Abstract
The Baltic states were arguably the countries most severely affected by the global financial crisis. This article discusses the boom preceding the crisis, the ensuing austerity policies and the economic effects of these policies. All three countries maintained fixed exchange rates, but the degree of fiscal austerity varied across the countries, with Estonia undertaking the strongest fiscal consolidation in 2009. The downturn was so swift and deep that expansionary policies were unlikely to affect short-term outcomes. Growth returned towards the end of 2009, largely driven by exports. The export performance cannot be directly linked to the austerity policies. The main lesson from the Baltics is that increased macroeconomic stability must be attained by avoiding overheating and unsustainable financial exposure. The challenge for the future is to ensure that austerity policies are implemented during economic booms.
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The author would like to thank Rune Holmgaard Andersen for useful comments to earlier versions of the paper. The views expressed in this paper are solely those of the author and do not necessarily reflect the views of Eesti Pank.
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Staehr, K. Austerity in the Baltic states during the global financial crisis. Intereconomics 48, 293–302 (2013). https://doi.org/10.1007/s10272-013-0472-9
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DOI: https://doi.org/10.1007/s10272-013-0472-9