Ott Ummelas and Milda Seputyte (Bloomberg) -- The Baltic states risk being sucked into a second debt-fuelled economic crisis if their governments fail to impose adequate austerity measures that support their euro pegs, the European Central Bank said.
Latvia, Lithuania and Estonia suffered a deeper economic slump than the rest of the European Union because tight euro pegs too early in the convergence cycle led to asset bubbles, the ECB said in a confidential document obtained by Bloomberg News. The narrow currency bands add to pressure on fiscal policy to ensure the economies aren’t prone to imbalances, it said.
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