The Baltic states the housing bubble is an economic bubble that involves major cities in Estonia, Latvia and Lithuania. The Baltic states enjoyed relatively strong economic growth between 2000 and 2006, and the real estate sector has performed well since 2000. In fact, between 2005Q1 and 2007Q1, the official house price index for Estonia, Latvia and Lithuania recorded a sharp jump from 104, 6%, 134.3% and 106.7% respectively. By comparison, the official home price index for the Euro Area increased by 11.8% for the same time period.
The crisis eventually struck in 2007 as the 2007-08 financial crisis resulted in a fragile Baltic economy. The correction of housing prices has begun in Estonia in mid-2007 followed by Latvia and Lithuania in mid-2008. Subsequently, Latvia and Estonia experienced a recession in the first half of 2008, while Lithuania suffered an economic slowdown in the first half of 2008. The situation worsened after the financial crisis global market in September 2008, which caused the entire region to become a massive recession.. All three countries are in recession in 2009.
Increased supply of credit to the private sector is largely to blame for housing bubbles in the Baltic states, due to the availability of financing from foreign lenders (especially Scandinavian banks). The domestic banks (especially Parex Bank, the national bank in Latvia) largely rely on the withdrawal of foreign loans (denominated in Euro) with large exposure to the real estate sector. This condition is worsening in the absence of loan-to-value ratios as well as negative real interest rates that encourage speculators to boost demand for higher housing markets. The credit supply then deteriorated at the height of the boom as both foreign and domestic banks tightened loan standards due to higher credit risks in the region. Furthermore, the real estate market dragged down, the worsening the quality of credit, forcing banks to stricter tighten lending standards.
The severity of the crisis differs from one to another; with Latvia being the hardest hit by the crisis. Latvia filed a request for balance of payment support from the International Monetary Fund, the European Union and regional members in November 2008 to strengthen the fiscal situation after exit from Parex Bank (the largest bank in Latvia). Lithuania suffered a lower impact from the crisis than Latvia, as it adopted significant austerity measures and more stimulus measures compared to the two Baltic states. However, public sector wage cuts and social benefits are lower. Estonia, on the other hand, sees wages and public sector benefits cut to improve the balance of the budget in preparation for adopting the euro.
Video Baltic states housing bubble
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The economy in the Baltic states has been one of the fastest growing in the European Region after the collapse of the Soviet Union as well as the recession caused by the Russian financial crisis of 1998. To minimize its dependence on Russia, the Baltic states opted to integrate closer to Western Europe. In early 2000, the economies of the Baltic states had begun to grow, to a certain extent higher than some of its Eurozone counterparts. After EU accession in Estonia, Latvia, and Lithuania in 2004, the period between 2005 and 2007 witnessed an overheated economy in three Baltic states. The combination of over-growth potential, high inflation and widening larger current account deficits are selected as the cause behind the overheating economy in the Baltic states. The credit boom in addition to increased real estate investments sparked by foreign banks (especially Scandinavian banks) exacerbated the scenario. All of these factors lead to housing bubbles in the Baltic states, driving the real estate sector beyond sustainable.
