It’s a familiar tale of boom and bust: In 2008, Europe’s most overheated economy, which had been fuelled by cheap credit and rapidly raising wages and real estate prices, collapsed. GDP dropped by 20 percent and unemployment rose to more than 20 percent. But here’s where things take an unexpected turn. By late 2010, the first glimmers of recovery became apparent. Today, the economy is among Europe’s fastest growing, and its GDP is back at pre-crisis levels.
So how did Latvia, the hero of this story, do it? And are there, as Anders Åslund, among others, have suggested, lessons for Greece? To answer those questions, we need to look back at the shape of the Latvian economy on the eve of the 2008 crisis.
After 2004, when Latvia joined the European Union and then pegged its currency, the lat, to the euro less than a year later, the country saw almost four
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