#1 Latvian banking crisis by BalticLegal 20.11.2022 18:27

The 2008 Latvian financial crisis, which emerged from the 2008-2009 global financial crisis, was a major economic and political crisis in Latvia.

Latvia is the Eastern European country hardest hit by the global financial crisis; it lost about 25 percent of its GDP from 2008 to 2010. It was also the most overheated pre-crisis economy. But in the second half of 2010 Latvia returned to economic growth.

Latvia has a population of 2 million and its annual GDP is 23 billion euros ($30 billion). But the troubles this Baltic country has been experiencing since 2008, when it kept the lat, its official currency, pegged to the euro while fiercely tightening fiscal policy has sparked a major row among most critics.

Latvia has been the subject of intense attention during the financial crisis due to the economic policies it has put in place to get its economy back on track. By maintaining its currency peg, adjusting through internal devaluation and frontloading austerity measures, this nation of 2 million people is now, 5 years later, back on a strong economic footing, although it may have been quite painful to get there.

As elsewhere, Latvian politics reacted too late to the boom; had good relationships with parent banks; avoided a large production drop thanks to deviations from strict currency board rules; had rapid productivity gains; and for policy purposes output growth may be as important or more important than its level.

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