Table 1: The main economic indicators for 2005-2007
Estonia
Latvia
Lithuania
( Sumber : Eurostat, Bank Dunia )
Since gaining independence from the Soviet Union in 1991, economic growth in Estonia, Latvia and Lithuania has become one of the fastest in the EU-25 region. The average GDP growth in Estonia, Latvia and Lithuania from 2000 to 2004 was 7.56%, 7.42%, and 7.00%, respectively. The unemployment rate in Estonia has dropped from as high as 13.9% in 2000 to 8.5% in 2004. Elsewhere Latvia and Lithuania also saw unemployment rate decrease from 13.3% and 16.1%, respectively at in 2001 to 10.3% and 11.4%. Strong integration with the EU bloc partially helped in accelerating economic growth in the Baltic States, as the Baltic states rebuilt the nation's economy from post-independence from the Soviet Union as well as the 1998 Russian financial crisis. On December 18, 2002, the EU summit in Copenhagen officially invited Estonia, Latvia and Lithuania to join the bloc. A referendum conducted in 2003 showed that the majority of Lithuanians, Estonians and Latvians supported the move to integrate closer to the EU bloc. Furthermore, on May 1, 2004 Estonia, Latvia and Lithuania joined other new countries into the EU. Strong integration with the EU benefits the Baltic states as inflows of foreign direct investment help speed up the economy, especially financial intermediaries and the manufacturing sector. Following the sharp inflows of foreign loans, banks have been more willing to lend to companies and households for real estate related activities. In fact, total loans approved for residential purchase purposes have increased in the Baltic States over the period between 2000 and 2004. In 2004, the ratio of mortgages to total loans approved in Estonia, Latvia and Lithuania was 79.8%, 76.3 % and 62.9%, respectively. As a result, housing prices in the Baltic States began to boom in this period. The gross wages in the Baltic States have generally increased since 2000, reflecting improvements in the Baltic States economy. The gross wage in Estonia has risen 32% in 2004 compared to 2001, Latvia is up 11% and Lithuania is up 22%. However, many Latvians and Lithuanians choose to work in Western Europe (mainly Britain and Ireland) for higher wages. In 2004, the inflation rate in Latvia was very high compared to Estonia and Lithuania due to strong domestic demand - which triggered overheated economic symptoms.
2005
Latvia became the fastest growing economy in the EU-25 as GDP (% y-o-y) registered 12.2% compared to Estonia (11.2%) and Lithuania (7.7%). The unemployment rate fell extended in 2006 as unemployment rates in Estonia, Latvia and Lithuania decreased to 5.9%, 6.8% and 5.6%. The lower unemployment rate greatly affects the gross monthly wage in the Baltic States because the monthly gross wage is higher than 2005. The average monthly gross wage in Estonia rose by 7.4% compared to 2005, partly due to lack of manpower, higher emigration rates higher, higher corporate profitability and higher productivity. Meanwhile, Latvia grew to become the highest wage growth in the European Union as gross monthly wage jumped 22.8% compared with 2005. Lithuania's gross monthly wage increased by 9.0% compared to 2005, due to higher number of workdays, new minimum monthly minimum wage and minimum cost per hour was effective on July 1, 2006. Inflation rate in Estonia, Latvia and Lithuania respectively recorded 4.4%, 6.8% and 3.8%. The property bubble crisis in the Baltic States remained persistent throughout 2006. In Estonia, the House Price Index shot 47% (yo-yÃ,% change) in 2006. Average prices per square meter in Tallinn rose 24.4% compared to 2005, while Tartu and PÃÆ'¤rnu observed average housing prices rose by 29.2% and 26.9%, respectively compared to 2005. On the other hand, the Latvian House Price Index edged up 50.9% (yo-yÃ,% change) in 2006. In 2006, housing prices in Riga have risen sharply as high as 73.6% compared to 2005. House prices in Järmala also saw housing prices rise by 114.8% in 2006 compared to 2005. Liepjà and Jelgava, on the other hand, observed the appreciation of housing prices by 104.2% and 86.1%, respectively compared to 2005. Lithuania also follows the regional trend closely as the House Price Index rises by 41.0% (yo -yÃ,% change). Its capital, Vilnius remains the largest housing in the country as the average house price rose by 46.4% compared to 2005. Kaunas and Klaip? Da also experienced unusual housing price growth as home prices appreciated by 56.7% and 70.4%, respectively compared to 2005. Although mortgage lending rates have increased in all three Baltic states, it has failed to damp speculation about real activity estate. In Estonia, interest rates for home mortgage loans increased from an average of 3.5% (2005) to 4.2% (2006). Nevertheless, real estate loans still dominate in terms of household loans, representing 82.4% of loans approved for households. Total approved real estate-related loans in euro currency rose 64.4% over 2005. Total real estate loans granted to households rose 63.4% compared to 2005. Meanwhile, Latvia has raised interest rates for mortgage lending in significant from an average of 5.95% (2005). ) to 6.80% (2006). Mortgage lending remains as the most significant component in Latvian household loans, since mortgage loans make up up to 81.6% of total credits approved for households. Total approved mortgage loans for households rose 82.6% over 2005. Lithuania also raised interest rates on mortgage loans from 3.61% (2005) to 4.16% (2006). Real estate loans continue to dominate in terms of household loans, representing 64.4% of loans approved for households. Total real estate loans granted to households rose 44.8% compared to 2005.
