«Bruegel» economist: Latvia is a very expensive success story

The Brussels-based think tank ‘Bruegel’ economist Zsolt Darvas claimed that although Latvia has gotten out of the financial crisis and has become the fastest growing economy in the EU, the price it paid to achieve it was very high. According to him, the big recession, unemployment, and the fact that so many people left Latvia, will negatively influence Latvia’s growth potential in the long-term.

When asked to compare Latvian crisis overcoming model (inner devaluation) with the one of Iceland (currency devaluation) Darvas was of an opinion that the scenario of Iceland was more successful and its social expenses – much lower.

He reminds that during 2008 and 2009 the króna of Iceland lost 50% of its value and there was also hyperinflation. However, as to the main economic indicators, Iceland got out of the crisis better. As an example, GDP fell by 10% in Iceland whereas in Latvia it fell by 25%. The employment rate there never exceeded 10% while in Latvia it went over 20%. Despite the more severe collapse of the financial system, the actual economy of Iceland was damaged less than that of Latvia.

He points out that Iceland was ‘lucky’ not to have any other choice. Latvia, in contrast, had an option, and it chose to walk another way.

Source: http://www.apollo.lv/zinas/bruegel-ekonomists-latvija-ir-loti-dargs-veiksmes-stasts/561053

One thought on “«Bruegel» economist: Latvia is a very expensive success story”

This is an interesting comparison between Iceland and Latvia, however, the underlying situation was different. Latvia was also going through a housing boom, which was not the case in Iceland (please correct me if I am wrong).
Dealing with the housing bubble in addition to a financial crisis is that much harder, and of course hits the population much more. Only one bank went under in Latvia, whereas in Iceland it was quite a different story.
Bottom line: I would not compare the two countries so directly, because the fundamentals were different. Of course, the crisis in Latvia was very expensive, but they got out of it rather fast. Not least, politicians were even re-elected in the middle of the crisis, which is quite something, don’t you think?

Reply ↓

This is an interesting comparison between Iceland and Latvia, however, the underlying situation was different. Latvia was also going through a housing boom, which was not the case in Iceland (please correct me if I am wrong).
Dealing with the housing bubble in addition to a financial crisis is that much harder, and of course hits the population much more. Only one bank went under in Latvia, whereas in Iceland it was quite a different story.
Bottom line: I would not compare the two countries so directly, because the fundamentals were different. Of course, the crisis in Latvia was very expensive, but they got out of it rather fast. Not least, politicians were even re-elected in the middle of the crisis, which is quite something, don’t you think?

Reply ↓