Baltic Responses to the Financial Crisis: An Assessment of the Internal Devaluation Strategies of Estonia and Latvia

ROUNDTABLE

Chair: Kenneth Smith (Millersville University)

Panelists:

Dr. Raul Eamets (Tartu University)

Morten Hansen (Stockholm School of Economics in Riga, Latvia)

Alf Vanags (Baltic International Centre for Economic Policy Studies, Riga, Latvia)

In the early parts of the first decade of this millennium Estonia, Latvia and Lithuania were the fastest growing economies of the European Union and were dubbed the ‘Baltic Tigers’. With the world financial crisis growth turned to massive recession and while there were many calls for the Baltic countries to devalue their currencies to regain competitiveness, neither chose this strategy and instead opted for a path hitherto largely untrodden, namely an ‘internal devaluation’ whereby wages and prices are to fall to regain competitiveness while maintaining the nominal exchange rate.

The Baltic countries are now – seemingly – out of recession and it is thus worthwhile to evaluate the internal devaluation experience and discuss whether or not an external devaluation – and/or another path of economic policy – would have been more attractive and this is what this panel intends to accomplish.

In addition, the panel will look ahead and try to assess the future outlook and not least the impact of the current euro crisis on the Baltic countries.

Raul Eamets will present the Estonian experience, Morten Hansen the Latvian case and Alf Vanags will act as discussant on both cases.

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