2007
The economy in Estonia began to slow down due to slowing activity related to real estate in the third quarter. Estonia's GDP (% yoy) registered 7.1% in 2007 compared to double-digit growth in 2006. Latvia and Lithuania, on the other hand, recorded strong economic growth because GDP (yoy) registered 10.3% and 8.0% respectively in 2007 The unemployment rate continued to decline in 2006 as unemployment rates in Estonia, Latvia and Lithuania decreased to 4.7%, 5.4% and 4.3%. The gross monthly wage continued to increase into 2007 with Estonia up by 31.5% compared to 2006, Latvia 47.2%, and Lithuania 29.4%. The inflation rate accelerated in the Baltic States as inflation rates in Estonia, Latvia and Lithuania touched as high as 9.6%, 14.1% and 8.1%. As a result, this has raised economic concerns that overheated in the Baltic states. Housing prices in Estonia experienced the first correction in housing prices in the third quarter of 2007. The official house price index for Estonia fell 2.8% (qo-qÃ,% change) in the third quarter and 1.4% (change qo-qÃ,%) in the fourth quarter. Nevertheless, the house price index in Estonia edged up 5.1% (yo-yÃ,% change) in 2007. House prices in Tallinn increased 15.6% over 2006. Tartu and PÃÆ'¤rnu, on the other hand, marked an 11 , 0% and 16.6% respectively compared to 2006. Housing prices in Latvia were also technically corrected in the fourth quarter as official home prices for Latvia fell 1.8%. However, the house price index for Latvia rose 23.1% (yo-yÃ,% change) in 2007. In 2007, housing prices in Riga recorded a 44.1% jump compared to 2006. House prices in Järmala also see housing prices rose by 38.5% in 2007 compared to 2006. Liep? ja and Jelgava, on the other hand, observed housing price appreciation of 65.5% and 39.3%, respectively compared to 2006. Lithuania, on the other hand, saw home price index rise 17.7% (yo-yÃ,% change) in 2007. Vilnius recorded an increase of 30.5% in housing prices compared with 2007, while Kaunas and Klaip? da saw an increase of 41.7% and 27.4% over 2007. Interest rates for mortgage loans in Estonia The increase from an average of 4.2% in 2006 to 5.5% in 2007. The number of approved mortgage loans in the euro currency rose by 30.0% compared to 2006. Mortgage lending continued to dominate in terms of household loans, representing 80.9% of loans approved for households. Total real estate loans granted to households rose 31.5% compared to 2006. In Latvia, the average interest rate for mortgage loans has risen sharply as the Latvian authorities moved to cool the overheated property market. In 2007, the average interest rate on mortgage loans has risen to 10.30% from an average of 6.81% in 2006. The number of mortgage loans fell by 4.0% in 2007 due to the banks in Latvia ( especially Swedbank and SEB banka) tightened lending terms for households. The mortgage loan, however, represents 86.0% of the total loan approved for the household. Elsewhere, in Lithuania the total mortgage lending in the Euro currency has more than doubled the total lending in the euro currency in 2006. Real estate loans continue to dominate in terms of household loans, representing 63.9% of approved loans for the household. Total real estate loans granted to households rose 115.6% compared to 2006. Housing loan interest rates increased from an average of 4.16% (2006) to 5.68% (2007).
