia still has a long way to go before reaching such levels again. Instead, it has been argued that the country might actually benefit from the Kyoto protocol by selling emissions credits to other countries. With the current economic boom in Russia, though, the deal is increasingly questioned for concerns that it might hamper industrial growth. Not surprisingly, the mighty energy sector is one of the greatest critics of the Kyoto protocol. However, this might paradoxically become the opposite in a few years' time.

Yesterday, Russian gas monopoly Gazprom declared that its export of natural gas to Europe had decreased by 16%, as compared to the same period last year. The reason for Gazprom's drop in output was evidently warmer weather in Europe, leading to decreased consumer demand. Also, exports to the FSU dropped by 15%, and the supply to Russian consumers by 11% during the same period.

While it is still too early to say whether this winter's mild weather is due to global warming, it is quite clear that if this tendency would become permanent in years to come, it would have a grossly negative impact on international gas demand and prizes. One obvious loser of such a development would be Russia's energy sector, which constitutes the engine for the country's economic growth. Thus, if global heating would put a check on energy prizes, Russia's energy-dependent economy is a candidate for severe crisis.

So, should we expect Gazprom executives to turn into ardent environmentalists? Will Ivanov and Medvedev campaign to stop global warming for next year's presidential elections? Most probably not! Still, one never knows. When it comes to realities, Russian politicians are usually swift to change opinions if money is at stake. If plunging energy prizes would hit Russian pockets, we might witness an eventual shift in Kremlin views on global warming. As we have still to see the true consequences of the greenhouse effect, it remains uncertain how fast an impact it will have on global temperature levels. The forms of and extent to which global warming will affect Russia is thus for the future to decide.