More than three years went past since the European Union has increased by eight new member states from Central and Eastern Europe. Among them, especially the Baltic States have reached recently high economic growth rates. In particular Latvia, which recorded the highest one (11.9% in 2006) in the whole European Union. Having regained their independence in 1991, after the breakdown of the Soviet Union, the three Baltic States might have developed after a more than 10- year continuing transformation- process of their economies, through self- confident countries with interesting investment opportunities for foreign investors. Since the independence of the three Baltic States was restored, all three countries were driven to replace the centrally planned, socialist system, forced by the Soviet Union through a structure based system on free market principles. A continuing order of political and economical events during the last two decades, and the contemporaneous developments in the financial markets, as well as the banking and insurance sector of the three Baltic states, upcoming changes in the course of onward globalisation, and the broadening unification in financial market regulation led to serious changes and demonstrated important milestones to liberalised market principles. The descriptive literature, which supported the present minithesis, describes only short periods of the developments in the Baltic financial markets. Moreover, you will not find a kind of evaluation about all three Baltic States in comparison to each other over such a long time period.
There are no current statements, which conclude this whole development- period among the three Baltic states and there is no clear assessment whether the Baltic states` financial markets can be considered as integrated or not. Therefore, this minithesis serves as an attempt to answer this main question.
Table of Contents
1. Introduction
2. General Economic Situation in Estonia, Latvia and Lithuania
3. The Financial Markets in the Baltic States
3.1 The Financial Sector
3.1.1 The Commercial Banking Sector in the Baltic States
3.1.2 The Insurance Market in the Baltic States
3.2 Foreign Exchange & Money Market in the Baltic States
3.2.1 The Baltic States on their Way to own Currencies
3.2.2 Money Market & Exchange Rate Policy
3.3 The Credit Market in the Baltic States
3.3.1 Credit Growth and General Conditions
3.3.2 Latvia by Way of Example
3.4 The Capital Market in the Baltic States
3.4.1 Stock Exchanges and Stock Market Indices
3.4.2 The Securities Market in the Baltic States
4.1 First Years after the Breakdown of the Sovjet Monobank- System
4.2 Banking Crises between 1992 and 1995
4.3 The Russian Financial Crisis and its Effects on Baltic Economies
5. Financial Market Integration & Current Challenges in the Baltic Economies
5.1 Financial Market Integration& Recent EU Directives
5.2 Euro- Introduction
5.3 Critical View of Latvia`s Current Economic Problems
6. Conclusion
Research Objectives and Core Themes
This work aims to evaluate the development of the Baltic States' financial markets from the post-Soviet period to their current state, specifically addressing whether these markets can be classified as integrated. The research analyzes the transformation from a centrally planned monobank system to market-oriented structures, while investigating the impacts of historical financial crises and the current challenges posed by EU integration and economic overheating.
- Evolution of the banking and insurance sectors in Estonia, Latvia, and Lithuania.
- Monetary policy transitions, currency reforms, and the role of fixed exchange rate regimes.
- Rapid credit growth, mortgage market expansion, and the associated risks of economic overheating.
- Institutional development of Baltic stock exchanges and regional index integration.
- Impact of the Russian Financial Crisis on Baltic GDP, industrial output, and foreign direct investment.
- Implementation of EU financial directives and the path toward EMU accession.
Excerpt from the Book
3.4.1 Stock Exchanges and Stock Market Indices
The term "capital market" usually covers a wide semantic field. Commonly it is meant that we consider the market for securities, where e.g. the government and companies can raise long-term funds. Besides this, the term capital market includes the stock and the bond market and there exists a differentiation between the primary market, where shares are issued and distributed to investors and the secondary market, where existing securities are traded. Analysing the stock market means analysing each stock exchange of the three countries. However, this is a more specific topic and therefore extra paragraphs are dedicated to it in this chapter.
Looking more at facts about institutional developments, it should be at first pointed out that in early 1991, after the collapse of the Soviet Union, the system of centralised deliveries was replaced by commodity exchanges in the Baltics. In 1991- 1992 up to 15- 20 of such commodity exchanges were established throughout each Baltic state. It was not only dealt with different commodities in these exchanges, but also with money market instruments. Then in 1992, the exchanges in Lithuania founded the Lithuanian Exchange Association. Supporting an efficient development of the markerts, such exchange associations were also founded in Estonia and Latvia some times later. These Commodity exchanges were the fundament for the later foundation of the first security market institutions, e.g. stock exchanges, brokerage firms, privatisation investment funds and other intermediaries of securities.