2008
Estonia became the first Baltic state to technically recession in the second quarter of 2008. Latvia followed suit in the third quarter of 2008, while Lithuania in the fourth quarter of 2008. Estonia's GDP (% yoy) recorded 9.7% in 2008 (yo-yà ,% Change) due to lack of domestic demand as well as external demand. Latvia suffered the worst because the GDP (yo-yÃ,% change) fell to -10.3% in 2008. Lithuania is the only Baltic country to record GDP growth of 3.0% in 2008. The inflation rate remains high at Baltic countries as Estonia, Latvia and Lithuania registered 10.4%, 15.4% and 10.9%, respectively. Unemployment rates in Estonia, Latvia and Lithuania incised 5.5%, 9.9% and 5.8%, respectively. The price of housing in Estonia continued to decline in 2008, but was magnified by a sharp crash in the fourth quarter of 2008. The official house price index for Estonia fell 14.4% (qo-qÃ,% change) in the fourth quarter, a total 19.6% yo-yÃ,% change) in 2008. House prices in Tallinn depreciated by 14.1% compared to 2007. Tartu and PÃÆ'¤rnu, on the other hand, fell 5.1% and 11.7% compared to 2007. Housing prices in Latvia technically rebounded in the first quarter as the index edged up 7.0% (qo-qÃ,% change). But the impact of the property crash in Estonia can be seen in the second quarter of 2008. In the second quarter, the house price index has fallen by 1.8% (q-o-qÃ,% change). Overall, the index of house prices for Latvia decreased by 17.8% (yo-yÃ,% change) in 2008. In 2008, housing prices in Riga nosedived 19.6% compared to 2007. House prices in Järmala also saw housing prices decreased by 18.3% in 2008 compared to 2007. Liep? ja and Jelgava, on the other hand, observed the appreciation of housing prices by 9.8% and 4.2%, respectively compared to 2007. Lithuania home price index began to fall in the third quarter of 2008. Overall, the house price index fell by 2, 5% in yoy. The housing price index fell 1.7% (q-o-qÃ,% change) in the third quarter, but declined sharply in the fourth quarter of 2008 - down 15.5% (q-o-qÃ,% change). The three major cities in Lithuania have surpassed major cities in the Baltic States because of Vilnius, Kaunas and Klaip? Da recorded an increase in housing prices by 9.9%, 19.7%, and 29.8%, hence. In Estonia, the total approved real estate-related loans in the euro currency rose 16.9% over 2007. Real estate loans continued to dominate in terms of household loans, representing 80.5% of loans approved for households. Total real estate loans granted to households rose 10.3% over 2007. Interest rates for mortgage loans in Estonia increased from 5.5% (2007) average to 6.4% (2008). FDI to the real estate and construction sectors fell significantly as prospects of the real estate sector in Estonia were bleak. In Lithuania, the total approved real estate-related loans in Euro currency rose 9.7% over 2007. Real estate loans continued to dominate in terms of household loans, representing 62.9% of the approved loans for households. Total real estate loans granted to households rose by 8.8% compared to 2007. The mortgage lending rate has increased from an average of 5.68% (2007) to 6.41% (2008). In Latvia, lending was increasingly restricted, especially after the fall of Lehman Brothers USA on September 15, 2008 - causing severe credit shortages due to limited access to foreign financial resources. Total approved mortgage loans fell 77.0%, highlighting the significance of the credit crisis in Latvia. The mortgage interest rate continued to increase from an average of 10.30% (2007) to 10.50% (2008).
