LONDON -- Influential British magazine The Economist is the latest to speculate about latent economic problems with the Baltic economies and even goes so far as to mention the D-word: devaluation.
In its most recent edition, The Economist singles out Latvia as the most vulnerable of the three Baltic states, saying that it "looks nastily exposed, as, to a lesser extent, do its neighbours Lithuania and Estonia. All three have overheating economies and fixed exchange rates: a risky mix."
However, the magazine does say that devaluation is "far from inevitable."
"If overstretched borrowers start to default, that will hurt shareholders abroad, mainly in Sweden, not the stability of the whole financial system. If scared banks rein in lending and construction companies go bust, that would help produce a much-needed soft(ish) landing," it adds.
Latvia's embattled government also comes in for a pasting in the article. It is described as "an uninspired coalition stronger on business practice than economic theory" that has "shied away from the big surplus that might slow the economy and reassure outsiders. The 2008 budget foresees a surplus of only 1%, rising to 1.5% in 2010. Outsiders think 3% would be a good start."