Exit From Crisis And The Post-Crisis Development Of
The Baltic States
As a result of accessing the European Union (EU) in 2004 the Baltic states benefited from an accession-related boost to income convergence and a credit-driven boom continued.
While recognising the rapid growth as well as the increasing level of income, employment opportunities and rising living standarts, it was already in 2006 when the International
Monetary Fund expressed concerns about overheating of economies of the Baltic states1.
When the global financial crisis or “the four horsemen of financial crises: “sudden stops” in capital inflows, asset price collapses, recessions and fiscal deficits”2 hit, the Baltic states were no exception.
There are different views about the exit strategy from the financial crisis of the Baltic states. Defenders point to recent rapid growth. One can look at the GDP annual growth rates for years 2006-2014 for the Baltic states - the GDP decreased rapidly during crisis, reaching its lowest point in 2009 for all three Baltic states. After 2009 the GDP annual growth rates increased, howerver, at the end of 2012, GDP of, e.g., Latvia was still below its pre-crisis level; Lithuania and Estonia had done better. Taking a look also at the GNI annual growth rates for years 2006-2014 for the Baltic states, the decrease in the GNI rate, e.g., for Latvia continued until 20103, showing that even though the value of goods and services produced in the country increased, less of it than suggested by the GDP actually stayed in the country.4 Nevertheless, the Baltic states were able to combine a huge external adjustment with restoration of growth.5 Along with other means to overcome the unexperienced impact of the global financial crisis, all three Baltic states chose to decrease public spending and implement a wide range of structural reforms instead of