Summary of Chapters
1. Introduction: Outlines the transformation of Baltic economies since 1991 and defines the research question regarding the integration status of their financial markets.
2. General Economic Situation in Estonia, Latvia and Lithuania: Provides an overview of key macroeconomic indicators including GDP growth, inflation, and unemployment to establish the current economic status quo.
3. The Financial Markets in the Baltic States: Examines the core segments of the financial system, including banking, insurance, foreign exchange, money, credit, and capital markets.
4.1 First Years after the Breakdown of the Sovjet Monobank- System: Details the chaotic initial phase of post-independence banking, characterized by a lack of regulation and the emergence of new private commercial banks.
4.2 Banking Crises between 1992 and 1995: Analyzes the systemic banking crises across the three nations, identifying causes such as poor supervision and mismanagement.
4.3 The Russian Financial Crisis and its Effects on Baltic Economies: Discusses the contagion effects of the 1998 Russian crisis on Baltic GDP, foreign direct investment, and stock market volatility.
5. Financial Market Integration & Current Challenges in the Baltic Economies: Reviews the progress toward EU financial harmonization, the adoption of directives like MIFID/SEPA, and the challenges of euro adoption.
5.1 Financial Market Integration& Recent EU Directives: Explores quantitative measures of integration and the implementation of European regulatory frameworks.
5.2 Euro- Introduction: Discusses the obligations and status of the Baltic states regarding the convergence criteria for EMU accession.
5.3 Critical View of Latvia`s Current Economic Problems: Addresses the specific risks of overheating in the Latvian economy, such as high inflation and current account deficits.
6. Conclusion: Synthesizes the findings, confirming that while the Baltic states have made fundamental progress, their financial markets are not yet fully integrated and remain in a developmental stage.
Keywords
Baltic States, Financial Markets, Banking Sector, Monetary Policy, Currency Reform, Credit Growth, Capital Market, Stock Exchange, European Union, EU Integration, Russian Financial Crisis, Economic Overheating, GDP, Foreign Direct Investment, EMU.
Frequently Asked Questions
What is the primary focus of this work?
The work focuses on the transformation of the financial systems in Estonia, Latvia, and Lithuania from a centrally planned model to modern, market-oriented economies, evaluating their current level of integration.
What are the central thematic fields covered?
The study covers banking, insurance, foreign exchange, money markets, credit growth, capital market development, and the impact of regional crises on these sectors.
What is the core research question?
The primary research question is whether the financial markets of the Baltic States can currently be considered as integrated within the broader European context.
Which scientific methods are utilized?
The study utilizes a descriptive and comparative analysis of economic and financial data, historical institutional development, and an evaluation of macroeconomic indicators alongside EU convergence criteria.
What topics are discussed in the main body?
The main body discusses the evolution of Baltic banking and stock exchanges, the impact of the 1998 Russian crisis, the implementation of EU financial directives, and the challenges of managing economic growth.
How would you characterize the work's keywords?
The work is defined by terms related to post-socialist economic transition, financial harmonization, market integration metrics, and specific macroeconomic challenges facing the Baltic region.
What role does the "Law of One Price" play in the analysis?
It is used as a theoretical benchmark to explain what "fully integrated" markets should look like, contrasting this ideal with the reality of the Baltic states.
How does the author evaluate the impact of the Russian Financial Crisis?
The author notes that while the crisis had severe impacts on GDP, industrial output, and FDI, individual countries showed varying levels of resilience based on their trade dependencies and the robustness of their domestic banking reforms.
Why is Latvia described as the "ball and chain" for the other Baltic states?
Latvia faced more severe macroeconomic imbalances, such as high inflation and a large current account deficit, which complicated the group's collective prospects for early euro adoption compared to Estonia and Lithuania.
- Citation du texte
- Thomas Werner Schmitt (Auteur), 2008, From a centrally planned monobank system to integrated financial markets?, Munich, GRIN Verlag, https://www.grin.com/document/89005
