Monday, February 16, 2009

Red Alert on Devaluation in the Baltics

Several months ago, I warned about the possible consequences of a devaluation in Latvia, and particularly for the neighbouring countries.

Today I read this scenario is getting more and more realistic. According to BBN (quoting Bloomberg) Latvia may lead a 50% devaluation in the Baltic region.

"Latvia stands out as the weakest of the three because its external debt is very high and it’s got a big current-account deficit,” said Win Thin, New York-based senior currency strategist at the oldest privately-owned U.S. bank. “The contagion between the three is so strong that if Latvia broke the others wouldn’t be able to resist".
The conclusion was basically mine at the end of November 2008.

The 3 countries are trying to keep their currencies pegged to the euro in preparation to adopt the European currency but are under great pressure.

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