2009
The Baltic states entered recession in 2009 as GDP in Estonia, Latvia and Lithuania registered -14.3%, -17.7% and -14.8%. The unemployment rate rose sharply in the Baltic States as 14.6%, 18.4% and 13.8%. Gross wages are also reported lower than in previous years due to the weakening domestic economy. The rate of temporary inflation fell sharply in the three Baltic States. House prices in Estonia continued to decline in 2009, down 33.5% y-o-y, losing 48.9% of their value since the peak. The first quarter saw a depreciating home price index of 21.5% (q-o-qÃ,% change), which then fell to new lows in the fourth quarter. House prices in Tallinn depreciated by 37.4% compared to 2008. Tartu and PÃÆ'¤rnu, on the other hand, marked a decline of 32.9% and 34.0% over 2007. House prices in Latvia have dropped 44.6% from their peak, and decreased by 29.3% (yo-yÃ,% change) in 2009. In 2009, housing prices in Riga plummeted 35.7% compared to 2008. Housing prices in Järmala also saw housing prices declining 41.9% in 2009 compared to 2008. Liep Ja and Jelgava, on the other hand, observed housing prices falling by 44.0% and 40.3%, respectively compared to 2008. Lithuania home price index fell 31.1% yoy, losing 37.2% of its value since the peak. The first quarter saw the Lithuania home price index down 20.0% (q-o-qÃ,% change). Vilnius, Kaunas and Klaip? Da registered depreciation of housing prices by 19.7%, 26.2%, and 37.0%, hence.
2010
The economy in the Baltic countries made a slow recovery in 2010, as the economy thawed back from recession in 2008 and 2009. Housing prices also recovered even at a slower or stagnant rate in major cities in the Baltic States. The Estonian House Price Index for Estonia rose 12.8% y-o-y as Estonia's property prices recovered from falling property prices in the first quarter of 2010. On the other hand, the official House Price Index for Lithuania rose by 1.3% y-o-y. Despite declining by 1.9% (q-o-qÃ,% change) in the first quarter, the home price index rebounded in the second quarter, marking a recovery in the house price index in Lithuania. Latvia recovered from property accidents in the second quarter of 2010, although the index has recorded a 2.4% decline (y-o-yà change,%) by the end of the quarter.
Maps Baltic states housing bubble
Identify
Two specific indexes can be used to determine the level of property bubbles in Baltic states, namely Housing Price Index and House Price Ratio for Rent . In both cases, it is clear that the entire housing price bubble in the Baltic States has grown since 2004.
The housing affordability index is specifically defined as "the ratio of nominal real estate prices to nominal GDP per capita in current prices". As residential housing prices rose faster than the nominal GDP per capita of each country, housing price imbalances began to accumulate in 2004Q1. The affordability index also observed an imbalance to build in the years to 2007, just before housing prices erupted in the Baltic States. It took nearly 4 years before the house-to-GDP per capita price ratio to return to the level of reference points in Estonia and Latvia, to a lesser extent in Lithuania.
The second indicator also shows that the price-to-rent-house dynamics imbalance began in 2004, before it was broadly re-adjusted to the pre-housing price bubble level in 2011. The growth in house prices clearly surpassed the rate of growth of home tariffs and disposable income in Latvia throughout the bubble crisis housing prices. The impact of falling housing prices in Latvia is much worse than Estonia and Latvia during the fall in housing prices - because housing prices exceeded the growth rate of rent. In Lithuania, house-to-rent prices even fell below the reference point between the third quarter of 2009 to the first quarter of 2010. The trend of adjustment slugged in 2011 as housing prices began to rebound in the Baltic states.
Cause
Liberalization of financial services in Baltic countries
After the liberalization of financial services in the Baltic states, banks from the Nordic region competed for market shares in the Baltic states. Thus, this is driven by capital inflows and credit expansion to Baltic countries. In Latvia, foreign-owned banks capture more than 60% of the financial sector, while in Lithuania and Estonia more than 90%. Due to the large amount of global liquidity, the Nordic parent bank is able to offer very low interest rates for the Baltic population. The significant consequences of "cheap" credit from the parent bank led to a historically low interest rate loan (primarily a mortgage loan) in the Baltic States. Coupled with an overly optimistic attitude to integration with the European Union, investors' risk appetite for property speculation is higher. Finally, this causes a housing bubble in the Baltic states.
