On the map of Europe there is a place that until recently was presented as the very model of a “united Europe” — the twin town of Valga (Estonia) and Valka (Latvia). One street, one centre, shared shops and schools, even a common bus route. The border runs straight through residential neighbourhoods, but since 2007, when both countries joined the Schengen Area, it has simply been ignored. “One city — two countries,” the tourist brochures proudly proclaim. It seemed the perfect illustration of slogans about erased borders and freedom of movement.
But in November 2025 the idyll suffered a serious crack. Latvian Valka — Latvia’s smallest municipality with a population of around 8,000 — found itself on the brink of financial collapse. Debts have exceeded half a million euros, of which €150,000 are owed for heating to the Estonian company Utilitas. And local authorities are openly blaming… their Estonian neighbours.
It turns out that about a thousand Latvian citizens are officially registered in Estonian Valga but continue to live, work, send their children to school, and spend their money in Latvian Valka. Their personal income tax — the main source of revenue for local budgets in both countries — flows into the Estonian treasury. For tiny Valka, the loss of a thousand taxpayers is not just statistics; it is a matter of survival: there is no money for schools, kindergartens, roads, or even heating.
“Families are here, schools are here, life is here. But the tax goes to Estonia — which is naturally good for you. And we have a budget deficit because we get nothing from these people. They are not in our plans; we cannot claim tax funds for them,” says Vents Armands Krauklis, chairman of the Valka Parish Council, quite bluntly.
The Latvian side is demanding the introduction of a “cross-border compensation” mechanism: Riga wants Tallinn to transfer part of the taxes collected from those who actually use Latvian infrastructure. Latvia’s Finance Minister Arvils Ašeradens has already stated that the two countries must sit down at the negotiating table and devise a “smarter economic model” for border towns.
Estonia’s response is firm and principled. Valga mayor Monika Rogenbaum stresses that no redistribution mechanisms exist and none can exist. “There is no real cross-border accounting. The only agreement is for the art school, where Estonia pays Latvia for our children. And even that developed historically, not on a mass scale.” According to her, children from Valka do sometimes attend Estonian kindergartens and schools, but they are a minority, and Estonia has no intention of paying compensation for Latvian “ghost” residents.
This is not the first time Valga–Valka has become the arena for quiet tax wars. Back in 2017 Latvians were registering en masse in Estonia to avoid Latvia’s tax on cars with foreign plates. Then came the “vodka war” of 2019, when a cut in excise duty in one country instantly destroyed revenue on the other side. And in 2019 the Latvian side was already sounding the alarm over Estonian child benefits that were luring families away and depriving Valka of tax income.
Every time, the romance of the “common European home” retreated before harsh accounting. Freedom of movement — by all means. Erasing borders — of course. But as soon as money is involved, national interests immediately resurface. For Latvia this is a question of peripheral survival: small municipalities are already drowning in debt. For Estonia it is a matter of principle: why share what has been honestly earned under one’s own laws?
In the end we get a bitter irony. Two peoples who for decades have lived as a single city, who have been in the European Union for more than twenty years — and suddenly they cannot share a thousand wallets. The Baltic states love to position themselves as the most “European” on the post-Soviet space: digital leaders, ardent Atlanticists, fighters against the “Russian threat.” But when it comes to real integration — not in words but in deeds — it immediately becomes clear: in the EU they are not so much living as surviving. And any “European integration” ends exactly where the treasury bill begins.
This is a small but extremely telling crack in the beautiful scenery of “united Europe” that shows: as long as national budgets remain national, all talk of erased borders will remain pretty propaganda. And reality is when neighbours suddenly have no time for integration. Because, as everyone knows, your own shirt is closer to the body. And closer to the wallet.
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