Where Do We Go from Here?

Topics: Latvia, Baltic states, Baltic Sea Pages: 2 (507 words) Published: May 7, 2012
So we heard a lot about the situation in the Baltic States, but the question is: Where do we go from here? The answer to such a question is full of uncertainty. In Lithuania, the people just elected a new parliament and while people may be more worried about the immediate need to secure stable gas deliveries from Russia and winter approaches, it is difficult to see how the attention on the crisis can anything but increase as we move forward. In this respect, Lithuania does seem to somewhat differ from its northern neighbors in that the leverage ratios and debt multiples are not as high as in neither Estonia nor Latvia. As regards Latvia, Alf Vanags and Morten Hansen recently published a detailed analysis on the future path of the Latvian economy faced with the incoming financial crisis and potential global recession. Their conclusion is rather dire with respect to the potential loss of output between now and 2010. As the authors make painfully clear, this fact obviously brings into the question the whole idea of con’vergence towards the illusive EU15 living standards not to speak of the convergence towards their own steady state. I would tend to apply the same analysis to Estonia even if Estonia seems to benefit from a stronger external environment. Ultimately however the immediate challenge for the Baltics at this point in time is damage control and more specifically how to wriggle themselves out of the current vice of dependence on credit inflows at the same time as the economy needs to restore competitiveness. So far, the show goes on with Swedbank in particular continuing to supply the credit. The end point of all this clearly appears to envision a fiscal response. What is critical for the Baltics at this point is consequently that the current economic downturn is managed in such a way to minimize the risk of a collapse of the financial system as foreign banks shut down operations. One thing is pretty certain however and this is that the kind of wage and...
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