Poor risk management in financial services in Baltic States
Another direct result of "cheap" credits abroad is guiding banks to engage in unwise loans backed by their parent banks. Since interest rates have fallen freely in the Baltic states, the real interest rate on deposits has been reduced. Throughout the period of housing bubbles in the Baltic states, the ratio of deposits to loans continues to widen - much higher than the entire Euro Region. Therefore, banks in the Baltic countries should borrow abroad in the Euro currency before passing currency risk to potential customers. Because such movements are unsustainable; many banks in the Baltic countries found themselves "trapped" with high debts denominated in euros. As housing prices in the Baltic states fall, banks in the Baltic states can not repay their debts because of high-performing loans and a lack of liquidity to cover their debts to the parent bank.
Foreign capital inflows through real estate and financial services
After integration with the EU, the Baltic States enjoy strong economic growth and then among the fastest growing economies in Europe. Thus, the Baltic State emerges as the primary objective for foreign direct investment (FDI). Generally FDI majority to Baltic countries is directed to the sector of non-tradable goods, especially real estate and finance sector compared to the manufacturing sector. In this case, some researchers argue that such an investment would lead to a consumption boom, but would not translate into increased productivity in the tradable sector. Further, this leads to reallocation of labor and capital resources from a more competitive sector leading to non-tradable sectors thus inflating internal demand.
Characteristics of loans for mortgage loan purposes
The growth of credit-related accelerated housing is much higher than the majority of the Euro Area during the property bubble period. Since interest rates for mortgage lending are predominantly variable (not fixed), borrowers are exposed to interest rate fluctuations and the potential for a sharp decline in terms of declining property prices. In addition, with the exception of Lithuania, both Estonia and Latvia do not impose a limit on the Loan-to-value ratio and debt-to-income ratio. Borrowers in Estonia and Latvia are also practically free of the due limits on their mortgage loans in the absence of such conditions by creditors.
Low tax rate
Housing taxation is rather low in Estonia, Latvia and Lithuania compared to the EU average over the period of housing bubbles. In addition, transfer taxes are virtually absent in Estonia and Lithuania; while the average real estate tax in the EU represents 1.0% of its GDP, the average tax in the Baltic States is much lower than that of the EU counterparts. Taxation on real estate is 0.2-0.3% of GDP in Estonia, while Lithuania (0.4-0.7% of GDP) and Latvia (0.3%) during the period of housing bubbles. Given that taxation on real estate in the Baltic States is much lower than most European Union Regions, this has created a strong incentive on real estate speculation in the Baltic States.
Measurement
Estonian
The 2009 budget has included some difficult measures to control the deficit to meet the GDP of Maastricht ceiling as a condition for Euro adoption. Operational expenditures were lowered following an average cut of 8% across ministries as well as frozen wage bills at the 2008 level after cutting civil servants. Total cut-off operating expenditures were estimated at 6.2% of Estonia's GDP in 2009. To increase state revenues, the majority of the approved income tax cuts were postponed even though no new taxes were introduced at the time. Nevertheless, indirect taxes and levies are raised, for example, the basis for expanded VAT as well as an increase in VAT from 18% to 20%. Total revenues of about 2.7% of Estonia's GDP in 2009. The Bank of Estonia has also enforced the requirement to maintain reserve requirements by 15%, has a robust bank regulatory and supervisory framework covering capital requirements of 10% (international norm 8%) , as well as limited deposit guarantee schemes. In addition, the deposit guarantee scheme (also known as deposit insurance) has been raised from EUR20,000 to EUR50,000 effective from 23 October 2008. This coverage will cover more than 90% of deposits in Estonia's banking sector. To increase the Guarantee Fund, banks in Estonia are required to pay quarterly premiums on the fund at a flat rate of 0.125% of the total deposits guaranteed by each bank.
