Economic crisis in EU’s east

Wednesday, 10 June 2009

TALLINN: The latest economic data from ex-communist European Union nations made gloomy reading Tuesday, confirming the extent of the region’s widening and deepening recession.

Figures from the Baltic state of Estonia, which until last year enjoyed a reputation as a flourishing economic “tiger,” showed that its economy shrank by an estimated 15.1 per cent in the first quarter of this year compared with the same period of 2008.

Compared with the fourth quarter of last year, the seasonally-adjusted contraction was 6.1 per cent, as domestic demand and exports withered, the national statistics office said. The picture was worse in neighbouring Latvia, another former growth powerhouse. Latvia is now in the grip of the sharpest slump in the 27-nation EU after rampant inflation and a bursting credit bubble were compounded as the global economic crisis hit its major trading partners in Western Europe and Russia. There, official data upheld a previous estimate of an 18 per cent year-on-year contraction, and an unadjusted 28.7 per cent fall from the fourth quarter. Latvian authorities were due issue seasonally-adjusted figures on Wednesday. Latvia has been struggling to slash its budget in order to meet the terms of a 7.5-billion-euro ($10.5-billion) bailout steered by the International Monetary Fund and the EU, without which officials have warned it could go bankrupt.

The Latvian government is fending off mounting speculation that it may be forced to devalue the national currency, the lat, which is pegged to the euro. There are concerns that the country’s crisis could spill over its borders, notably hitting Western banks that dominate its financial sector.

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