Munich Personal RePEc Archive

Crisis management in the Baltic States

Mező, Júlia and Bagi, Ágnes (2012): Crisis management in the Baltic States. Published in: Crisis Aftermath: Economic policy changes in the EU and its Member States, Conference Proceedings, Szeged, University of Szeged , Vol. ISBN 9, (2012): pp. 426-439.

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Abstract

The economic and financial recession started in 2008 brought serious difficulties for every European country, although not to the same extent. The previous situation of countries plays a major role in the course of the crisis and crisis management. The three Baltic countries showed a relatively prominent economic growth after their accession to the European Union in 2004. Their performance over these years often cited as Baltic Miracle.

But this growth went hand in hand with serious macroeconomic imbalances, since the main moving factor of growth was the foreign direct investment flowing into the tertiary sector and the boom of internal consumption. These factors led to unsustainable current account deficit.

The problems of these overheated economies would have needed solution even before the global downturn; however the recession put inevitable pressure on the Baltics to take actions. In the Baltic States most of the macroeconomic indicators deteriorated in the year 2008: GDP and consumer demand decreased, unemployment increased drastically, general government expenditures and government gross debt also grew. One of the most serious problems was the significant amount of debt denominated in foreign currency, which was responsible for the financial „bubbles” popped simultaneously with the outbreak of the crisis.

The paper examines the main macroeconomic effects of the global economic crisis on the Baltic States and presents their governments’ economic policy measures taken to combat the crisis. The reactions of dealing with the recession in these three countries can be a lesson to other European countries as well.

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