Believe it or not, the euro debt crisis is not the only recent financial catastrophe to hit Europe since the credit crisis started.
The Baltic states of Lithuania, Estonia and Latvia are quietly wearing their “Been there, done that’ T-shirts as Greece, Spain and other nations feel the euro pain.
Since 2008, the Baltic states managed to implement an austerity program and deflate a fixed rate currency while facing a banking crash and massive budget deficits.
What’s more, their economies bounced back from almost dead in double quick time.
Far from being economic pariahs, the Baltic states are basking in their success and looking to invite investment from Britain and outside the European Union.
British Trade and Investment Minister Lord Green is visiting Latvia, Lithuania, Estonia and Finland with a trade delegation, focused on developing links with the UK and attracting new investment.
In a meeting, Latvia’s Prime Minister Valdis Dombrovskis urged British investors to examine sinking money in more industrial projects while helping to promote bilateral trade.
Despite Lithuania and Estonia already belonging to the European Union and Latvia due to join in 2014, Latvia wants to diversify exports away from the single currency, said Dombrovskis.
International Monetary Federation chief Christine Lagarde, has extolled Latvia’s economic resurgence as a “tour de force”.
Rather consider escaping the single currency to introduce a deflated Drachma like Greece, the Baltic states pegged their currencies to avoid pushing up inflation and the cost of euro-denominated borrowing.
The painful Baltic economic solution was to push down wages and prices to make the countries more competitive. The adjustment was a short, sharp financial shock for many, but now the states are emerging from their difficult times.
The lesson is simple for the euro states in financial disarray – you can’t live beyond your means with economic expectations exceeding reality.
“We have shown the world there are better solutions than devaluation,” said Latvia central bank governor Ilmars Rimsevics.