Latvian Currency Peg And Portuguese Syndrome

Illusion of stability or development?

Moody's wrote in March of 2007:

... in the run-up to EMU and in a context of falling interest rates, experienced a boom: high growth rates, a large current account deficit, elevated credit growth, wage settings based on naively optimistic expectations….

Does this sound like Latvia and Baltics still last year?

In fact, Moody's wrote:

Portugal, in the run-up to EMU and in a context of falling interest rates, experienced a boom: high growth rates, a large current account deficit, elevated credit growth, wage settings based on naively optimistic expectations…. By the turn of the century, when the international cycle started to reverse, a weakened competitiveness eroded Portugal's performance and led to a period of prolonged stagnation that has still not fully ended. As a result, convergence in terms of income per capita has been interrupted.

Well, actually looking at the global economy and dynamics today, "Portuguese syndrome" may still appear fairly benign ...

However, the people should live and hopeless destiny may be very demotivating.

Edward Hugh, the same who argues why the IMF's decision to agree a Latvian Bailout Programma without devaluation is a mistake , published an overview of Portuguese economy this Monday (12 January), linking to similarities in Latvia, among others ... Read the full article here.

He also provides the link and argues the "mainstream consensus view" by MIT professor and current IMF Research Director Olivier Blanchard, the research paper here.