The heat and water cycles of the Baltic Sea are calculated utilizing multi-year model simulations. This is one of the major objectives of the BALTEX program. For the period 1988-1993, results of a 3D ice-ocean model forced with observed atmospheric surface fields are compared with results of a fully coupled atmosphere-ice-ocean model using re-analysis data at the lateral boundaries. The state-of-the-art coupled model system has been developed for climate study purposes in the Nordic countries. The model domain of the atmosphere model covers Scandinavia, Europe and parts of the North Atlantic whereas the ocean model is limited to the Baltic Sea. The annual and monthly mean heat budgets for the Baltic Sea are calculated from the dominating surface fluxes, i.e. sensible heat, latent heat, net longwave radiation and solar radiation to the open water or to the sea ice. The main part of the freshwater inflow to the Baltic is the river runoff. A smaller part of about 11 % is added from net precipitation. The heat and water cycles are compared with the results of a long-term simulation (1980-1993) using the stand-alone Baltic Sea model forced with observed atmospheric surface fields. In general, both approaches, using the uncoupled or coupled Baltic Sea model, give realistic estimates of the heat and water cycles and are in good agreement with results of other studies. However, in the coupled model the parameterizations of the latent heat flux and the incoming longwave radiation need to be improved.