FT about the Baltic states: RETURN TO GROWTH
Baltic economies return to growth
By Andrew Ward in Stockholm
Published: November 11 2010 23:30 | Last updated: November 11 2010 23:30
All three Baltic economies have returned to growth after the deepest recessions in the European Union last year,
offering hope to other crisis-hit countries struggling to spark recovery amid fiscal austerity.
Estonia’s economy expanded by a larger-than-expected 4.7 per cent in the third quarter, according to official data
released on Thursday, marking its fastest annual growth for nearly three years.
Latvia said on Tuesday its economy grew by 2.7 per cent in the same period - its first annual growth for more than
two years - while Lithuania had earlier reported a more sluggish 0.6 per cent increase.
The rebound has been driven by rising demand for the Baltic countries’ exports - particularly from Germany and
Sweden - as the region attempts to rebalance its economy after the consumer credit binge that led to economic
crisis.
The renewed growth came in spite of some of the
Baltic trio countries have battled to reduce their swollen budget deficits in readiness for joining the euro.
Advocates of fiscal austerity have pointed to the Baltic recovery as evidence that budget cuts are not incompatible
with economic growth, amid fierce debate across Europe over how to repair battered public finances.
The Baltic region was among the hardest hit by the global financial crisis, with Latvia forced to seek a
from the International Monetary Fund as its economy
Many economists predicted the former Soviet Union states would have no option but to
toughest austerity measures in the European Union as the€7.5bn bailoutshrank by almost a fifth.devalue their currencies
- setting back plans to join the euro - in order to spark an export-led recovery.
Instead, all three maintained their fixed exchange rates with the euro and pursued a so-called internal devaluation
through sharp cuts in wages and public spending.
Several deficit-laden
they try to engineer recoveries without the flexibility of a floating exchange rate.
“There is certainly something Europe can learn from the Baltic states,” said Marcus Svedberg, economist at East
Capital, the eastern Europe-focused investment company.
But he questioned whether western Europe had the stomach for Baltic-style reforms, contrasting the absence of
civil unrest in Latvia with recent protests against pension cuts in France.
Estonia is
austerity measures to meet EU budget rules in time for their planned euro entry in 2014.
Neil Shearing, economist at Capital Economics, warned that the recovery was still fragile, with Latvia and
Lithuania lagging behind Estonia.
“The worst of the financial crisis in the Baltic states has clearly passed. But ... the region simply does not have the
export capacity to propel the economies forward over the coming years.”
eurozone countries, including Greece, Portugal and Ireland, face a similar predicament asscheduled to join the eurozone on January 1 but Latvia and Lithuania are facing further tough