Latvian
As part of fiscal measurements in Latvia, the Latvian government has introduced several measures to reduce its deficit. Shopping cuts centered on adjustments because wage bills cut 4% of GDP (including about 30% wage cuts for central government employees), pensions cut by 10% (then canceled by the Constitutional Court) and investment by 3% of GDP. Measurements are estimated at 6.7% of Latvia's GDP. At the end of the income, personal income tax increased from 23% to 26%, tax-free income tax allowances were cut to EUR50/month (from EUR125/month), VAT increased by 3% to 21% (2009) followed by another 1% 22% (2011), while the reduced rate increased 5% to 10%. The social contribution of employees increased from 9% to 11%. On top of that, tobacco, alcohol, and energy taxes increase in line with vehicle taxes. Furthermore, the progressive real estate tax introduced in 2009 which doubled effectively from 2011 onwards. The revenue budget is about 2.8% of Latvian GDP. In strengthening the financial sector, new internal FCMC (Financial and Capital Market Commission) guidelines have been introduced to determine rapid remedial action for troubled banks before regulatory thresholds are violated. The recent amendment to the Law on Credit Agencies means that FCMC may intervene in troubled banks in Latvia. Under the Law on Bank Acquisition, the government may take over banks in Latvia if deemed necessary.
Lithuania
To cope with the worsening of the fiscal deficit, the allocation for current spending under the budget for 2009 was reduced due to the risk of deflation, changing capital projects funded in the country with EU funds or somewhat shelved, and wage cuts in the civil service (8% -36% ) especially those who are at the top end of the pyramid. Budget spending is around 5.8% of GDP of Lithuania. To boast of state revenues, various tax rates have been adjusted higher and the expansion of the VAT base to protect the revenue base. Under the budget proposal, 2009, the Corporate Income Tax increased from 15% to 20%, a higher tax on dividends, the general rate of VAT increased from 18% to 19% and the elimination of the lower rate under VAT with some exceptions for the selected item ( such as heating and medication), in addition to higher excise taxes on fuels, tobacco, and alcohol. However, while such a measurement of personal income tax rate cut from 24% to 15% to get support for these adjustments. Real estate tax was introduced in 2009. The revenue budget takes up about 1.6% of GDP of Lithuania. To reduce liquidity pressures, the Bank of Lithuania has reduced reserve requirements from 6 percent to 4 percent since October 2008, imposing a number of improvements to internal guidelines for lenders from recent resort operations (known as LoLR) and collateral valuation procedures, in addition to overseeing bank deposit banks and liquidity position. In addition to deposit insurance increased to EUR100.000 and strengthening the bank resolution tools on the basis of the Financial Stability Law in the Parliament. Under the new framework, the government guarantee of a total of 3 billion Litas or equal to 3.4% of the GDP of Lithuania issued to recapitalize banks and asset purchases.
Aftermath
The social impact
The measurement of harsh austerity in handling the crisis has had a difficult impact on social terms in the Baltic states. In some cases, the social situation in the Baltic States may be worse than the situation in Portugal or Greece during the eurozone crisis. Based on the European Commission's assessment of the three National Reform Programs, the problem of poverty and social inclusion in the Baltic countries is getting worse. Almost more than one-third of the population in Latvia and Lithuania are at risk of poverty and social exclusion although the scenario is slightly better in Estonia. The number of children in need of social assistance has more than doubled since 2006, as children in unemployed households have increased over the years. In fact, such risks in Latvia and Lithuania are the highest in the EU.
The unemployment rate is highlighted as one of the significant factors contributing to the increase in poverty. As in 2013, although the general economy in the three Baltic states has improved since the crisis, unemployment has remained high in all three Baltic States compared before the crisis. Long term unemployment rates in the Baltic countries are higher than the EU average, coupled with high unemployment rates among youths though much lower than Greece or Portugal.
At the same time, Latvia and Lithuania lost almost 13-14% of their total population to other EU members although Estonia managed to keep its majority of the population from emigration.
Political impact
Latvian
As the economic crisis worsened, a huge protest in January 2009, 13 pocketing around Riga has left at least 100 people arrested and more than 30 injured. Riots have been reported as the biggest protest in Latvia since independence from the Soviet Union. This is due to public cuts and huge tax increases after the Parex Bank bailout in early December. The outcome of the unrest preceded political instability in Latvia for more than a year before the Latvian parliamentary elections held in 2010.
