Baltic States: Horrific downturns undermine fiscal efforts
Overview:
Having run loose fiscal policies in the good times of high growth and surging credit inflows the Baltic States must now adjust fiscal policies tighter at the worst possible time: during a severe economic recession. Current account deficits have to fall sharply to more financeable levels. Government expenditures must be slashed to coincide with dramatically weaker government revenues. It is unsurprising in the circumstances that authorities in the region should see accelerated Euro adoption as the only feasible exit strategy. However, all three countries have already seen a change of government and/or political instability recently. Economic contractions seem to be far worse, even, than feared. Fiscal deficits may, then, have to rise above designated targets in the short-term even if this delays Euro entry slightly.