Yesterday I wrote to you about Lithuania and all the great things it has to offer– it’s inexpensive, has second citizenship, a low flat tax, and beautiful women. These are all great reasons to visit from time to time (and obtain a passport if you are so fortunate), but today I want to tell you why you should not invest any money here, at least not for now.
I don’t trust Russia.
Last winter in a dispute with Ukraine, Russia shut off the gas pipes and brought several European countries to their knees; the episode underscored how vulnerable Europe is to the whims of Putin, and Lithuania sits right on the fault line.
In 2004, the country began talks to ascend into the European Union; as part of the talks, Lithuania agreed to decommission its Soviet-era nuclear power plant that supplies 80% of the country’s electricity. The reactor is due to be shut off at the end of this year, and they have NOTHING to replace its capacity.
The government assumes that they will be able to buy electricity from Russia. I don’t. Putin proved last winter that he would gladly choke off the rest of Europe from their energy supply if it served Russia’s interests… and I believe that similar situations may rise again. Lithuania already receives its natural gas supplies from Russia, and adding electricity demand is potentially catastrophic.
Lack of stable energy supply is a giant red flag for foreign investment, whether it be starting a business or buying property. In fact, I think that the Lithuanian property market will probably experience a second shock when the government imposes a national property tax.
Lithuania is currently running a deficit around 4% of GDP; the government has come under intense pressure from the European Union to cut its deficit, and the only thing on the table right now is a tax increase. This situation underscores the insanity of supranational alliances– on one hand, the European Union is demanding that Lithuania spend less money to reduce its deficit, meanwhile NATO is expecting the country to increase its military spending… they must be expecting the Latvians to invade.
I have personally spoken with two government ministers here since I have been on the ground; the Minister of Education and Science, and the very youthful Minister of Justice (MiniLove in Newspeak). Both are intelligent, libertarian-leaning men who understand that the EU’s requirements are hypocritical and detrimental… but admit that they will likely impose a tax increase in order to comply.
The best part of the conversation went something like this-
Me: What is the greatest risk to Lithuania?
Minister of Justice: Our government.
I couldn’t agree more. Given the coming energy crisis that I expect, and the increase in property tax, I expect the property market to take a big hit. There will be blood, and you can expect me to be there afterwards to find the best deals… because once the bottom hits, this place will have a lot of potential.
Tomorrow, I will be answering the mailbag and addressing some of the issues that many of you have been asking about it.