In February 2009, political instability in Latvia worsened when an unconfident movement was brought against the Latvian Prime Minister Ivars Godmanis, although such a movement was unsuccessful. In February 2009, 20, PM Ivars Godmanis (Latvian Way First Latvian Way) resigned from his post after losing the support of the People's Party and Green Union and Farmers. Latvian President Valdis Zatlers, afterwards nominated Valdis Dombrovskis as PM and form a government.
Political stability in Latvia was briefly restored in October 2010, 2, although it lasted only a few months. The coalition government (consisting of Unity, Green Unity and Farmers and National Alliance) managed to capture 63 (4) seats out of 100 contested seats. Former PM, Latvian Good party (People's Alliance and Latvian/Latvian First Party) lost badly after only winning 8 (-25) seats out of 100 contested seats.
The new election was then made in September 2011, 17 after the parliament's dissolution took place in July 2011, 23. The new coalition government (consisting of Reform Party, Unity and National Alliance) was formed after obtaining 56 seats (-7) seats out of 100 seats contested. Thus, Valdis Dombrovskis was reappointed as the Latvian Prime Minister.
Lithuania
In the Lithuanian parliamentary elections, the 2008 government coalition led by Gediminas Kirkilas was ousted by Andrius Kubilius after a coalition government (consisting of the Social Democratic Party of Lithuania, Labor and the New Union (Liberal Social)) only collected 36 seats, compared with 80 seats. seats by a new government coalition (consisting of Homeland Union, National Resurrection Party, Liberal and Center Union, and Liberal Movement). Drastic reforms were soon made by the new government to revive Lithuanian economy amidst some unpopular decisions. Even before taking office in December, Prime Minister Andrius Kubilius has announced budget spending cuts and wage freezes designed to shore up public finances as the slowdown diminishes revenues.
On January 16, 2009, Vilnius was rocked by violent protests when protesters marched and destroyed the Parliament building - resulting in 86 arrests. Similar to the unrest in Latvia, protesters led by the Confederation of the Union of Lithuanian Workers were unhappy with the government's decision to reform the tax system in Lithuania as well as cuts in public wages. However, austerity measures by Prime Minister Andrius Kubilius have resulted in his defeat in the next Lithuanian parliamentary election, 2012 when the Social Democrats led by Algirdas Butkevicius seize the most seats in parliament.
Estonian
Unlike Latvia and Lithuania, there are only minor protests reported in Estonia. On October 29, 2009, a healthcare worker consisting of 50 members of the Estonian Establishment Union and the Estonian Health Professional Health Professional Federation staged a demonstration to protest government health-care cuts. The Estonian Trade Union Confederation also condemned the government's proposal to cut the budget for health care.
Meanwhile, support for Prime Minister Andrus Ansip's government fell to 4.3 on a 1-to-10 scale on December 29, 2008 which was the lowest since March 2005, according to a survey by the EMOR voting firm, commissioned by public broadcasters. On the other hand, unlike Latvia and Lithuania, the ruling government has managed to maintain its position in Estonia's parliamentary elections in 2007 and 2011.
References
Kallakmaa-Kapsta, Angelika, (2007) ,,, Factors affecting developments in the real estate market, Bank of Estonia, Kroon and Economics ", http://www.eestipank.ee/en/publication/kroon-economy/2007/no-2-2007
- Source
- Kallakmaa, A. Before and After Boom: Changes in Estonian Housing Market. ISBN: 9789949234431
External links
- State Workshop "European Commission: EU Balance of Payment Assistance for Latvia: Foundation for Success" (01/03/2012).
- IMF-Bank of Latvia's "Conference on Lessons From Recovery in the Baltic" (05/06/2012).
- ECFIN EC country page in Latvia.
Source of the article : Wikipedia
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