6533b870fe1ef96bd12d046b

RESEARCH PRODUCT

Economic, Social and Welfare Issues

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In late 2008 the three Baltic states were thrust into the heart of an intensely polarising international public debate on strategies to tackle the growing global economic crisis. The previous four years, following accession to the European Union (EU) in 2004, had witnessed rapid economic growth across the region, indeed the three recorded the highest GDP growth in the EU. Banks eased lending restrictions, foreign direct investment (FDI) inflows surged and Baltic businesses and consumers binged on cheap, readily available credit. Hubristic politicians increasingly talked of the inevitability of economic convergence with Western Europe. However, a gradual slowdown from late 2007 declined into a deep recession in 2008 following the bankruptcy of Lehmann Brothers investment bank in the United States that September. The collapse and subsequent public bailout of Parex Bank, Latvia’s second largest commercial bank, brought on a recession that humbled the ‘Baltic Tigers’.1