The Baltic country of Latvia has gone through the most extreme boom-bust cycle in emerging Europe, and was among the first countries to ask for financial assistance from the international community. Today, it is one of the fastest growing economies in the European Union. Real GDP grew by 5½ percent in 2011, and is now projected to expand by 3½ percent in 2012, a number that possibly will come out even higher. Latvia has also successfully returned to international capital markets.
The program deals squarely with the two most fundamental issues facing Greece―not only high debt but also low competitiveness. And it is fair, both in asking for shared sacrifices, not only within Greece, but also between Greece and its creditors.
"Derailment of the global recovery, which was a clear and distinct danger a few months ago, has been avoided for now thanks to strong policy measures--in particular those of the European Central Bank--and strengthened governance in the euro area, and reforms and adjustment in countries such as Italy, Spain, and Greece," Lagarde said. "High frequency indicators also now suggest an uptick in activity, mostly in the United States."
“The combination of ambitious and broad policy efforts by Greece , and substantial and long-term financial contributions by the official and private sectors, will create the space needed to secure improvements in debt sustainability and competitiveness," Lagarde said in a statement. "These actions, together with a significant strengthening of the financial sector, will pave the way for a gradual resumption of economic growth."
Amid the heaviest snowfall in Davos for decades, IMF chief Christine Lagarde has been making her case for urgent action to resolve the eurozone crisis, which is at the center of current global economic concerns. The Fund recently sharply revised downward its forecast for global economic growth and in a speech in Berlin Lagarde mapped a way forward.
The three Baltic states—Estonia, Latvia and Lithuania—were among the first victims of the global financial crisis. Although adjustment is still far from complete, a recovery is now underway. It is still too early to judge the success of the Baltic strategy, but it's fair to say that the most dire predictions have not come true.
The International Monetary Fund remains cautiously optimistic about the pace of recovery, but there are clear dangers and policy challenges ahead. IMF chief economist Olivier Blanchard says how Europe deals with fiscal and financial problems, how advanced countries proceed with fiscal consolidation, and how emerging countries rebalance their economies, will determine the outcome.
The conventional wisdom is that, when the seas get rough, it’s better to be in a big boat. But being in the European Monetary Union (EMU) hasn’t exactly been smooth sailing for all its members. On the contrary, the crisis has highlighted that sound policy frameworks are more important than ever. I look at this experience from the perspective of the European Union’s new member states in the East, who are still outside the EMU but are set to join sooner or later.